Question

1. Corp5 bought machinery by paying $20,000 down and signing a $30,000 non-interest-bearing note due in full three years from today. If the loan reflects 3% interest, what should the company record as the cost of the machine?

2. Corp6 sold used machinery with an original cost of $99,000 and accumulated depreciation of $46,000, receiving $20,000 from the buyer and the buyer’s $30,000 note requiring three end-of-year payments of $10,000 each beginning one year from today. If the loan reflects 3% interest, what amount of gain or loss should the company record on the machine’s disposal?

3. Corp7 sold used machinery with an original cost of $99,000 and accumulated depreciation of $53,000, receiving $20,000 from the buyer and the buyer’s non-interest-bearing note due in full three years from today. If the loan reflects 3% interest, what amount of gain or loss should the company record on the machine’s disposal?

Answer 1

GIVEN,

CROP5 PURCHASED MACHINE BY

DOWNPAYMENT - $20,000

   SIGING NON INTEREST BEARING NOTE DUE IN FULL THREE YEARS FROM TODAY - $30000

LOAN REFLECTS INTEREST RATE -3%.

THIS 30000 INCLUDE INTEREST ALSO. AS NON INTEREST NOTE MEANS ZERO INTEREST NOTES.

   NON BEARING NOTE CALCULATION

NUMBER OF PAYMENTS	MACHINE AMOUNT	INTEREST	AMOUNT PAID	CARRYING VALUE
0				30000
1	9100	30000*3% = 900	10000	20000
2	9400	(20000*3%) 600	10000	10000
3	9700	10000*3% 300	10,000	0
TOTAL	28,200	1800	30000

COST OF MACHINE = DOWN PAYMENT + MACHINE AMT + INTEREST.

   = 20,000 + 28,200 + 1800

   = 50,000.

2)GIVEN, ORIGINAL COST - $99,000

ACCUMULATED DEPRICIATION - $46,000

   CROP 6 SOLD MACHINERY , RECEIVED AMOUNT FROM BUYER - DOWN PAYMENT - 20,000

$30,000 NOTE AS LOAN AND REFLECT 3% INTEREST BY PAYING $10,000 EACH BEGINING ONE YEAR FROM TODAY FOR 3 YEARS END OF YEAR PAYMENT.

NUMBER OF PAYMENTS	MACHINE AMOUNT	INTEREST	AMOUNT PAID	CARRYING VALUE
0				30000
1	9100	30000*3% = 900	10000	20000
2	9400	(20000*3%) 600	10000	10000
3	9700	10000*3% 300	10,000	0
TOTAL	28,200	1800	30000

AMOUNT OF GAIN OR LOSS SHOULD COMPANY RECORD ON MACHINERY DISPOSAL -

SALES AMOUNT

DOWN PAYMENT - 20,000

NOTE - 30,000

TOTAL 50,000

LESS -

ORIGINAL COST - 99000

(-) DEPRECIATION - (46,000)

   TOTAL    ( 53,000)

LOSS    (3000)

3GIVEN, ORIGINAL COST - $99,000

ACCUMULATED DEPRICIATION - $53,000

   CROP7 SOLD MACHINERY , RECEIVED AMOUNT FROM BUYER - DOWN PAYMENT - 20,000

$30,000 NOTE AS LOAN AND REFLECT 3% INTEREST BY PAYING $10,000 EACH BEGINING ONE YEAR FROM TODAY FOR 3 YEARS END OF YEAR PAYMENT.

AMOUNT OF GAIN OR LOSS SHOULD COMPANY RECORD ON MACHINERY DISPOSAL -

SALES AMOUNT

DOWN PAYMENT - 20,000

NOTE - 30,000

TOTAL 50,000

LESS -

ORIGINAL COST - 99000

(-) DEPRECIATION - (53,000)

   TOTAL    ( 46,000)

GAIN    (4,000)