Question

melina purchased a $10000 corporation bond on July1,2018. The bond has a started interest rate of 5%; payable anually on Nov1. since Melina purchased the bond between interest payment dates the interest income on Schedule B, interest and ordinary dividends will reported as

a. $251 , the amount of interest earned f rommJuly1 through December 31

b. $332 , her proportionate share of interest as taxable income. no adjustments

c. $500, the full interest payment, then minus $332 , the amount accrued interest, as adjustment

d. $500 , the entire interest payment . no further adjustment necessary as the amount of accrued interest was added to Melinas basis at the time of purchase.

Answer 1

1. The interest is payable on Nov 1.
2. We shall calculate the interest receivable per month inorder to simplify the calculation, which is
   1. (10000*5%)/12=41.67.
3. The interest amount taxable for the year ended on December 2018 is calculated based on number of months from the date of purchase which is 6 months, therefore I retest income taxable will be
   1. 41.67*6 months =251.
4. No matter when the interst is paid or payable, taxability will be based on the income earned during the year.