Answer:
1) I used an excel spreadsheet to prepare a bond amortization schedule
2) the issue price of the bonds was:
PV = $1,000 / (1 + 6%)⁷ = $665.06
PV of coupon payments = $40 x 5.5824 (PV annuity factor, 7 periods, 6%) = $223.30
market price = $888.36
March 1, 2020, bonds issued at a discount
Dr Cash 441,514.92
Dr Discount on bonds payable 55,485.08
Cr Bonds payable 497,000
September 1, 2020, first coupon payment
Dr Interest expense 26,490.90
Cr Cash 19,880
Cr Discount on bonds payable 6,610.90
amortization of discount = (441,514.92 x 0.06) - 19,880 = 6,610.90
December 31, 2020, accrued interests on bonds payable
Dr Interest expense 17,925.03
Cr Interest payable 13,253.33
Cr Discount on bonds payable 4,671.70
amortization of discount = (448,125.82 x 0.06 x 2/3) - 13,253.33 = 4,671.70
March 1 , 2021, second coupon payment
Dr Interest expense 9,055.95
Dr Interest payable 13,253.33
Cr Cash 19,880
Cr Discount on bonds payable 2,429.28
amortization of discount = (452,797.52 x 0.06 x 1/3) - 6,626.67 = 2,429.28
September 1 , 2021, third coupon payment
Dr Interest expense 27,313.61
Cr Cash 19,880
Cr Discount on bonds payable 7,433.61
amortization of discount = (455,226.80 x 0.06) - 19,880 = 7,433.61
December 31, 2021, accrued interests on bonds payable
Dr Interest expense 18,506.42
Cr Interest payable 13,253.33
Cr Discount on bonds payable 5,253.09
amortization of discount = (462,660.41 x 0.06 x 2/3) - 13,253.33 = 5,253.09
March 1 , 2022, fourth coupon payment
Dr Interest expense 9,358.27
Dr Interest payable 13,253.33
Cr Cash 19,880
Cr Discount on bonds payable 2,731.60
amortization of discount = (467,913.50 x 0.06 x 1/3) - 6,626.67 = 2,731.60
September 1 , 2022, fifth coupon payment
Dr Interest expense 28,238.71
Cr Cash 19,880
Cr Discount on bonds payable 8,358.71
amortization of discount = (470,645.10 x 0.06) - 19,880 = 8,358.71
December 31 , 2022, accrued interests on bonds payable
Dr Interest expense 19,160.15
Cr Interest payable 13,253.33
Cr Discount on bonds payable 5,906.82
amortization of discount = (479,003.81 x 0.06 x 2/3) - 13,253.33 = 5,906.82
March 1 , 2023, sixth coupon payment
Dr Interest expense 9,698.21
Dr Interest payable 13,253.33
Cr Cash 19,880
Cr Discount on bonds payable 3,071.54
amortization of discount = (484,910.63 x 0.06 x 1/3) - 6,626.67 = 3,071.54
September 1 , 2023, seventh coupon payment
Dr Interest expense 28,897.83
Cr Cash 19,880
Cr Discount on bonds payable 9,017.83
