Amber Mining and Milling, Inc., contracted with TruaxCorporation to have constructed a custom-made lathe....

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Accounting

Amber Mining and Milling, Inc., contracted with TruaxCorporation to have constructed a custom-made lathe. The machinewas completed and ready for use on January 1, 2018. Amber paid forthe lathe by issuing a $750,000, three-year note that specified 3%interest, payable annually on December 31 of each year. The cashmarket price of the lathe was unknown. It was determined bycomparison with similar transactions that 12% was a reasonable rateof interest.

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4.1 Ratings (531 Votes)

a) jornal entry for purchase of lathe

Cash flow	amount	present value
Interest	22500	54041
Principal	750000	533835
Price		587876

1) machinery a/c . Dr. 587878

Discount on notes payble a/c dr. 162124

To notes payble a/c. 750000

Year	Cash payment	bond interest expense	discount amortizatiom	carrying value
				587876
1	22500	70545	48045	635921
2	22500	76311	53811	689732
3	22500	82768	60268	750000

3) journal entry for a)interest expense b) payment of the note at maturity.

Event	journal	debit	credit
1)	interest expense alc dr.	70545
	To Discount on notes payble		48045
	To cash		22500

2)	interest expense	76311
	To discount on notes payble		53811
	To cash		22500

3)	interest expense	82768
	To discount on notes payble		60268
	To cash		22500

4)	notes payble	750000
	To cash		750000

For any query please comment and do give positive rating

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In: AccountingAmber Mining and Milling, Inc., contracted with TruaxCorporation to have constructed a custom-made lathe. The...Amber Mining and Milling, Inc., contracted with TruaxCorporation to have constructed a custom-made lathe. The machinewas completed and ready for use on January 1, 2018. Amber paid forthe lathe by issuing a $750,000, three-year note that specified 3%interest, payable annually on December 31 of each year. The cashmarket price of the lathe was unknown. It was determined bycomparison with similar transactions that 12% was a reasonable rateof interest.