Freddy purchased a certificate of deposit for $20,000 on July 1, 2014. The certificate's maturity value in two years (June 30, 2016) is $21,218, yielding 3% before-tax interest.
a. Freddy must recognize $1,218 gross income in 2014.
b. Freddy must recognize $1,218 gross income in 2016.
c. Freddy must recognize $600 (.03 × $20,000) gross income in 2016.
d. Freddy must recognize $300 (.03 × $20,000 × .5) gross income in 2014.
e. None of these.
Answer: d Freddy must recognize $300 (.03 × $20,000 × .5) gross income in 2014.