GnuCash: how to enter the purchase of a corporate bond with accrued interest

[Larry Evans]

On 03/06/2015 09:51 AM, Larry Evans wrote:
> On 03/06/2015 09:02 AM, Mike or Penny Novack wrote:
>> Thank you. I had earlier discussed the issue in terms of "discount", but
>> you are correct, this would be a "premium" situation. But similar in
>> that NOT a capital gain or loss but interest INCOME being affected (the
>> bond premium is like  negative interest income, that is, a debit instead
>> of a credit).
>>
>> Michael
>>
>>> FWIW - this is what John M Hoffman & Associates CPAs has to say about
>>> the subject.  nvsoar
>>> ____________________________
>>>
>>> /What is accrued interest purchased and what is the tax implication?/
>>>
>>>    Most bonds pay interest every six months. This is the coupon date.
>>>    Let's say that you purchase a $10,000 bond paying 6% interest that
>>>    will mature on September 30, 2015. Every March 31 and September 30
>>>    until (and including) September 30, 2015 the bond issuer pays
>>>    interest at the stated rate of the bond (the coupon rate). In this
>>>    case that amount is $300 (6% times $10,000 for one half a year).
>>>
>>>    If you buy that bond on September 15, you will be the one that gets
>>>    that full coupon payment representing six months of interest on
>>>    September 30. Sounds like a great deal. Not so fast. Not that it is
>>>    a good deal or a bad deal but what occurs is a fair deal. When you
>>>    buy that bond, you will pay the seller the interest from the
>>>    previous coupon date through the purchase date. In this case
>>>    essentially 5 and 1/2 months of interest.
>>>
>>>    This amount that you pay is the accrued interest purchased. In this
>>>    case that amount would be approximately $250. In a perfectly simple
>>>    world, you would pay $10,250 to acquire the bond, $250 of that being
>>>    for the accrued interest.
>>>
>>>    On September 30, you receive a coupon payment for $300. This $300
>>>    payment is reported as interest income to you. At tax time we will
>>>    want to report the $250 of accrued interest purchased as an offset
>>>    to your $300 of interest income, essentially netting out to the $50
>>>    that you actually received.
>>>
>>>    In the subsequent year things will be very simple, two coupon
>>>    payments of $300 each and the resulting $600 being the interest
>>>    received and taxable for that year.
> 
> When the bond is redeemed, I get $10,000.  Is the cost basis
> $10,000 or $10,000+accrued_interest = $10,250?
> 

One reason I'm asking this question is because of this passage:

   If you bought 100 shares of ABC Corporation at $70 a
   share and paid your broker an $8.95 commission on the
   transaction, your cost basis for those 100 shares is
   $7,008.95.

from:

  http://www.irs.gov/publications/p550/ch01.html#en_US_2014_publink10009960

But, it seems that it should be either:
  1) deduct the accrued interest from interest income
OR:
  2) add accrued interest to cost basis
but not both because doing both just feels like
getting double credit for the accrued interest deduction.

-regards,
Larry
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>>
> 
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