Baggs buys $100,000 of Vista Company bonds on January 1, 2014 at face value.The bonds pay 10% interest semiannually on June 30 and December 31.If Baggs sells the bonds at 99 on July 1, 2014, there will be a loss reported on the income statement.

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Since Baggs bought the bonds at face value, he would have received $5,000 ($100,000 x 10% x 6/12) in interest on June 30, 2014. However, if he sells the bonds at 99 on July 1, 2014, he would only receive $99,000, resulting in a loss of $1,000. This loss would be reported on the income statement.

Baggs Buys $100,000 of Vista Company Bonds on January 1