Exercise 14-18 (Algorithmic) (LO. 1) On July 1, 2018, Katrina purchased tax-exempt bonds (face value of $122,500) for $134,750. The bonds mature in five years, and the annual interest rate is 6%. The market rate of interest is 2%. If an amount is zero, enter "0". Determine any allocation based on months (not days). a. How much interest income and/or interest expense must Katrina report in 2018? The interest income Katrina must include in gross income in 2018 is $ The interest expense Katrina may deduct in 2018 is $ b. What is Katrina's adjusted basis for the bonds on January 1:20197 Katrina's adjusted basis for the bonds on January 1, 2019.s