In 2019, Mrs. Ulm paid $80,000 for a corporate bond with a $100,000 stated redemption value. Based on the bond's yield to maturity,amortization of the $20,000 discount was $1,512 in 2019, $1,480 in 2020, and $295 in 2021. Mrs. Ulm sold the bond for $84,180 inMarch 2021. Assume the taxable year is 2021.Required:a. What are her tax consequences in each year assuming that she bought the newly issued bond from the corporation?b. What are her tax consequences in each year assuming that she bought the bond in the public market through her broker?Answer is complete but not entirely correct.Complete this question by entering your answers in the tabs below.Required A Required BWhat are her tax consequences in each year assuming that she bought the bond in the public market through her broker?2020 Ordinary IncomeAmount$02021 Ordinary Income$8932021 Long-term capital gain$8932019 Ordinary Income$0< Required ARequired B >

Step 1: Understanding bond purchase and discount amortizationWhen Mrs. Ulm bought the bond for…

Answered: In 2019, Mrs. Ulm paid $80,000 for a…

Individual Income Taxes

43rd Edition

ISBN:9780357109731

Author:Hoffman

Publisher:Hoffman

Chapter4: Gross Income: Concepts And Inclusions

Section: Chapter Questions

Problem 37P: Marlene, a cash basis taxpayer, invests in Series EE U.S. government savings bonds and bank...

See similar textbooks

Similar questions

Marlene, a cash basis taxpayer, invests in Series EE U.S. government savings bonds and bank certificates of deposit (CDs). Determine the tax consequences of the following on her 2019 gross income: a. On September 30, 2019, she cashed in Series EE bonds for 10,000. She purchased the bonds in 2009 for 7,090. The yield to maturity on the bonds was 3.5%. b. On July 1, 2018, she purchased a CD for 10,000. The CD matures on June 30, 2020, and will pay 10,816, thus yielding a 4% annual return. c. On July 1, 2019, she purchased a CD for 10,000. The maturity date on the CD was June 30, 2020, when Marlene would receive 10,300.
On October 1, 2019, Jenkins Corporation bought bonds with a face value of $200,000 for $199,175, which included accrued interest. The bonds are due December 31, 2021, and carry a face rate of interest of 10.5%. Interest on the bonds is payable semiannually on June 30 and December 31. Jenkins uses the straight-line method to amortize the discount. Required: 1. Prepare journal entries to record the purchase of the bonds, each interest receipt, and the retirement of the issue on December 31, 2021. 2. Next Level If Jenkins failed to separately record the interest at acquisition, explain the errors that would occur in the company’s financial statements (no calculations are required).
On December 31, 2021, Danny purchased $23,000 of newly issued bonds of Howard Corporation for $19,045. The bonds are dated December 31, 2021. The bonds are 9%, 10-year bonds paying interest semiannually on June 30 and December 31. The bonds are priced to yield 12% compounded semiannually. Read the requirement. Requirement a. What is the amount of the original issue discount? Start by completing the bond amortization table for the first year. (Round all amounts to the nearest dollar.) Year Interest Received December 31, 2021 June 30, 2022 December 31, 2022 Amortization of Original Issue Discount Taxpayers Basis Interest Income for the Bond The amount of the original issue discount is Requirement b. For the first semiannual period, what is the amount of the original issue discount Danny must recognize as ordinary income? (Round the amount to the nearest dollar.) The amount of the original issue discount Danny must recognize as ordinary income for the first semiannual period is…
On December 31, 2020, Phil purchased $20,000 of newly issued bonds of Texas Corporation for $16,568. The bonds are dated December 31, 2020. The bonds are 9%, 10-year bonds paying interest semiannually on June 30 and December 31. The bonds are priced to yield 12% compounded semiannually. Read the requirements. Requirement a. What is the amount of the original issue discount? Start by completing the bond amortization table for the first year. (Round all amounts to the nearest dollar.) Amortization of Original Issue Discount Taxpayers Basis for the Bond Year Interest Received Interest Income December 31, 2020 June 30, 2021 December 31, 2021 The amount of the original issue discount is Requirement b. For the first semiannual period, what is the amount of the original issue discount Phil must recognize as ordinary income? (Round the amount to the nearest dollar.) The amount of the original issue discount Phil must recognize as ordinary income for the first semiannual period is Requirement…
On January 1, 2019, Shay Company issues $250,000 of 10%, 12-year bonds. The bonds sell for $243,750. Six years later, on January 1, 2025, Shay retires these bonds by buying them on the open market for $261,250. All interest is accounted for and paid through December 31, 2024, the day before the purchase. The straight-line method is used to amortize any bond discount. 1. What is the amount of the discount on the bonds at issuance?2. How much amortization of the discount is recorded on the bonds for the entire period from January 1, 2019, through December 31, 2024?3. What is the carrying (book) value of the bonds as of the close of business on December 31, 2024?4. Prepare the journal entry to record the bond retirement.
Wendy Company received proceeds of $188,000 on 10-year, 6% bonds issued on January 1, 2019. The bonds had a face value of $200,000, pay interest annually on December 31, and have a call price of 101. Wendy uses the straight-line method of amortization. What is the amount of interest expense Wendy will show with relation to these bonds for the year ended December 31, 2020?
On July 1, 2019, Montana Company has bonds with balances as shown below. Bonds Payable 70,000 Discount on Bonds Payable 3600 If the company retires the bonds for $71,150, what will be gain or loss on the retirement.
On January 1, 2019, Shay Company issues $700,000 of 10%, 15-year bonds. The bonds sell for $684,250. Six years later, on January 1, 2025, Shay retires these bonds by buying them on the open market for $731,500. All interest is accounted for and paid through December 31, 2024, the day before the purchase. The straight-line method is used to amortize any bond discount. 1. What is the amount of the discount on the bonds at issuance? 2. How much amortization of the discount is recorded on the bonds for the entire period from January 1, 2019, through December 31, 2024? 3. What is the carrying (book) value of the bonds as of the close of business on December 31, 2024? 4. Prepare the journal entry to record the bond retirement.
Exercise 13-28 (LO. 1) On July 1, 2019, Katrina purchased tax-exempt bonds (face value of $75,000) for $82,000. The bonds mature in five years, and the annual interest rate is 3%. If an amount is zero, enter "0". Determine any allocation based on months (not days). a. How much interest income and/or interest expense must Katrina report in 2019, assuming that straight-line amortization is appropriate? The interest income Katrina must include in gross income in 2019 is $ The interest expense Katrina may deduct in 2019 is $ b. What is Katrina's adjusted basis for the bonds on January 1, 2020? Katrina's adjusted basis for the bonds on January 1, 2020, is $ Check My Work Previous Next
2) An individual purchased a $80,000 bond on its issue date, September 1, 2023. The bond pays interest at maturity, August 31, 2025, at a rate of 5% compounded annually. What amount of interest must be included in income in 2023 and 2024, respectively? A $4,000 and $4,200 B $4,200 and $4,000 C $4,000 and $4,000 D $4,200 and $4,200 E None of these
On September 1, 2020, Elizabeth bought a $10,000 three-year bond that pays 9% interest per year, compounded yearly. No interest is received until the maturity date of the bond on August 31, 2023. Which one of the following statements is correct, assuming the figure is rounded to the nearest dollar? (Show Calculations) (a) In 2020, Elizabeth must report $300 of interest income. (b) In 2021, Elizabeth must report $927 of interest income. (c) In 2022, Elizabeth must report $981 of interest income. (d) In 2023, Elizabeth must report all interest earned on the bond.
On January 1, 2019, Shay Company issues $440,000 of 10%, 20-year bonds. The bonds sell for $429,000. Six years later, on January 1, 2025, Shay retires these bonds by buying them on the open market for $462,000. The straight-line method is used to amortize any bond discount. 1. Record the journal entry for the purchase of the bonds 2. Records the journal entry for the first semi-annual interest payment. 3. What is the carrying (book) value of the bonds as of the close of business on December 31, 2024? 4. Prepare the journal entry to record the bond retirement.

SEE MORE QUESTIONS

Recommended textbooks for you

Individual Income Taxes

Accounting

ISBN:

9780357109731

Author:

Hoffman

Publisher:

CENGAGE LEARNING - CONSIGNMENT

SWFT Individual Income Taxes

Accounting

ISBN:

9780357391365

Author:

YOUNG

Publisher:

Cengage

SWFT Comprehensive Vol 2020

Accounting

ISBN:

9780357391723

Author:

Maloney

Publisher:

Cengage

Individual Income Taxes

Accounting

ISBN:

9780357109731

Author:

Hoffman

Publisher:

CENGAGE LEARNING - CONSIGNMENT

SWFT Individual Income Taxes

Accounting

ISBN:

9780357391365

Author:

YOUNG

Publisher:

Cengage

SWFT Comprehensive Vol 2020

Accounting

ISBN:

9780357391723

Author:

Maloney

Publisher:

Cengage

SWFT Comprehensive Volume 2019

Accounting

ISBN:

9780357233306

Author:

Maloney

Publisher:

Cengage

SWFT Essntl Tax Individ/Bus Entities 2020

Accounting

ISBN:

9780357391266

Author:

Nellen

Publisher:

Cengage

SEE MORE TEXTBOOKS