What amount of interest income should Harold report after selling his bond?

In determining the amount of interest income Harold should report after selling his bond, it is essential to differentiate between various incomes associated with bonds. Harold would report interest income based on the accrued interest that he earned on the bond prior to its sale. This includes any coupon payments, as these represent the periodic interest payments made to bondholders.

In option C, the provision of $375 of interest income effectively captures the total interest income Harold earned from holding the bond prior to its sale. This amount comes from the coupons received during the time Harold owned the bond and effectively reflects the scenario where Harold was an active bondholder, receiving interest payments.

Moreover, the inclusion of a $50 short-term capital gain aligns with typical bond transactions, especially if Harold sold the bond for more than its adjusted basis. The capital gain reflects the profit made from the sale of the bond over its purchase price, distinguishing it from regular interest income.

In summary, reporting $375 of interest income along with a $50 short-term capital gain accurately captures the total financial activity involving the bond. This scenario depicts a complete picture of Harold's returns from both interest accrued and a profitable sale of the asset.