Wally is employed as an executive with Pay More Incorporated. To entice Wally to work for Pay More, the corporation loaned him $20,000 at the beginning of the year at a simple interest rate of 1 percent. Wally would have paid interest of $2,400 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 $20,000 loan

(including $200 of interest) at year-end. Does this loan result in any income to either party, and if so, how much?

b. Assume instead that Pay More forgave the loan and interest on December