Moira made a $85,000 interest-free loan to her son, Oliver, who used the money to retire a mortgage on his personal residence and to buy a certificate of deposit. Olivers only income for the year is his salary of $35,000 and $1,400 interest income on the certificate of deposit. The relevant Federal interest rate is 8% compounded annually. The loan is outstanding for the entire year.

a. Based on the above information, what is the effect of the loan on Moiras gross income for the year (how much)? Explain your answer.

b. The facts are the same as above, except you discovered that Moira had made an additional loan of $20,000 to Oliver in the previous year that is still outstanding. Oliver used the funds to pay his childs private school tuition. What are the effects of the loans on Moiras gross income (how much)? Explain your answer.