Hi, I attached an image of a question. could you please explain how to solve it? Thanks in advance! QUESTION 1Silvia made a $70,000 interest-free loan to her son, Alex, who used the money to start a new business. Alex's only sources ofincome were $20,000 from the business and $390 of interest on his checking account. The relevant Federal interest rate was 4%.Based on the above information:a. Alex's business net profit will be reduced by $2,800 (04 × $70,000) of interest expense.O b. Silvia must recognize $2,800 (.04 × $70,000) of imputed interest income on the below-market loan.C. Alex's gross income must be increased by the $2,800 (.04 × $70,000) imputed interest income on the below market loan.d. Silvia does not recognize any imputed interest income and Alex does not recognize any imputed interest expense.

Interest-Free Loans: Interest-free loans are those loans, which are borrowed by the borrower or lent…

QUESTION 1 Silvia made a $70,000 interest-free loan to her son, Alex, who used the money to start a new business. Alex's only sources of income were $20,000 from the business and $390 of interest on his checking account. The relevant Federal interest rate was 4%. Based on the above information: O a. Alex's business net profit will be reduced by $2,800 (94 × $70,000) of interest expense. b. Silvia must recognize $2,800 (.04 x $70,000) of imputed interest income on the below-market loan. O C. Alex's gross income must be increased by the $2,800 (.04 × $70,000) imputed interest income on the below market loan. O d. Silvia does not recognize any imputed interest income and Alex does not recognize any imputed interest expense.

QUESTION 1 Silvia made a $70,000 interest-free loan to her son, Alex, who used the money to start a new business. Alex's only sources of income were $20,000 from the business and $390 of interest on his checking account. The relevant Federal interest rate was 4%. Based on the above information: O a. Alex's business net profit will be reduced by $2,800 (94 × $70,000) of interest expense. b. Silvia must recognize $2,800 (.04 x $70,000) of imputed interest income on the below-market loan. O C. Alex's gross income must be increased by the $2,800 (.04 × $70,000) imputed interest income on the below market loan. O d. Silvia does not recognize any imputed interest income and Alex does not recognize any imputed interest expense.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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