On January 1, Father (Dave) loaned Daughter (Debra) $100,000 to purchase a new car and to pay off college loans. There were no other loans outstanding between Dave and Debra.The relevant Federal rate on interest was 6 percent.The loan was outstanding for the entire year.
A)If Debra has $15,000 of investment income, Dave must recognize $6,090 of imputed interest income.
B)Dave must recognize $6,090 of imputed interest income regardless of the amount of Debra's investment income.
C)Debra must recognize $6,090 of imputed interest income.
D)Debra must recognize $6,090 of imputed interest income if Dave has at least $6,090 of investment income.
E)None of these.

Question

Quizplus · Accepted Answer

According to the relevant Federal rate of 6%, the imputed interest on the loan would be $6,000. However, since Debra has investment income, we need to add that amount to the imputed interest. So, $6,000 + $15,000 x 0.04 (since the relevant Federal rate is 6%, the adjusted rate is 4%) = $6,090. Therefore, Dave must recognize $6,090 of imputed interest income.

On January 1, Father (Dave) Loaned Daughter (Debra) $100,000 to Purchase