Question

On January 1, 2020, Faye gave Todd, her son, a 36- month certificate of deposit she...

On January 1, 2020, Faye gave Todd, her son, a 36- month certificate of deposit she had purchased on December 31, 2018, for$ 8, 638. The certificate had a maturity value of$ 10,000 and the yield to maturity was 5%. On November 30, 2020, ABC, Inc., had declared a dividend of$ 1.00 payable to stockholders of record on December 5th• How much interest and dividends should Todd include in his gross income for 2020?

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Answer #1

ANSWER:

Todd Interest Income = $454 and No Dividend .

Explanation :;

The certificate of deposit is an orginal issue document instrument. Faye should have reported $432 ($8,638 × .05 ) of interest income in 2018 and the adjusted basis of the CD is $9,070 ($8,638 + $432).

Todd must reported interest income for 2020

$9,070 × .05 = $454

The dividend had been declared before Todd received the stock. The income belong to Toye since she was the owner of the stock when the dividend was declared and she assigned to Todd the right to receive it.

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