Question

Melina purchased a $10,000 corporate bond on July 1, 2018. The bond has a stated interest rate of 5%, payable annually on November 1. Since Melina purchased the bond between interest payment dates the interest income on Schedule B, Interest and Ordinary Dividends will be reported as ________. $251, the amount of interest earned from July 1 through December 31. $332, her proportionate share of the interest as taxable income. No further adjustment is necessary. $500, the full interest payment, then minus $332, the amount of accrued interest, as an adjustment. $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

Answer 1

$500, the full interest payment, then minus $332, the amount of accrued interest, as an adjustment

Step-by-step explanation:

Given information

Purchase value of corporate bond = $10,000

Stated interest rate = 5%

So, The full annual interest would be

= Purchase value of corporate bond × Stated interest rate

= $10,000 × 5%

= $500

And the corporate bond is purchased on July 1 , and its interest payable annually on November 1

So, the interest for four months would be

= $500 × 4 months ÷ 12 months

= $167

So, the accrued interest would be

= $500 - $167

= $333 approx

This above interest should be deducted