Question

Amber Mining and Milling, Inc, contracted with Truax Corporation to have constructed a cu completed and ready for use on January 1, 2018. Amber paid for the lathe stom-made lathe. The machine was by issuing a $500,000 three-year note that specified 4% price of the lathe was unknown. It was determined by interest, payable annually on December 31 of each year. The cash market comparison with similar transactions that 8% was a reasonable rate of interest. PVAD of $) (Use appropriate factor(s) from the tables provided.) EVof Si. PY of S1, EVA of $1. PVA of S1 EVAD of $1 and Required 1-a. Complete the table below to determine the price of the equipment. 1-b. Prepare the journal entry on January 1, 2018, 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 Req 1B Req 2 Req 3 Complete the table below to determine the price of the equipment. (Round final answers to the nearest whole dollar.) Table values are based on: Amount Present Value Interest Principa Price of equipment Req 1B >

Answer 1

Answer

• All working forms part of the answer
• Requirement 1 ‘a’

Table values are based on
n =	3
i=	8%
Cash Flow	Amount	Present Value
Interest	$              20,000 [500000 x 4%]	$           51,542 [20000 x 2.5771]
Principal	$           500,000	$         396,915 [500000 x 0.79383]
Price of Equipment		$         448,457

• Requirement 1 ‘b’

Date	General Journal	Debit	Credit
01-Jan-18	Equipment	$           448,457
	Discount on Notes Payable	$              51,543
	Notes Payable		$         500,000

• Requirement 2

	Cash Payment	Effective Interest	Increase in Balance	Outstanding balance
				$          448,457
1	$                                          20,000	$              35,877 [448457 x 8%]	$           15,877	$          464,334
2	$                                          20,000	$              37,147	$           17,147	$          481,481
3	$                                          20,000	$              38,519	$           18,519	$          500,000
Total	$                                          60,000	$           111,543	$           51,543

• Requirement 3

Date	General Journal	Debit	Credit
31-Dec-18	Interest Expense	$    35,877
	Discount on Notes Payable		$    15,877
	Cash		$    20,000
31-Dec-19	Interest Expense	$    37,147
	Discount on Notes Payable		$    17,147
	Cash		$    20,000
31-Dec-20	Interest Expense	$    38,519
	Discount on Notes Payable		$    18,519
	Cash		$    20,000
31-Dec-20	Notes Payable	$ 500,000
	Cash		$ 500,000
	(payment at maturity)