On December 31, 2014, Ethan purchased $18,000 of newly issued bonds of Cahal Corporation for $10,975. The bonds are dated December 31, 2014. The bonds are 3%, 10-year bonds paying interest semiannually on June 30 and December 31. The bonds are priced to yield 9% compounded semiannually.

Requirements

a.

What is the amount of the original issue discount?

	Interest	Amortization of	Interest	Taxpayers Basis
Year	Received	Original Issue Discount	Income	for the Bond
12 - 31 - 2014
06 - 30 - 2015
12 - 31 - 2015
The amount of the original issue discount is	$		.

b.

For the first semiannual period, what is the amount of the original issue discount Ethan must recognize as ordinary income?

c.

What is the total amount of interest income

Ethan must recognize in 2015?

d.

What is Ethan's basis for the bonds as of December 31, 2015?