Insurance companies and pension plans hold large quantities of bond investments. Wolverine
Insurance Corp. purchased $600,000 of 6% bonds of Eaton, Inc., for 106 on March 1, 20X4.
These bonds pay interest on March 1 and September 1 each year. They mature on March 1,
20X8. At December 31, 20X4, the market price of the bonds is 103.5.

1.

Journalize Wolverines purchase of the bonds as a long-term investment on March 1,

20X4 (to be held to maturity), receipt of cash interest, and amortization of the bond

investment at December 31, 20X4. The straight-line method is appropriate for amortizing

the bond investment. (pp. 551552)

2.

Show all financial statement effects of this long-term bond investment on Wolverine

Insurance Corp.s balance sheet and income statement at December 31, 20X4. (p. 552)

Journal
DATE	ACCOUNT TITLES AND EXPLANATION				DEBIT	CREDIT
20X4
Mar. 1	Long-Term Investment in Bonds
		Cash				_________
	To purchase bond investment, Eaton.
Sept. 1	Cash ($600,000 x 0.06 x 6/12)				18,000
		Interest Revenue				18,000
	To receive semiannual interest, Eaton.
1	Long-Term Investment in Bonds [(600,000-______)/48] x 6					__________
		Interest Revenue
	To Amortize Bond Investment, Eaton.
Dec. 31	Interest Recieveable ($600,000 x 0.06 x 3/12)				9,000
		Interest Revenue				9,000
	To accrue interest revenue, Eaton.
31	Long-Term Investment in Bonds [($600,000-_______)/48] x 3					___________
		Interest Revenue
	To Amortize Bond Investment, Eaton.

Interest Revenue

To Amortize Bond Investment, Eaton.

Requirement 2

Balance sheet at December 31, 20X4:

Current assets:

Interest Recievable.

$9,000

Long-Term Investment in Bonds, Eaton.

628,500

Property, plant, and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

XXX,XXX

Income statement for the year ended December 31, 20X4

Other Revenues

Intersest Revenue

$22,500