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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   

2)

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.

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