E14-18 Note with unrealistic interest rate; lender; amortization schedule. Amber Mining and Miling, 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 $600,000, 3 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 12% was a reasonable rate of interest.

1. Prepare the journal entry on January 1, 2016 for Truax Corporation's sale of the lathe.

2. Prepare and 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 the maturity for Truax.