1. (a)
Identify the present value of debt.
1. (a)
Answer to Problem 9.11P
The present value of debt of Company B is
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:
Annuity:
An annuity is referred as a sequence of payment of fixed amount of
Working Notes:
Calculate the present value of debt for the borrowed money of $115,000 to be repaid in seven years:
Therefore, the present value of debt for the borrowed money of $115,000 to be repaid in seven years is $71,616.
(1)
Calculate the present value of annuity for an agreed amount interest each year for seven years:
Therefore, the present value of annuity for an agreed amount interest each year for seven years is $32,336.
(2)
2. (b)
Identify the single amount the company must deposit on January 1 and also to identify the total amount of interest revenue that will be earned.
2. (b)
Explanation of Solution
Determine the single amount that Company B must deposit on January 1:
Therefore, the single amount that Company B must deposit on January 1 is $285,185.
Identify the total amount of interest revenue that will be earned by Company B:
The total amount of interest revenue that will be earned by the Company B is $204,815
3.(c)
Identify the present value.
3.(c)
Answer to Problem 9.11P
The present value of Company B for given obligation is
Explanation of Solution
Therefore, Company B’s present value to pay $75,000 to discharged employees at the end of first year is $70,094.
Therefore, Company B’s present value to pay $112,500 to discharged employees at the end of second year is $98,262.
Therefore, Company B’s present value to pay $150,000 to discharged employees at the end of third year is $122,445.
4.(d)
Identify the amount of each of the equal annual payments that will be paid on the note by Company B and also to identify the total amount of interest expense that will be accrued by Company B.
4.(d)
Explanation of Solution
Identify the amount of each of the equal annual payments that will be paid on the note by Company B:
Therefore, The amount of each of the equal annual payments that will be paid on the note by Company B is $33,169.
Working Note:
Identify the total amount of interest expense that will be accrued by Company B:
Therefore, the total amount of interest expense that will be accrued by Company B is $29,845.
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Chapter 9 Solutions
FINANCIAL ACCOUNTING 9TH
- Sharapovich Inc. borrowed $50,000 from Kerber Bank and signed a 5-year note payable stating the interest rate was 5% compounded annually. Sharapovich Inc. will make payments of $11,548.74 at the end of each year. Prepare an amortization table showing the principal and interest in each payment.arrow_forwardn January 1, Ellsworth Company completed the following transactions (use an 8% annual interest rate for all transactions) (FV of $1, PV of $1, FVA of $1, and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Borrowed $2,200. DOD to be repaid in five years. Agreed to pay a fixed amount of $154,000 at the end of each year for five years and a one-time payment of $2,200,000 at the end of the 5th year. Established a plant remodeling fund of $1,400,000 to be available at the end of Year 10. A single sum that will grow to $1,400,000 will be deposited on January 1 of this year. Purchased a $758,000 machine on January 1 of this year and paid cash, $404,000, A four-year note is signed for the balance. The note will be paid in four equal year-end payments starting on December 31 of this year. Required: 1. In transaction (a), determine the present value of the debt. 2-a. In transaction (b), what single amount must the company deposit January 1 of this year? 2-b. In transaction…arrow_forwardOn January 1, 2011, Boston Company completed the following transactions (use a 7 percent annual interest rate for all transactions) Borrowed $115,000 for seven years. Will pay $8,050 interest at the end of each year and repay the $115,000 at the end of the 7th year. In transaction, determine the present value of the debt. Please show your work.arrow_forward
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- K A company borrowed $13,000 paying interest at 8% compounded semi-annually. If the loan is repaid by payments of $2300 made at the end of each 6 months, construct a partial amortization schedule showing the last three payments, the total paid, and the total interest paid. Complete the table below for the last three payments. (Do not round until the final answer. Then round to the nearest cent as needed.) Payment Number Amount Paid Interest Paid Principal Repaid $ $2300 $2300 4 $ Outstanding Principal 50 Total Paid=$ (Do not round until the final answer. Then round to the nearest cent as needed.) Submit test Interest Paid=$ (Do not round until the final answer. Then round to the nearest cent as needed.)arrow_forwardK A company borrowed $13,000 paying interest at 8% compounded semi-annually. If the loan is repaid by payments of $2300 made at the end of each 6 months, construct a partial amortization schedule showing the last three payments, the total paid, and the total interest paid. Complete the table below for the last three payments. (Do not round until the final answer. Then round to the nearest cent as needed.) Payment Number Amount Paid Interest Paid Principal Repaid $ $2300 $2300 4 $ Outstanding Principal 50 Total Paid=$ (Do not round until the final answer. Then round to the nearest cent as needed.) Interest Paid=$ (Do not round until the final answer. Then round to the nearest cent as needed.)arrow_forwardA company purchased new equipment for $31,000 with a two-year installment note requiring 5% interest. The required monthly payment is $1,360. After the first month’s payment, what is the balance of the note? a. $30,723. b. $29,640. c. $29,769. d. $30,871.arrow_forward
- Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College