Income Tax Accounting.

Jim has $100 of dividend income from other investments. On 1/1/14 Paul made a $120,000 interest free (0% rate) loan to Jim to buy a house. The market rate determined by the IRS = 3%. How much interest income will Paul have to claim in 2014?

Reference: Slides 13, 14, 15

a. $0 b. $100 c. $1,000 d. $1,800 e. None of the above

Loan receiver would have have to report $3,600. (120,000 * .03)

However, Paul is lending it zero interest, but did receive income from dividends of $100. Is B correct?