(Learning Objective 1: Accounting for a bond investment purchased at a premium)

Insurance companies and pension plans hold large quantities of bond investments. Sea Insurance Corp. purchased $2,400,000 of 4.0% bonds of Sheehan, Inc., for 110 on January 1, 20X0.

These bonds pay interest on January 1 and July 1 each year. They mature on January 1, 20X4.

At October 31, 20X0, the market price of the bonds is 108.

❙ Requirements 1. Journalize Sea’s purchase of the bonds as a long-term investment on January 1, 20X0

(to be held to maturity), receipt of cash interest, and amortization of the bond investment at July 1, 20X0. The straight-line method is appropriate for amortizing the bond investment.

2. Show all fi nancial statement effects of this long-term bond investment on Sea Insurance Corp.’s balance sheet and income statement at October 31, 20X0.