olCael purchased a CD Certificate of Deposit for 15000 The

, olCael purchased a CD (Certificate of Deposit) for $15,000. The CD matures in two years and yields 2.5% before tax interest. The maturity value of the CD is S 15,759. Oa. Michael must recognize $759 gross income in 2017. Ob. Michael must recognize $759 gross income in 2019. ?c. Michael must recognize $375 (.025 x $15,000) gross income in 2017. d. Michael must recognize $187.50 (025 x $15,000 x .5) gross income in 2017.

Solution

In 2017 michael hold Certificate of Deposit for half a year i.e 1/ 2 = 0.5 year

Revenue must be recognized for 0.5 years in 2017

Therefore, Revenue in 2017 = Investment * Rate * Time

= 15000 * 2.5% * 0.5

= $ 187.50

Ans is d) Michael must recognize $ 187.50 gross income in 2017.