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, 2016. Amber paid for the lathe by issuing a $720,000, 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 20% 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 below table to prepare the company's journal entry.

******* I NEED HELP WITH THE ANSWERS THAT ARE INCORRECT AND THE ONES I LEFT BLANK ******

PLEASE & THANK YOU

Table values are based on: 3 20.0% $ Cash Flow Amount Interest $ 28,800 Principal $ 720,000 Price of machinery Present Value 416,663 60,664 477,327 $

1-b.	Prepare the journal entry on January 1, 2016, for Truax Corporation’s sale of the lathe. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

3.	Prepare the journal entries to record (a) interest for each of the three years and (b) payment of the note at maturity for Truax. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

(I need help with all the journal entries)

Answer 1

1-a

Table values are based on:
n =	3
i =	20.0%
Cash flow	Amount	Present value
Interest	28800	60667
Principal	720000	416664
Price of machinery		$477331

Interest	28800	X	2.10648	=	60667
principal	720000	x	0.57870	=	416664
Present value (price) of the notes					477331

720000*4% = 28800

Present value of an ordinary annuity of $1: n= 3, i= 20% =2.10648

Present value of $1: n= 3, i= 20% = 0.57870

Part 1-b

Date	General Journal	Debit	Credit
January 1, 2021	Machinery	477331
	Discount on notes payable (720000-477331)	242669
	Notes payable		720000
	(to record the purchase of the lathe)

Part 2

Amortization schedule

	Cash Payment	Effective interest	Increase in balance	Carrying Value
				477331
1	28800	95466	66666	543997
2	28800	108799	79999	623996
3	28800	67204	96004	720000
Total	86400	271469	242669

Cash payment = 720000*4% = 28800

Effective interest = previous carrying value *20%

Increase in balance = effective interest – cash payment

Carrying value = previous carrying value - Increase in balance

Part 3

Event	General Journal	Debit	Credit
1	Interest expense	95466
	Discount on notes payable		66666
	Cash		28800
	(to record first interest payment)
2	Interest expense	108799
	Discount on notes payable		79999
	Cash		28800
	(to record second interest payment)
3	Interest expense	124804
	Discount on notes payable		96004
	Cash		28800
	(to record third interest payment)
4	Notes payable	720000
	Cash		720000
	(to payment of note at maturity)