Sonic Corp. operates and franchises a chain of quick-service drive-in restaurants in most of the United States and in Mexico. Customers drive up to a canopied parking space and order food through an intercom speaker system. A carhop then delivers the food to the customer. Assume that Sonic has $10 million in cash to support future expansion and has decided to invest the funds in corporate bonds until the money is needed. Sonic purchases bonds with $10 million face value for $10.3 million cash on January 1, 2011. The bonds pay 8 percent interest annually with payments each June 30 and December 31 and mature in four years. Sonic plans to hold the bonds until maturity.

1. What accounts were affected when the bonds were purchased on January 1, 2011?
2. What accounts were affected when interest was received on June 30, 2011?
3. Should Sonic prepare a journal entry if the market value of the bonds decreased to $9,700,000 on December 31, 2011? Explain.

  • CreatedJuly 27, 2012
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