Theresa, a cash basis taxpayer, purchased a bond on July 1, 2013, for $10,000, plus $400 of accrued interest. The bond paid $800 of interest each December 31. On March 31, 2017, she sold the bond for $9,800, which included $200 of accrued interest.
A)Theresa has $200 interest income and a $400 loss from the bond in 2017.
B)Theresa has $200 interest income and a $200 gain from the bond in 2017.
C)Theresa has a $100 loss from the sale of the bond and no interest income.
D)Theresa's loss on the sale of the bond is $600.
E)None of these.

Question

Quizplus · Accepted Answer

Theresa received $200 as accrued interest when she sold the bond, which is interest income. The bond was sold for $9,800, excluding the $200 interest, resulting in a $400 loss ($10,000 - $9,600).

Theresa, a Cash Basis Taxpayer, Purchased a Bond on July