Financial institutions such as insurance companies and pension plans hold large quantities of bond investments. Suppose Meridian Credit Union purchases $2,000,000 of 3.0 percent bonds of the Province of Manitoba at 105 on January 1, 2017. These bonds pay interest on January 1 and July 1 each year. They mature on January 1, 2027. Meridian plans to hold the bonds to maturity. Disregard commissions.
Required
1. Journalize Meridian's purchase of the bonds as a long-term investment on January 1, 2017, receipt of cash interest and amortization of premium on July 1, 2017, and accrual of interest revenue and amortization of premium at October 31, 2017, the fiscal year end. Assume the straight-line method is appropriate for amortizing the premium as there is no material difference from the effective-interest method.
2. Calculate the book value of the investment in the Province of Manitoba bonds at October 31, 2017.