Karen owns city of richmond bonds with a face value of $10,000. she purchased the bonds on january 1, 2018, for $11,000. the maturity date is december 31, 2027. the annual interest rate is 4%. what is the amount of taxable interest income that karen should report for 2018, and the adjusted basis for the bonds at the end of 2018, assuming straight-line amortization is appropriate? $0 and $11,000 $0 and $10,900 $100 and $11,000 $100 and $10,900 none of the above

amount of taxable interest income that Karen report for 2018 = 0

Amortization per year = $100

Adjusted basis  = $ 10,900

Explanation:

given data

face value = $10,000

purchased the bond = $11,000

interest rate = 4%

solution

we know here that City of Richmond bonds that is tax exempted

so that amount of taxable interest income that Karen report for 2018 = 0

and

as Premium on the bond is

Premium on the bond = purchased the bond - face value

Premium on the bond  = 11,000 - 10,000 = 1,000

and here time Period = 10 years  ( January 1, 2018 to December 31, 2027 )

so Amortization per year is

Amortization per year =

Amortization per year = $100

so

Adjusted basis will be = Purchase price - Premium amortized

Adjusted basis = 11,000 - 100

Adjusted basis  = $ 10,900

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