Answer:
the journal entry for recording the issuance of the bonds
January 1, 2021, bond issued at a discount
Dr Cash 368,000
Dr Discount on bonds payable 32,000
Cr Bonds payable 400,000
the journal entry to record first coupon payment
June 30, 2021, first coupon payment
Dr Interest expense 18,400
Cr Cash 16,000
Cr Discount on bonds payable 2,400
amortization of discount = (368,000 x 5%) - 16,000 = 2,400
the journal entry to record second coupon payment
December 31, 2021, second coupon payment
Dr Interest expense 18,520
Cr Cash 16,000
Cr Discount on bonds payable 2,520
amortization of discount = (370,400 x 5%) - 16,000 = 2,520
bonds' carrying value before adjustment = $372,920
bonds' fair value = $370,000
gain on fair value adjustment = $372,920 - $370,000 = $2,920
the journal entry to record the fair value adjustment of bonds
December 31, 2021, adjusting entry for bonds' fair market value
Dr Fair value adjustment 2,920
Cr Unrealized gain on bonds' fair value 2,920
