A.$0 and $10,900.
B. $0 and $11,000.
C. $100 and $11,000.
D. $100 and $10,900.
E. None of the above.
ANSWER
A.$0 and $10,900.
They are City of Richmond bonds which are tax exempted.
Hence, the amount of taxable interest income that Karen should report for 2014 = 0
Premium on the bond = 11,000 – 10,000 = 1,000
Period = 10 years
Amortization per year = 1,000 / 10 = $ 100
Adjusted basis = Purchase price – Premium amortized = 11,000 – 100 = $ 10,900