Question

Johnstone Company is facing several decisions regarding investing and financing activities. Address each decision independently. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) 1. On June 30, 2021, the Johnstone Company purchased equipment from Genovese Corp. Johnstone agreed to pay Genovese $11,000 on the purchase date and the balance in five annual installments of $9,000 on each June 30 beginning June 30, 2022. Assuming that an interest rate of 11% properly reflects the time value of money in this situation, at what amount should Johnstone value the equipment? 2. Johnstone needs to accumulate sufficient funds to pay a $410,000 debt that comes due on December 31, 2026. The company will accumulate the funds by making five equal annual deposits to an account paying 7% interest compounded annually. Determine the required annual deposit if the first deposit is made on December 31, 2021. 3. On January 1, 2021, Johnstone leased an office building. Terms of the lease require Johnstone to make 15 annual lease payments of $121,000 beginning on January 1, 2021. An 11% interest rate is implicit in the lease agreement. At what amount should Johnstone record the lease liability that is supposed to be on January 1, 2021, before any lease payments are made? Please help me solve this problem.

Answer 1

Table values are based on:
n=	5
i=	0.11
Cash Flows	Amount		Present Value
Installments	$9,000	3.69590	$33,263.07
Down Payment	$11,000	1	$11,000.00
Value of Equipment			$44,263.07
Table or Calculator Function:
FV:	$410,000
n=	5
i=	0.07
	5.75074
Deposits	$71,295.18
Table or Calc. function:
Payment	$121,000
n=	15
i=	0.11
	7.981865229
Liability:	$965,805.69

Table values are based on:
n=	5
i=	0.11
Cash Flows	Amount		Present Value
Installments	9000	=(1-(1+B3)^-B2)/B3	=B5*C5
Down Payment	11000	1	=B6*C6
Value of Equipment			=SUM(D5:D6)
Table or Calculator Function:
FV:	410000
n=	5
i=	0.07
	=(((1+B12)^B11)-1)/B12
Deposits	=B10/B13
Table or Calc. function:
Payment	121000
n=	15
i=	0.11
	=((1-(1+B19)^-B18)/B19)*(1+B19)
Liability:	=B17*B20