Insurance companies and pension plans hold large quantities of bond investments. Prairie Insurance Corp. purchased $600,000 of

Question:

Insurance companies and pension plans hold large quantities of bond investments. Prairie Insurance Corp. purchased $600,000 of 5% bonds of Eaton Inc. for 104.5 on March 1, 2017, when the effective interest rate was 4%. These bonds pay interest on March 1 and September 1 each year. They mature on March 1, 2022. At February 28, 2018, the market price of the bonds is 103.5.

Requirements

1. Journalize Prairie's purchase of the bonds as a long-term investment on March 1, 2017 (to be held to maturity), receipt of cash interest and amortization of the bond investment on September 1, 2017, and accrual of interest revenue and amortization at February 28, 2018. Use the effective-interest method for amortizing the bond investment.

2. Show all financial statement effects of this long-term bond investment on Prairie Insurance Corp.'s balance sheet and income statement at February 28, 2018?

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...