Cathy Company purchased a machine at the beginning of 1998 with a three-year, $2,000, 5 percent note, payable in three equal annual payments of $734 (including principal and interest) at each year-end. The current market rate of interest for this level of risk was 12 percent.
Required:
1. What was the cost of the machine to Cathy Company?
2. Give the entry by Cathy to record the purchase. Use the net approach.
3. Prepare the amortization schedule for the note.
4. Give the entries for both the debtor and the creditor at the end of each year (assuming that the accounting year-end for the debtor and creditor coincides with the note's year-end).