E14-18 Note with unrealistic interest rate; lender;amortization schedule. Amber Mining and Miling, Inc.,contracted with Truax Corporation to have constructed a custom-madelathe. The machine was completed and ready for use on January 1,2016. Amber paid for the lathe by issuing a $600,000, 3 year notethat specified 4% interest, payable annually on December 31 of eachyear. The cash market price of the lathe was unknown. It wasdetermined by comparison with similar transactions that 12% was areasonable rate of interest.
1. Prepare the journal entry on January 1, 2016 for TruaxCorporation's sale of the lathe.
2. Prepare and amortization schedule for the three-year term ofthe note.
3. prepare the journal entries to record (a) interest for eachof the three years and (b) payment of the note at the maturity forTruax.