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

Question:

Starbucks is a rapidly expanding 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 five years. The company has $5 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 $5 million at par for cash on July 1, 2011. The bonds pay 8 percent interest each June 30 and December 31 and mature in five years. Starbucks plans to hold the bonds until maturity.

Required:
1. What accounts are affected when the bonds are purchased on July 1, 2011?
2. What accounts are affected when interest is received on December 31, 2011?
3. Should Starbucks prepare a journal entry if the market value of the bonds decreased to $4,000,000 on December 31, 2011? 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...