Theresa, a Cash Basis Taxpayer, Purchased a Bond on July

Multiple Choice

Theresa, a cash basis taxpayer, purchased a bond on July 1, 2013, for $10,000, plus $400 of accrued interest. The bond paid $800 of interest each December 31. On March 31, 2017, she sold the bond for $9,800, which included $200 of accrued interest.

A) Theresa has $200 interest income and a $400 loss from the bond in 2017.
B) Theresa has $200 interest income and a $200 gain from the bond in 2017.
C) Theresa has a $100 loss from the sale of the bond and no interest income.
D) Theresa's loss on the sale of the bond is $600.
E) None of these.