Holly Springs, Inc. contracted with Coldwater Corporation to have constructed a custom-made lathe. The machine was completed and ready for use on January 1, 2018. Holly Springs paid for the lathe by issuing a $300,000 note due in three years. Interest, specified at 2%, was 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 for which 6% was a reasonable rate of interest.
Required:
(1.) Prepare the journal entry on January 1, 2018, for Holly Springs' purchase of 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.

Question

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The Answer of Holly Springs, Inc. contracted with Coldwater Corporation to have constructed a custom-made lathe. The machine was completed and ready for use on January 1, 2018. Holly Springs paid for the lathe by issuing a $300,000 note due in three years. Interest, specified at 2%, was 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 for which 6% was a reasonable rate of interest.
Required:
(1.) Prepare the journal entry on January 1, 2018, for Holly Springs' purchase of 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.