Insurance companies and pension plans hold large quantities of bond investments. Safe Insurance Corp. purchased $2,700,000 of

Question:

Insurance companies and pension plans hold large quantities of bond investments.
Safe Insurance Corp. purchased $2,700,000 of 8.0% bonds of Sherman, Inc., for 118 on January 1, 2010. These bonds pay interest on January 1 and July 1 each year. They mature on January 1, 2014. At October 31, 2010, the market price of the bonds is 104.

Requirements
1. Journalize Safes purchase of the bonds as a long-term investment on January 1, 2010 (to be held to maturity), receipt of cash interest, and amortization of the bond investment at July 1, 2010. The straight-line method is appropriate for amortizing the bond investment.
2. Show all financial statement effects of this long-term bond investment on Safe Insurance Corp.’s and income statement at October 31, 2010.

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...