Wally is employed as an executive with Pay More Incorporated. To entice Wally to work for Pay More, the corporation loaned him $$35,000$ at the beginning of the year at a simple interest rate of $1$ percent. Wally would have paid interest of $$4,200$ this year if the interest rate on the loan had been set at the prevailing federal interest rate.

Required:

Wally used the funds as a down payment on a speedboat and repaid the $$35,000$ loan $($including $$350$ of interest$)$ at year$-$end.

a$-1.$ Does this loan result in any income to either party?

a$-2.$ Indicate the amount below.

Assume instead that Pay More forgave the loan and interest on December $31.$ What amount of gross income does Wally recognize this year?