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, 2021. Holly Springs paid for the lathe by issuing a $260,000 note due in three years. Interest, specified at 3%, 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 7% was a reasonable rate of interest.

A. Record for the Holly Springs purchase on January 1, 2021

B. Prepare an amortization schedule for the three-year term of the note.

C. Prepare the journal entries to record (a) interest for each of the three years and (b) payment of the note at maturity. (