Question

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.

Required:
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.



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  • CreatedJuly 27, 2012
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