Gary a cash basis taxpayer buys a bond for $100,000 on January 1, 2020. The bond pays interest on an annual basis. The coupon will be paid on January 1, 2021. The interest rate is 10%. How much interest income will Gary recognize in 2020? Assume instead that the bond is purchased on January 1, 2020 for $100,000 except it won't pay interest at all. Instead in 7.2 years it will pay the owners of the bond $200,000. That is equal to a 10% compounded rate of return. 

How much interest income will Gary include in his taxable income in 2020? Why? Explain the rationale for the rule.

Answer rating: 100% (QA)

In the first scenario where Gary buys a bond for 100000 on January 1 2020 and the bond pays interest ... View the full answer