Melina purchased a $10,000 corporate bond on July 1, 2017. The bond has a stated
ID: 2537132 • Letter: M
Question
Melina purchased a $10,000 corporate bond on July 1, 2017. The bond has a stated interest rate of 5%, payable annually on November 1. Since Melina purchased the bond between interest payment dates, how does she report the interest income on Schedule B, Interest and Ordinary Dividends? *
She reports $251, the amount of interest earned from July 1 through December 31. She reports $332, her proportionate share of the interest as taxable income. No further adjustment is necessary. She reports $500, the full interest payment, then subtracts $332, the amount of accrued interest, as an adjustment. She reports $500, the entire interest payment. No further adjustment is necessary, as the amount of accrued interest was added to Melina's basis at the time of purchase.Explanation / Answer
Interest income shall be recorded on accrued basis, when the right to receive has been established. Though it is actually received or not.
From the above information she shall report 251 the amount of interest earned from july 1 to December 31.
Hence from the above conclusions option A is correct
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