Financial institutions such as insurance companies and pension plans hold large quantities of bond investments. Suppose Ostway Insurance Co. purchases \(\$ 600,000\) of 9-percent bonds of Royal Corporation for 103 on March 1, 19X1. These bonds pay interest on March 1 and September 1 each year. They mature on March 1, 19X8. At December 31, 19X1, the market price of the bonds is \(1031 / 2\).

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1. Journalize Ostway's purchase of the bonds as a long-term investment on March 1,19X1 (to be held to maturity), receipt of cash interest, and amortization of premium at December 31, 19X1. Assume that the straight-line method is appropriate for amortizing premium.

2. Show all financial statement effects of this long-term bond investment at December 31, 19X1. Assume a multiple-step income statement.

3. Repeat Requirement 2 under the assumption that Ostway purchased these bonds as a trading investment.

Note: Problem 17-6B is based on the appendix in Chapter 16.