On May 1, 2017, Kevin purchased a taxable bond with a face value of $10,000. The...
On May 1, 2017, Kevin purchased a taxable bond with a face value of $10,000. The bond matures on May 1, 2020 and has a stated interest rate of 6%. Kevin paid $11,000 for the bond on the secondary market. He received one coupon payment of $600 on May 1, 2018; this was his only interest income for the year. He chooses annual accrual periods ending on May 1 of each year, and the amount of his bond premium amortization for 2018 is $325. What amount does Kevin report for taxable interest on his Form 1040?
$275
$325
$600
$925
Homework Answers
Answer:
Correct answer is:
$275
Explanation:
Bond is purchased at premium.
Coupon payment received in 2018 = $600
Bond amortization for 2018 = $325
Hence:
Interest Income = 600 - 325 = $275
Hence option 1 is correct and other options 2, 3 and 4 are incorrect.
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