Two years ago, Mr. Young paid $40,000 to buy a publicly traded corporate bond through his broker. The bond's stated redemption value was $45,000. This year, Mr. Young sold the bond for $47,100. Compute his gain or loss on sale.

Question

Quizplus · Accepted Answer

To calculate the gain or loss on the sale, we need to consider two factors - the purchase price and the sale price.

Purchase price = $40,000
Redemption value = $45,000
Therefore, Mr. Young's initial gain was $5,000 ($45,000 - $40,000)

Sale price = $47,100
Since Mr. Young sold the bond for more than its redemption value, he has made an additional gain. This gain is calculated as follows:

Sale price - Redemption value = $47,100 - $45,000 = $2,100

So, Mr. Young's total gain is $5,000 (ordinary income) + $2,100 (long-term capital gain) = $7,100.

Therefore, the correct answer is C.

Two Years Ago, Mr