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Exercise 14-18 (Algo) Note with unrealistic interest rate; lender; amortization schedule [LO14-3] UN Ints 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 $400,000, 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 12% 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.) eBook Required: 1-a. Complete the below table to prepare the company's journal entry. 1-b. Prepare the journal entry on January 1, 2021, for Truax Corporation's sale of the lathe. Assume Truax spent $200,000 to construct 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 for Truax. Print Complete this question by entering your answers in the tabs below. References Reg 1A Reg 1B Reg 2 Reg 3 Complete the below table to prepare the company's journal entry. (Round final answers to the nearest whole dollar) Table values are based on: Present Value Cash Flow Amount Interest Principal Price of equipment < Reg 1A Req 1B >

Answer 1

Ans la Ans 1b Table Values based on n = 3 i = 12% Cash Flow Table Value x Amount = Present Value Interest (Annuity) $2.4018 x $20,000 $48,037 Par (Maturity) value $0.7118 x $4,00,000 = $2,84,712 Price of Notes Payable $3,32,749 Journal Entry Date General Journal Debit January 1, 2021 Notes Receivable $3,32,749 Sales (To record sales reveue ) January 1, 2021 Cost of Good Sold $2,00,000 Inventory (To record cost of good sold) Credit $3,32,749 $2,00,000 Ans 2 Year Cash Payment Effective Interest Increase in Balance Outstanding Balance $3,32,749 $3,52,679 $3,75,000 $4,00,000 $20,000 $20,000 $20,000 $39,930 [$332749 x 12%] $42,321 $352679 x 12%] $45,000 [$375000 x 12%] $19,930 $22,321 $25,000

Ans 3 Event Credit $20,000 $19,930 $39,930 $20,000 $22,321 $42,321 General Journal Debit Cash Notes Reveivable Interest Income (To record interest revenue) Cash Notes Reveivable Interest Income (To record interest revenue) Cash Notes Reveivable Interest Income (To record interest revenue) Cash Notes Reveivable (To record repayment of notes receivable) $20,000 $25,000 $45,000 $4,00,000 $4,00,000