4. On January 1, 2022, Arrow Company purchased, as an investment, bonds with a face value of $500,000 for $562,300 to be classified as available-for-sale. The bonds carry a stated annual interest rate of 12% and an effective annual yield of 10%. Interest will be paid on December 31 of each year, and the bonds mature on December 31, 2031. Fair value of the bond investment on 12/31/2022 is $561,000. Required a. Prepare an amortization schedule for 2022, 2023, and 2024 using the effective interest method. b. Prepare the journal entries to record the purchase of the bonds, the interest receipts, and fair value adjustment (if needed) for 2022.

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Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.