Problem:
Davison Carecenters Inc. provides financing and capital to the health-care industry, with a particular focus on nursing homes for the elderly. The following selected transactions relate to bonds acquired as an investment by Davison, whose fiscal year ends on December 31.2008
Jan. 1 Purchased at par $2,000,000 of Hannon Nursing Centers, Inc., 10-year, 8% bonds dated January 1, 2008, directly from Hannon.
July 1 Received the semiannual interest on the Hannon bonds.
Dec. 31 Accrual of interest at year-end on the Hannon bonds.
(Assume that all intervening transactions and adjustments have been properly recorded and that the number of bonds owned has not changed from December 31, 2008, to December 31, 2010.)
2011
Jan. 1 Received the semiannual interest on the Hannon bonds.
Jan. 1 Sold $1,000,000 Hannon bonds at 106. The broker deducted $6,000 for commissions and fees on the sale.
July 1 Received the semiannual interest on the Hannon bonds.
Dec. 31 Accrual of interest at year-end on the Hannon bonds.