Question

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 $850,000, three-year note that specified 4% 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 9% 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.) Required: 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. 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.

Complete this question by entering your answers in the tabs below. Req 1A Reg 1B Req 2 Req3 Complete the table below to determine the price of the equipment. (Round final answers to the nearest whole dollar.) Table values are based on: n = Present Value Cash Flow Amount Interest Principal Price of equipment Req1A Req13 >

Answer 1

Req 1A

Table values are based on:
n =	9%
i =	3
Cash Flow	Amount	Present Value
Interest	$         34,000	$         86,064
Principal	$       850,000	$       656,356
Price of equipment	$       742,420

Req 1B

Account	Debit	Credit
Equipment	$       742,420
Discount on Notes Payable	$       107,580
Notes Payable		$       850,000

Req 2

	Cash Payment	Effective Interest	Increase in Balance	Outstanding Balance
				$                   742,420
1	$    66,817.80	$               34,000	$             32,817.80	$                   775,238
2	$    69,771.40	$               34,000	$             35,771.40	$                   811,009
3	$    72,990.83	$               34,000	$             38,990.83	$                   850,000
Total	$ 209,580.02	$       102,000.00	$           107,580.02

Req 3

	Account	Debit	Credit
Year 1	Interest Expense	$         66,818
	Cash		$         34,000
	Discount on Notes Payable		$         32,818
Year 2	Interest Expense	$         69,771
	Cash		$         34,000
	Discount on Notes Payable		$         35,771
Year 3	Interest Expense	$         72,991
	Cash		$         34,000
	Discount on Notes Payable		$         38,991
(b)	Notes Payable	$       850,000
	Cash		$       850,000