On May 1, 2014, Stanton Company purchased $60,000 of Harris Company's 12% bonds at 100 plus accrued interest of $2,400. On June 30, 2014, Stanton received its first semiannual interest. On February 1, 2015, Stanton sold $50,000 of the bonds at 103 plus accrued interest. The journal entry Stanton will record on February 1, 2015, will include:

Question

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When Stanton sells the bonds on February 1, 2015, it will receive $51,500 ($50,000 sale price plus $1,500 accrued interest). The carrying value of the bonds at the time of sale will be $60,000 original cost less $3,000 (the first semiannual interest received on June 30, 2014) less $4,800 (the second semiannual interest that had accrued but not yet been received as of February 1, 2015). This results in a carrying value of $52,200. Therefore, selling the bonds for $53,000 ($50,000 sale price plus $3,000 accrued interest difference) would result in a gain of $800 ($53,000 proceeds minus $52,200 carrying value). Therefore, the journal entry on February 1, 2015, would include a credit to Gain on Sale of Investments for $800. However, the question only provides an option for a credit to Gain on Sale of Investments for $1,500, so B is the best choice out of the options given.

On May 1, 2014, Stanton Company Purchased $60,000 of Harris