Marianne's uncle Mike gives her $20,000 of 8% bonds on July 1st of the current year. The bonds pay interest on June 30 and December 31.
I.Marianne has $20,000 of income from the receipt of the bonds.
II.Marianne has $1,600 of interest income from the bonds in the year of the gift.
III.Marianne has $800 of interest income from the bonds in the year of the gift.
IV.Mike has $800 of interest income from the bonds in the year of the gift.

Question

Marianne's uncle Mike gives her $20,000 of 8% bonds on July 1st of the current year. The bonds pay interest on June 30 and December 31.
I.Marianne has $20,000 of income from the receipt of the bonds.
II.Marianne has $1,600 of interest income from the bonds in the year of the gift.
III.Marianne has $800 of interest income from the bonds in the year of the gift.
IV.Mike has $800 of interest income from the bonds in the year of the gift.
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Quizplus · Accepted Answer

Marianne does not have income from the receipt of the bonds themselves, so statement I is incorrect. The bonds pay 8% annually, which is $1,600 ($20,000 * 8%) for a full year. However, since the bonds pay interest semi-annually and Marianne receives them mid-year, she will only receive one payment of $800 in the current year, making statement III correct. Mike, having owned the bonds for the first half of the year, would report the interest income received during that period, also $800, making statement IV correct.

Marianne's Uncle Mike Gives Her $20,000 of 8% Bonds on July