Starbucks is a rapidly expanding company that provides high-quality coffee products. Assume that as pan 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 face value at par for cash on July 1 , 2004. The bonds pay 8 percent interest each June 30 and December 3 1 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 2, 2004? 2. What accounts are affected when interest is received on December 3 1 , 2004? 3. Should Starbucks prepare a journal entry if the market value of the bonds decreased to $4,000,000 on December 31, 2004? Explain.