Question

Bashir, Inc., an accrual method C-Corporation, borrowed $100,000 at 5% interest to purchase a $100,000 City of Minneapolis bond yielding 8% interest. In 2018, Bashir, Inc. incurred $5,000 in interest expense on the loan and $8,000 of interest income on the bond. Furthermore, in 2018, interest rates fell and the value of the bond increased to $115,000. Sara sold the bond on December 31, 2018 for $115,000. How much income and deduction must Bashir, Inc. recognize in 2018? Please show your work and explain your answer.