On January 1, 2021, Yellowstone Industries Inc. purchased 9% bonds with a face value of $4,650,000 in Marathon Company.

Interest is paid semi-annually, on January 1 and July 1 of each year.

The bonds were purchased to generate a return at an effective rate of interest of 10%.

The bonds mature on January 1, 2028.

Yellowstone Industries uses the effective interest method and the amortized cost method to account for these bonds.

Yellowstone Industries has a year end of December 31.

Required:

1. Calculate the purchase price of the bonds, and prepare the journal entry by Yellowstone Industries to record the purchase. (3 marks)
2. Prepare a bond amortization schedule for the first 3 interest payments for this bond. Round all amounts to 2 decimal places. (2 marks)
3. Prepare the journal entries required by Yellowstone Industries to account for the bonds on each of the following dates:

July 1, 2021 (1.5 marks)

December 31, 2021 (1.5 marks)

4. Assume that the bond is sold at 96 on July 1, 2022. Record the journal entry for the sale of the investment by Yellowstone Industries. (2 marks)
5. Assume that Yellowstone Industries follows ASPE. Is there any other method that the company could use to amortize the bond premium or discount? If so, specify the name of the method. (1 mark)