What is the correct calculation for interest income when selling a bond before its maturity?

When selling a bond before its maturity, the calculation for interest income should reflect the actual holding period of the bond. Therefore, the prorated amount based on the number of days held is the appropriate approach. This means that if you held the bond for part of a year, you would only recognize the interest income corresponding to the portion of the year that you owned the bond.

Bonds typically pay interest at specified intervals (e.g., semi-annually), and when a bond is sold in between these payment dates, the seller is entitled to the interest that has accrued during their period of ownership. Thus, the amount of interest income should accurately represent the time the bond was held, aligning with the fundamental principle of only recognizing income that has been earned during the holding period.

In contrast, other choices misrepresent the accurate reporting of interest income. For example, stating that the full year's interest is applicable disregards the fact that owners only receive interest for the duration they held the bond. Not reporting interest income at all if the bond is sold at a gain overlooks that interest must still be accounted for regardless of capital gains or losses on the bond. Lastly, suggesting that interest income cannot be calculated without the bond's selling price does not align with standard accounting