Problemaspen mining and milling inc contraced with raoul, Ask an Expert

Accounting

Problem:

Aspen Mining and Milling, Inc. contraced with Raoul Corporation to have construced a custom-made lathe. The machine was completed and ready for use on January 1, 2014. Aspen paid for the lathe by issuing a $600,000, 3-year note that specified 2% interest, payable annually on December 31 of each year. The cash market price of the lathe was unknown. Loans of this type were typically financed in the market at 10%. Aspen's incremental borrowing rate is also 10% for this type of loan.

Required:

Question 1: Prepare the Journal entry on January 1, 2014, for Aspen Mining and Millings purchase of the lathe.

Question 2: Prepare an amortization schedule for the 3-year term of the note.

Question 3: Prepare the journal entreis to record (a) interst for each of the 3 years and (b) payment of the note at maturity.

Note: Please show the work not just the answer.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91164859

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