In: Accounting
Holly Springs, Inc. contracted with Coldwater Corporation to
have constructed a custom-made lathe. The machine was completed and
ready for use on January 1, 2018. Holly Springs paid for the lathe
by issuing a $360,000 note due in three years. Interest, specified
at 2%, was 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 for which 6% was a reasonable
rate of interest. Holly Springs uses the effective interest method
of amortization. (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. Round your intermediate and final answers to the
nearest whole dollar.)
Required:
1. Prepare the journal entry on January 1, 2018,
for Holly Springs’ 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.
* Could you please include your calculations? *