Novak Corp. issued 2,000 8%, 9-year, $1,000 bonds dated January 1, 2022, at face value. Interest is paid each January 1.

b) Prepare the adjusting journal entry on December 31, 2022, to record interest expense.

c) Prepare the journal entry on January 1, 2023, to record interest paid.

Part B.

Dr Interest expense ($2,000,000 * 8%) $160,000

Cr Interest payable $160,000

Part C.

Dr Interest payable $160,000

Cr Cash $160,000

Explanation:

Part A.

On Jan 1, 2022, the bond issued would be recorded as under:

Dr Cash (2000 bonds * $1000 par value) $2,000,000

Cr Bonds payables $2,000,000

Part B.

On Dec 31, 2022, the interest accrued would be recorded as under:

Dr Interest expense ($2,000,000 * 8%) $160,000

Cr Interest payable $160,000

Part C.

On Jan 1, 2023, the payment of the interest would be recorded as under:

Dr Interest payable $160,000

Cr Cash $160,000