Under the Original Issue Discount (OID) Rules as Applied to a Three-Year

question 71

Multiple Choice

Under the original issue discount (OID) rules as applied to a three-year certificate of deposit:

• A)All of the income must be recognized in the year of maturity by a cash basis taxpayer.
• B)The OID will be included in gross income for the year of purchase.
• C)The interest income will be the same each year.
• D)The interest income will be greater in the third year than in the first year.
• E)None of these is correct.

---

Definitions:

Debt-equity Ratio

The ratio reflecting on the strategic use of shareholders' equity and debt for the purpose of financing assets.

Growth Rate

The rate at which a company's earnings or revenue increases over a specified period, typically expressed as a percentage.

Retained Earnings

The portion of a company's profit that is held back and not paid out as dividends, often used for reinvestment.

Dividend Payout Ratio

A financial metric that shows the proportion of earnings a company pays to its shareholders in the form of dividends, expressed as a percentage of net income.