Answer:
1) the price of the bonds can be determined by calculating the PV of the face value and coupon payments:
PV of face value = $1,000 / 1.05⁴⁰ = $142.05
PV of coupon payments = $40 x 17.159 (PV annuity factor, 5%, 40 periods) = $689.36
PV of each bond = $831.41 x 400 = $332,564
January 1, 2021, bonds issued at a discount
Dr Cash 332,564
Dr Discount on bonds payable 67,436
Cr Bonds payable 400,000
2) amortization of bond discount = (332,564 x 5%) - 16,000 = $628.20 ≈ $628
June 30, 2021, first coupon payment
Dr Interest expense 16,628
Cr Cash 16,000
Cr Discount on bonds payable 628
3) amortization of bond discount = (333,192 x 5%) - 16,000 = $659.60 ≈ $660
December 31, 2021, first coupon payment
Dr Interest expense 16,660
Cr Cash 16,000
Cr Discount on bonds payable 660
4) bonds carrying value on December 31, 2021 = $333,852 - $335,000 = $1,148
December 31, 2021, adjusting entry for bonds' fair market value
Dr Unrealized loss on bonds' fair value 1,148
Cr Fair value adjustment 1,148
