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 $500,000, 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 10% was a reasonable rate of interest.1.Complete the table below to determine the price of the equipment.2. Prepare the journal entry on January 1, 2016, for Amber Mining and Milling’s purchase of the lathe.3. Prepare an amortization schedule for the three-year term of the note.4. Prepare the journal entries to record (a) interest for each of the three years (b) payment of the note at maturity. Prepare the journal entry on January 1, 2016, for Amber Mining and Milling’s purchase of the lathe.

The price of the machinery is the present value of future cash flows,which is

$ 425,395  as shown in the attached

The journal entry for the purchase of lathe is journal named 1b in the attached.

The amortization schedule is number 2 in the attached.

The journal entries showing yearly interest is 3a while 3b is the one for payment of note at maturity.

Explanation:

In computing the present I used annuity for table for interest for yearly of $20000 at 10% for 3 years which gives 2.486852  while I used present value table for the repayment at 10% in year 3.

you will have $2593.74 in 10 years if you set aside $1,000 at 10%

you will have $9321.91 in 20 years if you set aside $2000 at 8%

you will have $1469.32 in 5 years if you set aside $1000 at 8%

you will have $1296.87 in 10 years if you set aside $500 at 10%

you will have $239.66 in 15 years if you set aside $100 at 6%

you will have $4660.96 in 20 years if you set aside $1000 at 8%