On July 1, 2009, Hilltop Company purchased as a long-term investment Essex Company’s 10-year 9% bonds, with a face value of $100,000, for $95,200.  Interest is payable semiannually on January 1 and July 1.  The bonds mature on July 1, 2013.  Hilltop uses the straight-line method of amortization.  What is the amount of interest income and amortization of bond discount that Hilltop should report in its income statement for the year ended December 31, 2009?

< value=7939 = name=Answer>A. $4,284 and $240.
< value=7940 = name=Answer>B. $4,284 and $600.
< value=7941 = name=Answer>C. $4,500 and $240.
< value=7942 = name=Answer>D. $4,500 and $600.--> is the correct answer.

My question is shouldn’t we report interest income $5100 which is not on the answer choices

100,000 – 95,200 = 4,800 total discount

S/L method- 4,800/ 4 = 1,200 per year.

So half year would be 600

And next is to figure out the interest income for the year ended Dec 31, 09-

I do the JE-

DR Interest receiveable 4,500

DR Investment in bonds   600

CR Bonds interest revenue 5,100

Where did I go wrong?

cash 4500

Investment in bonds 600

Bond interest revenue     5100

remenber its asking income and not revenue

geez this problem gave me headache.  not even funny.

anyway, my approach to this problem was:

since they purchased it in the middle of the year, my accrued interest would have been: Face value * Coupon rate * Months

accrued interest  = 100,000 * .09 * 6/12 = 4,500

(july 1st - dec 31st)

S/L Discount Amtz = 100,000 - 95,200 = 4,800/4 * 6/12 = 600