Duncan purchased State of Wisconsin general-purpose bonds at a cost of $3,400 in 2011.He receives $170 interest on the bonds in 2011,2012,and 2013.In 2013,he sells the bonds for $3,800.Duncan excludes the bond interest,but must include a $400 capital gain in his 2013 gross income.Which of the following Concepts,Constructs,and/or Doctrines help in forming the basis for this treatment?
I.Capital Recovery Concept.
II.Legislative Grace Concept.

Question

Quizplus · Accepted Answer

The Capital Recovery Concept applies here because Duncan is able to recover his original investment by selling the bonds for $3,800, which is more than he paid for them ($3,400). The Legislative Grace Concept does not apply in this scenario as it pertains to tax laws being granted by the government as a privilege, which is not relevant to the treatment of bond interest and capital gains.

Duncan Purchased State of Wisconsin General-Purpose Bonds at a Cost