Question: Individual A owns a bond having a principal amount of $1000 and bearing interest at 10%, payable semiannually on January 1 and July 1 of each year. On September 30,2016, A sells the bond to individual B for $1,075. Assume that, of the total consideration paid by B, $1,050 represents payment for the bond itself, and $25 represents accrued interest. How will A be taxed? What will be the basis of B in the bond?