Miranda Company contracted with Stewart Corporation to construct custom-madeequipment. The equipment was completed and ready for use on January 1, 2016.Miranda paid for the machine by issuing a $200,000, three-year note that bears interest at the rate of 4%, payable annually on December 31 each year. Since themachine was custom-built, the cash price was unknown. However, when compared tosimilar contracts, 10% was deemed to be a reasonable rate of interest.

Required:

1. Prepare the journal entry by Miranda to record the purchase of equipment.

2. Prepare journal entries to record interest for each of the Frst two years.