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 $900,000, 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 8% 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.)
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. Prepar 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.
Answer 1-b: Journal entry as of January 1, 2021 for purchase of lathe: Equipment___________________$830,414 Discount on notes... View the full answer