On the first day of 2021, Applebaum issues $860 million of its 6% bonds for $796 million. The bonds were priced with an effective interest rate of 8%. Interest is payable semiannually on June 30 and December 31. Applebaum records interest at the effective rate and elected the fair value option. One million dollars of the increase in fair value was due to a change in the general rate of interest. The rest of the change in fair value is due to a change in credit risk. On December 31, 2021, the fair value of the bonds was $812 million as determined by their market value.

Required: 1. Prepare the journal entry to record interest on June 30, 2021 (the first interest payment).

2. Prepare the journal entry to record interest on December 31, 2021 (the second interest payment).

3. Prepare the journal entry to adjust the bonds to their fair value for presentation in the December 31, 2021, balance sheet.