Blue Spruce Corp. issued 1,100 6%, 5-year, $1,000 bonds dated January 1, 2022, at face value. Interest is paid each January 1. (a) Prepare the journal entry to record the sale of these bonds on January 1, 2022. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
(b) Prepare the adjusting journal entry on December 31, 2022, to record interest expense. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
(c) Prepare the journal entry on January 1, 2023, to record interest paid. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

a.

January 1, 2022

Cash                                       $1100000 Dr

       Bonds Payable                        $1100000 Cr

b.

December 31, 2022

Interest expense                       $66000 Dr

     Interest Payable                                  $66000 Cr

c.

January 1, 2023

Interest Payable                             $66000 Dr

            Cash                                            $66000 Cr

Explanation:

a.

The bonds are issued at face value. The face value of each bond is $1000 and there are 1100 bonds issued in total. Thus, the cash received from issuance of bonds is,

Cash = 1100 * 1000 = $1100000

So, we debit the cash by this amount and credit the bonds payable account.

b.

The interest expense for the year on these bonds is,

1100000 * 0.06 = $66000

The adjusting entry made on December 31 2022 will include a debit to the interest expense and a credit to the interest payable. The interest expense will be debited because under the accrual principle, we match the expenses to the period to which they relate.

c.

The entry to record payment of interest will result in a debit to interest payable as liability is being closed through this payment and a credit to cash