Melina purchased a 10000 corporate bond on July 1 2017 The b

Melina purchased a $10,000 corporate bond on July 1, 2017. The bond has a stated interest rate of 5%, payable annually on November 1. Since Melina purchased the bond between interest payment dates, how does she report the interest income on Schedule B, Interest and Ordinary Dividends?

Solution

Since Melina Purchased, $10,000 corporate bond on July 1, she holds the bond for 4 months till next interest date. But at the time of purchase, she would pay 8 months accrued interest.

She would report 4 months Interest in the interest income at $166.67 ($10,000 x 5% x 4/12)