On January 1, 2025, Sandhill Company purchased 5% bonds, having a maturity value of $490,000 for $420,359. The bonds provide th bondholders with a 7% yield. They are dated January 1, 2025, and mature January 1, 2035, with interest receivable June 30 and December 31 of each year. Sandhill Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified as available-for-sale. The fair value of the bonds at December 31 of each year-end is as follows. 2025 $421,000 2028 2026 2027 416,000 2029 411,000 $441,000 461,000 (a) Prepare the journal entry at the date of the bond purchase. (b) Prepare the journal entries to record the interest received and recognition of fair value for 2025. (c) Prepare the journal entry to record the recognition of fair value for 2026.

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Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.