Determining Financial Statement Effects for Bonds Held to Maturity – 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 $15 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 $15 million face value for $15.7 million cash on January 1, 2011. The bonds pay 9 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 fair value of the bonds increased to $16,300,000 on December 31, 2011? Explain.