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

Insurance companies and pension plans hold large quantities of bond investments. Safe Insurance Corp. purchased €2,700,000 of 8.0% bonds of Sherman, Inc., for 118 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 104.

❙ Requirements 1. Journalize Safe’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 Safe Insurance Corp.’s balance sheet and income statement at October 31, 20X0.