Question

Freddy purchased a certificate of deposit for $20,000 on July 1, 2018. The certificate’s maturity value in two years (June 30, 2020) is $21,218, yielding 3% before-tax interest. Freddy must recognize $1,218 gross income in 2018. Freddy must recognize $1,218 gross income in 2020. Freddy must recognize $600 (.03 × $20,000) gross income in 2020. Freddy must recognize $300 (.03 × $20,000 × .5) gross income in 2018. None of these.

Answer 1

Answer:

correct option is Freddy must recognize $300 = (0.03 × $20,000 × 0.5) gross income in 2018

Explanation:

given data

deposit = $20,000

maturity value = two years

yielding = 3%

solution

we know here that  Income is Recognize in 2018 is

Income is Recognize =  $20,000 × Interest rate

so here interest is 3% for 6 month

because the certificate is held for 6 months in 2018

so we multiply is by 0.5

so

Income is Recognize = $20,000 × 3% × $\frac{6}{12}$

Income is Recognize = $300

so correct option is Freddy must recognize $300 = (0.03 × $20,000 × 0.5) gross income in 2018