Starbucks is a global company that provides high-quality coffee products. Assume that as part of its expansion

Question:

Starbucks is a global company that provides high-quality coffee products. Assume that as part of its expansion strategy, Starbucks plans to open numerous new stores in Mexico in three years. The company has $7 million to support the expansion and has decided to invest the funds in corporate bonds until the money is needed. Assume that Starbucks purchased bonds with $7 million face value at par for cash on July 1, 2012. The bonds pay 7 percent interest each June 30 and December 31 and mature in three years. Starbucks plans to hold the bonds until maturity.

Required:

1. What accounts are affected when the bonds are purchased on July 1, 2012?

2. What accounts are affected when interest is received on December 31, 2012?

3. Should Starbucks prepare a journal entry if the fair value of the bonds decreased to $6,000,000 on December 31, 2012? Explain.

Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...