On July 1, 2016, Katrina purchased tax-exempt bonds (face value of $75,000) for $82,000. The bonds mature

Question:

On July 1, 2016, Katrina purchased tax-exempt bonds (face value of $75,000) for $82,000. The bonds mature in five years, and the annual interest rate is 6%. The market rate of interest is 2%.
a. How much interest income and/or interest expense must Katrina report in 2016?
b. What is Katrina's adjusted basis for the bonds on January 1, 2017?

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