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prob024 - principal on the furniture loan as well as the...

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Problem 24 (Past exam question: 20 minutes) (Text: Ch. 6) Grace Ravens is a shareholder and a senior executive of Maximum Marketing Ltd., which has a December 31 year end. On June 1, 2007, the corporation provided her with the following loans under a policy for loans to executives of the corporation: (i) A $100,000 loan at 2% interest per year with a five-year term, with principal repayments of $10,000 due December 31 each year, to purchase a new house in downtown Toronto which she lives in; (ii) $10,000 loan at 5% interest per year with no definite terms of repayment to purchase furniture for her new home; and (iii) a $20,000 loan at no interest with a three-year term to buy additional, previously unissued shares of Maximum Marketing Ltd. from treasury. On December 31, 2007, she repaid $10,000 principal on the house loan and $1,000
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Unformatted text preview: principal on the furniture loan as well as the interest due on the loans. On December 31, 2008, Grace paid $10,000 principal on the house loan and $1,000 principal on the furniture loan. On January 15, 2009, she paid interest on the house and furniture loans for the year ended December 31, 2008. In summary, then, the remaining balances at the noted dates are as follows: January 1, 2008 January 1, 2009 House loan $90,000 $80,000 Furniture loan 9,000 8,000 Stock loan 20,000 20,000 Assume the prescribed rates of interest for 2008 were as follows: 1st quarter - 4%, 2nd quarter - 4%, 3rd quarter - 5% and 4th quarter - 5%. The prescribed rate on June 1, 2007 was 5%. Required : Calculate the tax consequences in 2008 to Grace Ravens of the loans described above. Ignore the effects of a leap year....
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