Insurance companies and pension plans hold large quantities of bond investments. Housemann Insurance Corp. purchased $2,600,000 of 10.0% bonds of Sardoan, Inc., for 114 on January 1, 2014. These bonds pay interest on January 1 and July 1 each year. They mature on January 1, 2018. At October 31, 2014, the end of the fiscal year, the market price of the bonds is 105.

1. Journalize Housemann’s purchase of the bonds as a long-term investment on January 1, 2014 (to be held to maturity), receipt of cash interest, and amortization of the bond premium at July 1, 2014. The straight-line method is appropriate for amortizing the bond investment.
2. Journalize the accrual of interest receivable and amortization of premium on October 31, 2014 (round answer to the nearest whole number).
3. Show all financial statement effects of this long-term bond investment on Housemann Insurance Corp.’s balance sheet at October 31, 2014, and income statement for the year ending October 31, 2014.

  • CreatedJuly 25, 2014
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