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If a company, acquired a machine on December 31, 1982, in exchange for $4,000 in cash...

If a company, acquired a machine on December 31, 1982, in exchange for $4,000 in cash and a note payable. The company has to pay 8 annual payments of $15,000 with the first payment being made on December 31, 1983. Interest on the note is 9%.

How much interest expense will the company spend in 1984?

What is the carryingvalue of the loan in 1982 and what is the acquisition cost?

The machine has a useful life of 10 years, and a salvage value of $4,000. What's the carrying value after 4 years of useon December 31, 1986? What's the carrying value on December 31, 1992?

Solutions

Expert Solution

Total amount paid for Note 120000
Single payment 15000
interest 9
no. of payments 8
Using PV of annuity formula
Principal amount 83022
Year Opening Principal amount Installment Interest Principal repaid Balance principal
1983 83022 15000 7472.01 7527.99 75494
1984 75494 15000 6794.49 8205.51 67289
1985 67289 15000 6055.99 8944.01 58345
1986 58345 15000 5251.03 9748.97 48596
1987 48596 15000 4373.62 10626.38 37969
1988 37969 15000 3417.25 11582.75 26387
1989 26387 15000 2374.80 12625.20 13761
1990 13761 15000 1238.53 13761.47 0
36977.71 83022.29
Carrying value of loan in 1982 83022 Dollors
Interest expense in 1984 6794.49 Dollors
Acquisition cost of asset amount
Cash paid 4000
Principal amount of note 83022
Total acquisition cost 87022
Depreciation per year =(87022-4000)/10
8302
Carrying value after 4 years Amount
Acquisiition cost 87022
Accumulated dep for 4 years 33208.8
Carrying value Dec 31, 1986 53813
On December 31 1992 its useful life is over so the asset is fully depreciated. Therefore its carrying value will be its residual value i.e. 4000.

ekkarill92 answered 2 years ago
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