1. Horatio owns Utah general purpose bonds with a face value of $50,000 that he purchased last year for $52,000. During the current year, Horatio receives $2,400 in interest on the bonds. In December, Horatio sells the bonds for $48,000. What is the effect of the bond transactions on Horatio's gross income for the current year?

2. Determine the amount of gross income Elbert must recognize in each of the following situations:

a. In October, Elbert sells city of Norfolk bonds with a face value of $6,000 for $5,800. Elbert had purchased the bonds 2 years ago for $5,200, and had received $450 in interest on the bonds before he sold them.

b. Elbert owns 1,000 shares of Tortoise, Inc., common stock for which he had paid $8,000 several years ago. Tortoise declares and distributes a 20% stock dividend during the current year. On December 31, Tortoise common stock is selling for $10 per share.

c. In December, Elbert sells city of Quebec bonds with a face value of $7,600 for $7,200. Elbert had purchased the bonds in January for $7,700 and received $950 in interest on the bonds before he sold them.