On October 1, 2017, Berlin Corp.purchased 250, $1,000, 9% bonds for $260,000.An additional $7,500 was paid for the accrued interest, which is paid semi-annually on December 1 and June 1.The bonds mature on December 1, 2018 and will be held to maturity.Berlin uses the straight-line method of amortization and the amortized cost model for these bonds.Ignoring income taxes, the amount to be reported in Berlin's 2017 income statement as a result of this investment is

Question

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First, we need to calculate the total cost of the investment:

Purchase price: $260,000
Accrued interest: $7,500

Total cost: $267,500

Next, we need to calculate the annual interest payment:

Face value of bonds: $1,000
Annual interest rate: 9%
Number of bonds: 250

Annual interest payment: $1,000 x 9% x 250 = $22,500

Since the bonds mature on December 1, 2018, we will receive interest payments for only two of the six months in 2017 (October and November). Therefore, the amount of interest income to be recognized in 2017 is:

Interest income: $22,500 x 2/6 = $7,500

Finally, we need to calculate the amount of bond premium that should be amortized as interest expense in 2017. We will use the straight-line method, which means that we will amortize the premium evenly over the life of the bonds:

Amortized premium per year: $7,500 / 2 = $3,750

Therefore, the amount to be reported in Berlin's 2017 income statement is:

Interest income: $7,500
Less: Amortization of bond premium: -$1,475 ($3,750 x 2/6)

Net amount: $6,025

However, we need to round this amount to the nearest dollar, which gives us:

Answer: B
 The amount to be reported in Berlin's 2017 income statement as a result of this investment is $6,025.