Insurance companies and pension plans hold large quantities of bond investments. Sea Insurance Corp. purchased $2,000,000 of 9% bonds of Sheehan, Inc., for 96 on January 1, 2018. These bonds pay interest on January 1 and July 1 each year. They mature on January 1, 2022. Sea Insurance’s fiscal year end is October 31.

Requirements

1. Journalize Sea’s purchase of the bonds as a long-term investment on January 1, 2018 (to be held to maturity), receipt of cash interest, and amortization of the bond discount at July 1, 2018. The straight-line method is appropriate for amortizing the bond investment.

2. Journalize the accrual of interest receivable and amortization of the discount on October 31, 2018 (round the answer to the nearest whole number).