Holly Springs, Inc. contracted with Coldwater Corporation tohave constructed a custom-made lathe. The machine was completed andready for use on January 1, 2018. Holly Springs paid for the latheby issuing a $220,000 note due in three years. Interest, specifiedat 2%, was payable annually on December 31 of each year. The cashmarket price of the lathe was unknown. It was determined bycomparison with similar transactions for which 6% was a reasonablerate of interest. Holly Springs uses the effective interest methodof amortization. (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 tablesprovided. Round your intermediate and final answers to the nearestwhole dollar.) Required: 1. Prepare the journal entry on January 1,2018, for Holly Springs’ purchase of the lathe. 2. Prepare anamortization schedule for the three-year term of the note. 3.Prepare the journal entries to record (a) interest for each of thethree years and (b) payment of the note at maturity.
