Question

Wally used the funds as a down payment on a speedboat and repaid the $20,000 loan (including $200 of interest) at year-end. does this loan result in any income to either party, and if so, how much?

Answer 1

Determination of income on Loan transaction:

It is given that Wally used the funds as a down payment on a speedboat and repaid the $20,000 loan (including $200 of interest) at year-end.

It means the speedboat seller has earned the interest of $200 on the amount of loan which shall be treated as interest income.

Hence the loan results in interest income to the other party for $200.