Sharon made a $60,000 interest-free loan to her son, Todd, to start a new business. Todds only sources of income were $25,000 from the business and $5,000 of interest on his checking account. The Applicable Federal interest rate (AFR) was 5%. Based on the above information:

1. a) Todds business net profit will be reduced by $3,000 (.05 $60,000) of interest expense.

2. b) Sharon must recognize $3,000 (.05 $60,000) of imputed interest income.

3. c) Sharon must recognize $3,037 (.05 $60,000 x 6/12) + (.05 x $61,500 x 6/12) of imputed

   interest income

4. d) Sharon does not recognize any imputed interest income and Todd does not recognize any

   imputed interest expense.

5. e) None of the above.