On January 1 of the Current Year, Dryer Inc

Essay

On January 1 of the current year, Dryer Inc. issues 8 year bonds payable with a maturity value of $1,500,000. The bonds have a coupon rate of 14 percent, pay interest on January 1 of each year, and are sold for $1,750,000. The Company has a December 31 year end. Determine the current year tax consequences under each of the following assumptions:
• Dryer is in the business of lending money.
• Dryer is not in the business of lending money and the CRA does not believe that they made a deliberate effort to create a premium on the issuance of the bonds.
• Dryer is not in the business of lending money and the CRA believes that they made a deliberate effort to create a premium on the issuance of the bonds.