Question

Daniel purchased a bond on July 1, 2020, at par of $10,000 plus accrued interest of $300. On December 31, 2020, Daniel collected the $600 interest for the year. On January 1, 2021, Daniel sold the bond for $10,200.

a. Daniel must recognize $300 interest income for 2020 and a $200 gain on the sale of the bond in 2021.
b. Daniel must recognize $600 interest income for 2020 and a $200 gain on the sale of the bond in 2021.
c. Daniel must recognize $300 interest income for 2020 and a $100 loss on the sale of the bond in 2021.
d. Daniel must recognize $600 interest income for 2020 and a $100 loss on the sale of the bond in 2021.

Answer 1

Daniel must recognize $300 interest income for 2020 and a $200 gain on the sale of the bond in 2021.

Step-by-step explanation:

Interest Income for 2020 = Interest collected during the year - Accrued interest at the time of purchase of bond

Interest Income for 2020 = $600 - $300

Interest Income for 2020 = $300

Gain on sale of bond on January 1, 2021 = Selling price of the bond - Purchase price of the bond

Gain on sale of bond on January 1, 2021 = $10,200 - $10,000

Gain on sale of bond on January 1, 2021 = $200