Jason owns Blue Corporation bonds (face value of $10,000),purchased on January 1,2015,for $11,000.The bonds have an annual interest rate of 8% and a maturity date of December 31,2024.If Jason elects to amortize the bond premium,what is his taxable interest income for 2015 and the adjusted basis for the bonds at the end of 2015 (assuming straight-line amortization is appropriate)?
A)$800 and $11,000
B)$800 and $10,900
C)$700 and $11,000
D)$700 and $10,900
E)None of the above

Question

Quizplus · Accepted Answer

The annual interest income is $800 (8% of $10,000). The premium of $1,000 ($11,000 - $10,000) is amortized over 10 years, resulting in $100 amortized per year. Thus, taxable interest income is $800 - $100 = $700, and the adjusted basis is $11,000 - $100 = $10,900.

Jason Owns Blue Corporation Bonds (Face Value of $10,000),purchased on January