FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
Question
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Chapter 9, Problem 6AP

1.

To determine

Identify the present value of debt.

1.

Expert Solution
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Answer to Problem 6AP

The present value of debt of Company E is [$1,361,160+$598,907] $1,960,067.

Explanation of Solution

Present value:

Present value is the current value of an amount that is to be paid or received in future. Present value is determined by using the formula:

Present Value = 1(1+i)n×Amount

 Annuity:

 An annuity is referred as a sequence of payment of fixed amount of cash flows that occurs over the equal intervals of time.

Working Notes:

Calculate the present value of debt for the borrowed money of $2,000,000 to be repaid in five years:

Present Value = 1(1+i)n×Amount=1(1+0.08)5×$2,000,000=$1,361,160

Therefore, the present value of debt for the borrowed money of $2,000,000 to be repaid in five years is $1,361,160.

Calculate the present value of annuity for an agreed amount interest each year for five years:

Present Value =1(1+i)ni×Amount=1(1+0.08)58%×$150,000=3.99271×$150,000=$598,907

Therefore, the present value of annuity for an agreed amount interest each year for five years is $598,907.

Therefore, the present value of debt of Company E is [$1,361,160+$598,907] $1,960,067.

2.

To determine

Identify the single amount the company must deposit on January 1 and also identify the total amount of interest revenue that will be earned.

2.

Expert Solution
Check Mark

Explanation of Solution

Determine the single amount that Company E must deposit on January 1:

Present Value = 1(1+i)n×Amount=1(1+0.08)10×$1,000,000=0.46319×$1,000,000=$463,190

Therefore, the single amount that Company E must deposit on January 1 is $463,190.

Identify the total amount of interest revenue that will be earned by Company E:

The total amount of interest revenue that will be earned by the Company E is $536,810[$1,000,000$463,190].

3.

To determine

Identify the amount of each of the equal annual payments that will be paid on the note by Company E and also identify the total amount of interest expense that will be accrued by Company E.

3.

Expert Solution
Check Mark

Explanation of Solution

Identify the amount of each of the equal annual payments that will be paid on the note by Company E:

Amount of equal annual payment for four years}=(Machine purchasedCash paid on                                      machine purchased)Annuity value for 4 years=($750,000$400,000)3.31213=$350,0003.31213=$105,672

Therefore, the amount of each of the equal annual payments that will be paid on the note by Company E is $105,672.

Working Note:

Annuity value for 4 years = 1(1+0.08)48%=0.2649701470.08=3.31213

Identify the total amount of interest expense that will be accrued by Company E:

Total interest accrued = ( Annual payment for one year ×Number of years of annual payment )(Remaining amount to be paid on purchase)=($105,672×4)$350,000=$422,688$350,000=$72,688

Therefore, the total amount of interest expense that will be accrued by Company E is $72,688.

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Chapter 9 Solutions

FINANCIAL ACCOUNTING

Ch. 9 - Prob. 11QCh. 9 - Prob. 12QCh. 9 - Prob. 13QCh. 9 - 14. Define annuity. Ch. 9 - Prob. 15QCh. 9 - 16. You purchased a new car and promised to pay...Ch. 9 - Prob. 1MCQCh. 9 - Prob. 2MCQCh. 9 - 3. Which of the following best describes accrued...Ch. 9 - Prob. 4MCQCh. 9 - 5. A company is facing a lawsuit from a customer....Ch. 9 - 6. Which of the following transactions would...Ch. 9 - 7. How is working capital calculated? Current...Ch. 9 - 8. The present value of an annuity of $10,000 per...Ch. 9 - Prob. 9MCQCh. 9 - Prob. 10MCQCh. 9 - Prob. 1MECh. 9 - M9-2 Computing and Interpreting Accounts Payable...Ch. 9 - Prob. 3MECh. 9 - Prob. 4MECh. 9 - Prob. 5MECh. 9 - M9-6 Computing Working Capital The balance sheet...Ch. 9 - M9-7 Analyzing the Impact of Transactions on...Ch. 9 - M9-8 Accounting for Long-Term Liabilities:...Ch. 9 - Prob. 9MECh. 9 - M9-10 Computing the Present Value of an...Ch. 9 - Computing the Present Value of a Complex...Ch. 9 - Computing Present Values and Recording Long-Term...Ch. 9 - Identifying Current Liabilities, Computing Working...Ch. 9 - Paul Company completed the salary and wage...Ch. 9 - Computing Payroll Costs; Discussion of Labor...Ch. 9 - Recording a Note Payable through Its Time to...Ch. 9 - E9-5 Determining Financial Statement Effects of...Ch. 9 - Prob. 6ECh. 9 - Calculating and Explaining the Accounts Payable...Ch. 9 - Reporting Notes Payable and Calculating Interest...Ch. 9 - Prob. 9ECh. 9 - Using Working Capital Saks Fifth Avenue’s balance...Ch. 9 - E9-11 Reporting a Long-Term Liability McDonald’s...Ch. 9 - Prob. 12ECh. 9 - Prob. 13ECh. 9 - Computing a Present Value An investment will pay...Ch. 9 - Computing a Present Value An investment will pay...Ch. 9 - Computing a Present Value Involving an Annuity and...Ch. 9 - Prob. 17ECh. 9 - Prob. 18ECh. 9 - Calculating a Retirement Fund You are a financial...Ch. 9 - Determining an Educational Fund Judge Drago has...Ch. 9 - Prob. 21ECh. 9 - Prob. 22ECh. 9 - Prob. 23ECh. 9 - Prob. 24ECh. 9 - Prob. 1PCh. 9 - Prob. 2PCh. 9 - Prob. 3PCh. 9 - During its first year of operations, Walnut...Ch. 9 - Use the data from Problem P9-4 to complete this...Ch. 9 - Prob. 6PCh. 9 - Prob. 7PCh. 9 - Prob. 8PCh. 9 - Prob. 9PCh. 9 - For each of the following transactions, determine...Ch. 9 - Prob. 11PCh. 9 - Prob. 12PCh. 9 - P9-13 (Chapter Supplement B) Recording and...Ch. 9 - Prob. 14PCh. 9 - Prob. 1APCh. 9 - Determining Financial Effects of Transactions...Ch. 9 - Prob. 3APCh. 9 - Calculating and Explaining the Accounts Payable...Ch. 9 - For each of the following transactions, determine...Ch. 9 - Prob. 6APCh. 9 - Prob. 7APCh. 9 - Prob. 8APCh. 9 - Prob. 1CONCh. 9 - Prob. 1CPCh. 9 - Prob. 2CPCh. 9 - Prob. 3CPCh. 9 - Prob. 4CPCh. 9 - Prob. 5CP
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