On July 1, 2018, Katrina purchased tax-exempt bonds (face value of $80,500) for $88,550. 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 $_________

b. What is Katrina's adjusted basis for the bonds on January 1, 2019?

Katrina's adjusted basis for the bonds on January 1, 2019, is $__________