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

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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 $500,000, three-year note that specified 4%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 10% was a reasonable rateof interest. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1and PVAD of $1) (Use appropriate factor(s) from the tablesprovided.) Required: 1-a. Complete the table below to determine theprice of the equipment. 1-b. Prepare the journal entry on January1, 2018, for Amber Mining and Milling’s purchase of the lathe. 2.Prepare an amortization schedule for the three-year term of thenote. 3. Prepare the journal entries to record (a) interest foreach of the three years and (b) payment of the note atmaturity.

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3.8 Ratings (665 Votes)

Ques 1
tables values are based on
n 3
i 10%
cash flow amount present value
interest 20000 $            49,737
principal 500000 $         375,658
price of equipment $         425,395
note :
PVAF(i=12%,t=3)= 2.486852
PVIF(i=12%,t=3)= 0.751315
Journal entry on Jan 1
Equipment $                                      425,395
discount on notes payable $                                         74,605
notes payable 500000
Ques 2
period Cash payment Effective interest(10%) Increase in balance outstanding balance
$     425,395
1 20000 $            42,539 $          22,539 $     447,934
2 20000 $            44,793 $          24,793 $     472,727
3 20000 $            47,273 $          27,273 $     500,000
total $                                         60,000 $         134,606 $          74,606
Ques 3
no. General journal debit credit
1 Interest expense $            42,539
discoun on notes payable $          22,539
cash $          20,000
2 Interest expense $            44,793
discoun on notes payable $          24,793
cash $          20,000
3 Interest expense $            47,273
discoun on notes payable $          27,273
cash $          20,000
4 Notes payable $         500,000
cash $        500,000

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