FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Heather owns all of the shares of Thompson Consulting Ltd (TCL), an IT consulting firm with 10 employees. TCL has a December 31 st year-end. Heather delegates all of her oversight tasks to various managers because she is busy at home raising her family. On July 25, 2011, Heather borrowed $100,000 from TCL for the purchase of a new home on a non-interest bearing basis. A loan agreement is in place that requires her to repay the full amount in five years. She has never reported anything on her personal income tax return from the loan. Assuming that you are preparing Heather's personal tax return for the first time, which of the following statements is correct?
A). There are no income tax consequences because the funds were borrowed for the purchase of a home and there is a bona fide arrangement to repay the loan.
B). Heather will have a deemed interest benefit in 2011,2012 and 2013.
C). Heather will have an income inclusion of $100,000 in 2013 and a deemed interest benefit in 2011, 2012 and 2013.
D). Heather will have an income inclusion of $100,000 in 2011 and no deemed interest benefit.
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