Ra Corporation Issues a Twenty-Year Obligation at Its $1,000 Face

question 33

Essay

Ra Corporation issues a twenty-year obligation at its $1,000 face amount. Rames purchases the obligation for $1,000 on the issue date. Due to a decline in interest rates, Ra calls the obligation by paying $1,010 to each of the holders of the twenty-year obligations. What is the tax treatment of the $1,010 by Ra and Rames?

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Definitions:

Active Voice

A grammatical voice in which the subject of the sentence performs the action expressed by the verb, often making the sentence clearer and more direct.

Direct Sentences

Direct sentences are clear and straightforward statements that express an idea or instruction without ambiguity.

Vigorous Sentences

Sentences that are constructed with energy and clarity, often using active voice and concrete language to make an impact.

Be Advised

A phrase often used to draw attention to important information, indicating that what follows should be noted carefully.