1. Note with unreasonable terms (funny money)

E Company purchased a truck for an agreed price of $135,000 on January 1, 2018, D Company paid $30,000 down and financed the balance with the dealer at an annual interest rate of 1/2%. Payments were due each quarter end, for 12 quarters, starting March 31, 2018.

It is clear that the truck could have been purchased for $125,000 cash.

Calculate the required payment under the note signed. Calculate the effective interest rate, as implied by the cash price of the truck. Prepare an amortization table for both the legal note and the note with true effective interest.

Make the entry needed on December 31, 2018

Assume that, after interest is paid on December 31, 2018, the loan is paid off and retired. Prepare the needed entry.