Wally is employed as an executive with Pay More Incorporated.To entice Wally to work for Pay More, the corporation loaned him $44,000 at the beginning of the year at a simple interest rate of 1 percent.Wally would have paid interest of $5,280 this year if the interest rate on the loan had been set at the prevailing federal interest rate.

a. Wally used the funds as a down payment on a speedboat and repaid the $44,000 loan (including $440 of interest) at year-end.

Gross Income

pay more: ???

Wally: ???

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

Amount to be recognized: ???