Financial institutions such as insurance companies and pension plans hold large quantities of bond investments. Suppose The Prudential Insurance Company purchases \(\$ 500,000\) of 8-percent bonds of General Motors Corporation for 92 on January 31, 19X0. These bonds pay interest on January 31 and July 31 each year. They mature on July 31, 19X8. At December 31, 19X0, the market price of the bonds is 93 .

\section*{Required}

1. Journalize Prudential's purchase of the bonds as a long-term investment on January 31, 19X0 (to be held to maturity), receipt of cash interest and amortization of discount on July 31, 19X0, and accrual of interest revenue and amortization of discount at December 31, 19X0. Assume that the straight-line method is appropriate for amortizing discount.

2. Show all financial statement effects of this long-term bond investment at December 31, 19X0. Assume a multiple-step income statement.

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

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

Computing the cost of a bond investment and journalizing its transactions

(Obj. 4)

Journalizing foreign-currency transactions and reporting the transaction gain or loss, translating a foreign-currency balance sheet

(Obj. 5, 6)