On January 1, a corporation loans its shareholder, Lynda Masten, $120,000. The term of the loan require that Lynda pay interest annually based on 2.5% annual rate of interest. In addition, Lynda is to repay the $120,000 at the end of six years. At the time the loans was made, the current annual AFR short term, mid term and long term rate were 4.5%, 5.5% and 6.5% respectively. Determine the tax consequences of this loan to both the corporation and to Lynda in the first year.