High School

Amber Mining and Milling, Inc. contracted with Truax Corporation to have a custom-made lathe constructed. The machine was completed and ready for use on January 1, 2021. Amber paid for the lathe by issuing an $800,000 three-year note that specified 5% 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 9% was a reasonable rate of interest.

Prepare the journal entry on January 1, 2021, for Amber Mining and Milling's purchase of the lathe.

Answer :

The journal entry for purchase on January 1, 2021 involves debiting Machinery and crediting Notes Payable for $800,000.

Journal Entry for Amber Mining and Milling, Inc. on January 1, 2021:

  • Debit: Machinery $800,000
  • Credit: Notes Payable $800,000

The entry reflects the purchase of the custom-made lathe using a $800,000, three-year note with 5% interest payable annually on December 31. The entry records the acquisition of the machinery with the issuance of the note.

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