In: Accounting
Amber Mining and Milling, Inc., contracted with Truax
Corporation to have constructed a custom-made lathe. The machine
was completed and ready for use on January 1, 2021. Amber paid for
the lathe by issuing a $800,000, three-year note that specified 5%
interest, payable annually on December 31 of each year. The cash
market price of the lathe was unknown. It was determined by
comparison with similar transactions that 9% was a reasonable rate
of interest. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1
and PVAD of $1) (Use appropriate factor(s) from the tables
provided.)
Required:
1-a. Complete the table below to determine the
price of the equipment.
1-b. Prepare the journal entry on January 1, 2021,
for Amber Mining and Milling’s purchase of the lathe.
2. Prepare an amortization schedule for the
three-year term of the note.
3. Prepare the journal entries to record (a)
interest for each of the three years and (b) payment of the note at
maturity.