Question

[The following information applies to the questions displayed below.]

On January 1, Boston Company completed the following transactions (use a 7% annual interest rate for all transactions): (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided.)

1. Borrowed $118,000 for nine years. Will pay $7,500 interest at the end of each year and repay the $118,000 at the end of the 9th year.
2. Established a plant remodeling fund of $492,250 to be available at the end of Year 10. A single sum that will grow to $492,250 will be deposited on January 1 of this year.
3. Agreed to pay a severance package to a discharged employee. The company will pay $76,500 at the end of the first year, $114,000 at the end of the second year, and $151,500 at the end of the third year.
4. Purchased a $177,500 machine on January 1 of this year for $35,500 cash. A five-year note is signed for the balance. The note will be paid in five equal year-end payments starting on December 31 of this year.

References

Section BreakP9-11 Computing Present Values LO9-7, 9-8

11.

value:
7.14 points

Required information

P9-11 Part 1

Required:

1. In transaction (a), determine the present value of the debt. (Round your answer to nearest whole dollar.)

References

eBook & Resources

WorksheetDifficulty: 3 HardLearning Objective: 09-08 Apply the present value concept to the reporting of long-term liabilities.

P9-11 Part 1Learning Objective: 09-07 Compute and explain present values.

Check my work

12.

value:
7.14 points

Required information

P9-11 Part 2

2-a. In transaction (b), what single sum amount must the company deposit on January 1 of this year? (Round your answer to nearest whole dollar.)

    

2-b. What is the total amount of interest revenue that will be earned? (Round your answer to nearest whole dollar.)

  

References

eBook & Resources

WorksheetDifficulty: 3 HardLearning Objective: 09-08 Apply the present value concept to the reporting of long-term liabilities.

P9-11 Part 2Learning Objective: 09-07 Compute and explain present values.

Check my work

13.

value:
7.14 points

Required information

P9-11 Part 3

3. In transaction (c), determine the present value of this obligation.

References

eBook & Resources

WorksheetDifficulty: 3 HardLearning Objective: 09-08 Apply the present value concept to the reporting of long-term liabilities.

P9-11 Part 3Learning Objective: 09-07 Compute and explain present values.

Check my work

14.

value:
7.18 points

Required information

P9-11 Part 4

4-a. In transaction (d), what is the amount of each of the equal annual payments that will be paid on the note?

    

4-b. What is the total amount of interest expense that will be incurred?

Answer 1

	1	Present Value of Debt
	Pmt	Amount of interest paid each year	$7,500
	Nper	Number of years of payment of interest	9
	Rate	Interest rate	7%
	Fv	Principal amount paid at the end	$118,000
	PV	Present Value of Debt	$113,048.42	(Using PV function of excel with Rate=7%, Nper=9, Pmt=-7500, Fv=-118000)
	2(a)	Single amount company should deposit:
	Rate	Interest rate	7%
	Nper	Number of years	10
	Fv	Amount to be available at end of year 10	$492,250
	PV	Single amount company should deposit:	$250,234.94	(Using PV function of excel with Rate=7%, Nper=10, Fv=-492250)
	2b	Total interest Revenue earned
		Single amount deposited	$250,234.94
		Total worth of deposit at end of 10 years	$492,250
		Total interest Revenue earned	$242,015.06	(492250-250234.94)
	3	Present value of obligation:
		N	A	PV=A/(1.07^N)
		Year end	Payment	Present Value of Payment
		1	$76,500	$71,495.33
		2	$114,000	$99,572.02
		3	$151,500	$123,669.13
			SUM	$294,736.47
		Present value of obligation:	$294,736.47
	4a	Amount of equal annual payment
	Pv	Amount of Loan	$142,000	(177500-35500)
	Rate	Interest Rate	7%
	Nper	Number of years of payment	5
	PMT	Amount of equal annual payment	$34,632.48	(Using PMT function of excel with Rate=7%, Nper=5, Pv=-142000)
	4b	Total amount of interest expense
	A	Total Payment in 5 years	$173,162.39	(34632.48*5)
	B	Amount of Note payable	$142,000
	C=A-B	Total amount of interest expense	$31,162.39