Question
In: Accounting
On Jan 1, 2018, the North Sea Company purchased a highsea platform for $ 12,000,000 and...
On Jan 1, 2018, the North Sea Company purchased a highsea platform for $ 12,000,000 and paid $2,000,000 as a downpyament while the balance will be paid over the next 10 years in installments of $500,000 every six months , starting July 1, 2018. The market rate on Jan 1, 2018 was 6%.
Requirements:
a. For the how much the North Sea Company should
recognize the platform on Jan 1, 2018? Show your calculation.
b. On Jan 1, 2025, the company will pay installment
payment of $500,000. How much of this payment represents a payment
of the principal and how much of it represents a payment of the
interest? Show your calculation (fill in the following table Jan 1
2018 – Jan 2025).
Date Cash Paid Interest Exp. P
Payment Carrying Value
1-Jan-18 $ - $
- $ - $ ………….
1-Jul-18
1-Jan-19
1-Jul-19
1-Jan-20
1-Jul-20
1-Jan-21
1-Jul-21
1-Jan-22
1-Jul-22
1-Jan-23
1-Jul-23
1-Jan-24
1-Jul-24
1-Jan-25
c. What is the total interest expense for the year ended on Dec 31, 2021?
d. What will be the carrying value of the notes on Dec
31, 2024?
Solutions
Expert Solution
| a | North Sea Company should recognise the Platform at $94,38,737 on Jan 1, 2018 calculated as under. | |||
| No. of period |
Payments (Cash flows) |
Present Value Factor @6/2=3%p.a. | Discounted Cash flows/ Present value | |
| 1 | $ 500,000 | 0.97087 | $ 485,437 | |
| 2 | $ 500,000 | 0.94260 | $ 471,298 | |
| 3 | $ 500,000 | 0.91514 | $ 457,571 | |
| 4 | $ 500,000 | 0.88849 | $ 444,244 | |
| 5 | $ 500,000 | 0.86261 | $ 431,304 | |
| 6 | $ 500,000 | 0.83748 | $ 418,742 | |
| 7 | $ 500,000 | 0.81309 | $ 406,546 | |
| 8 | $ 500,000 | 0.78941 | $ 394,705 | |
| 9 | $ 500,000 | 0.76642 | $ 383,208 | |
| 10 | $ 500,000 | 0.74409 | $ 372,047 | |
| 11 | $ 500,000 | 0.72242 | $ 361,211 | |
| 12 | $ 500,000 | 0.70138 | $ 350,690 | |
| 13 | $ 500,000 | 0.68095 | $ 340,476 | |
| 14 | $ 500,000 | 0.66112 | $ 330,559 | |
| 15 | $ 500,000 | 0.64186 | $ 320,931 | |
| 16 | $ 500,000 | 0.62317 | $ 311,583 | |
| 17 | $ 500,000 | 0.60502 | $ 302,508 | |
| 18 | $ 500,000 | 0.58739 | $ 293,697 | |
| 19 | $ 500,000 | 0.57029 | $ 285,143 | |
| 20 | $ 500,000 | 0.55368 | $ 276,838 | |
| Total | $ 10,000,000 | $ 7,438,737 | ||
| +Down payment | $ 2,000,000 | |||
| Platform to be recognised on Jan 1,2018 | $ 9,438,737 | |||
| b | Loan amortisation schedule | |||
| Date | Installment Payments | Interest on Platform | Recovery of Principal | Platform Carrying value |
| 01-01-18 | $ 2,000,000 | $ - | $ 2,000,000 | $ 7,438,737 |
| 01-07-18 | $ 500,000 | $ 223,162 | $ 276,838 | $ 7,161,900 |
| 01-01-19 | $ 500,000 | $ 214,857 | $ 285,143 | $ 6,876,757 |
| 01-07-19 | $ 500,000 | $ 206,303 | $ 293,697 | $ 6,583,059 |
| 01-01-20 | $ 500,000 | $ 197,492 | $ 302,508 | $ 6,280,551 |
| 01-07-20 | $ 500,000 | $ 188,417 | $ 311,583 | $ 5,968,968 |
| 01-01-21 | $ 500,000 | $ 179,069 | $ 320,931 | $ 5,648,037 |
| 01-07-21 | $ 500,000 | $ 169,441 | $ 330,559 | $ 5,317,478 |
| 01-01-22 | $ 500,000 | $ 159,524 | $ 340,476 | $ 4,977,002 |
| 01-07-22 | $ 500,000 | $ 149,310 | $ 350,690 | $ 4,626,312 |
| 01-01-23 | $ 500,000 | $ 138,789 | $ 361,211 | $ 4,265,101 |
| 01-07-23 | $ 500,000 | $ 127,953 | $ 372,047 | $ 3,893,054 |
| 01-01-24 | $ 500,000 | $ 116,792 | $ 383,208 | $ 3,509,846 |
| 01-07-24 | $ 500,000 | $ 105,295 | $ 394,705 | $ 3,115,141 |
| 01-01-25 | $ 500,000 | $ 93,454 | $ 406,546 | $ 2,708,596 |
| 01-07-25 | $ 500,000 | $ 81,258 | $ 418,742 | $ 2,289,854 |
| 01-01-26 | $ 500,000 | $ 68,696 | $ 431,304 | $ 1,858,549 |
| 01-07-26 | $ 500,000 | $ 55,756 | $ 444,244 | $ 1,414,306 |
| 01-01-27 | $ 500,000 | $ 42,429 | $ 457,571 | $ 956,735 |
| 01-07-27 | $ 500,000 | $ 28,702 | $ 471,298 | $ 485,437 |
| 01-01-28 | $ 500,000 | $ 14,563 | $ 485,437 |
$ &n
 ekkarill92 answered 2 years agoRelated SolutionsIn January 2018, Deep Sea Oil Inc. builds and begins operating an oil drilling platform in...In January 2018, Deep Sea Oil Inc. builds and begins operating
an oil drilling platform in the Gulf of Mexico. The company expects
to operate the platform for 9 years and will be required to remove
the platform at the end of 9 years at an expected cost of
$25,000,000. Assuming that the discount rate is 8%.
a. Prepare the journal entry to record the asset retirement
obligation (ARO) in January 2018
b. Prepare the journal entry to record the...
These information presented at North Company throughout 2017: Jan. 1 Bank of America agree to...These information presented at North Company throughout
2017:
Jan. 1 Bank of America agree to lend North Co. $41,000 and
carry a 9% interest rate for one year maturing on January 1,
2018.
Jan. 2 North Co. accepted a 4-month, 8% note from Panda
Company in payment of Panda’s $1,200 account.
Jan. 3 North Co. wrote off as uncollectible the accounts of
Wooden Corporation ($450) and Zajel Company ($280).
Jan. 11 North Co. sold for $28,000...
Jan 1 Retired a piece of machinery that was purchased on Jan 1 2010. The machine...Jan
1 Retired a piece of machinery that was purchased on Jan 1 2010.
The machine cost $62400 on that date.It had a useful life of 10
years with no salvage.
June 30 Sold a computer that was purchased on January 1,2017.
The computer cost $35,500. It had a useful life of 5 years with no
salvage value. The computer was sold for $14,100.
Dec 31 Discarded a delivery truck that was purchased on Jan 1
2016. The truck cost...
on Jan 1 of the current year a company purchased and placed in serice a machine...on Jan 1 of the current year a company purchased and placed in
serice a machine with a cost of $240,000. The company estimated the
machines useful life to be 4 years or 60,000 units of output with
an estimated salvage valus of $60,000. During the current year
12,000 united were produced
prepare the necessary Dec 31 adjusting journal entry to record
depreciation for the current year assuming the company uses
1) units of production methid deoreciation
2) double declinin...
Blackfish Company purchases 100% of Tautog Company on Jan 1, 2018 for $1,200,000 in cash. On...Blackfish Company purchases 100% of Tautog Company on Jan 1,
2018 for $1,200,000 in cash. On the day of the purchase, Tautog had
the following net assets:
Book
Value Fair
Value Life
Cash,
received $100,000 $100,000
Equipment 375,000 450,000 3
years
Land 200,000 150,000
Building
(net) 500,000 580,000 5
years
Payable $300,000 $200,000 1
year
Blackfish Net
Assets $875,000 1,080,000
Answer the following:
A. Prepare a schedule showing how to allocate
the difference in fair value given up by Blackfish and what is
received from Tautog
B. Determine the amount of excess amortization
for 2018.
C. Assume...
1. R Company purchased $100,000 of 8% bonds on Jan 1, 2016 at a discount. They...1. R Company purchased $100,000 of 8% bonds on Jan 1, 2016
at a discount. They paid $92,278. The bonds mature Jan 1,
2021 and yield a 10% rate. The intent of management is to
hold
the bonds until maturity. Assuming that interest is payable July
1
and Jan 1 create an effective interest amortization table.
What is the amount of interest recognized in the period
ended
1/1/17?
Taylor Advisors Limited was organized on Jan 1, 2018. The company plans to use the following...Taylor Advisors Limited was organized on Jan 1, 2018. The
company plans to use the following accounts:
Cash
Dividends
Accounts
receivable
Service
revenue
Supplies
Advertising expense
Prepaid
Insurance
Salaries Expense
Equipment
Interest Expense
Accounts
payable
Office Expense
Bank Loan Payable (non-current)
Rent Expense
Common
shares
Income Tax Expense
Retained Earnings
The company had the following transactions in the month of
January:
Jan. 2 Issued 1,000 common shares for $65 each.
4 Finalized a
lease for office space and paid...
R Company purchased $100,000 of 8% bonds on Jan 1, 2016 at a discount. They paid...R Company purchased $100,000 of 8% bonds on Jan 1, 2016 at a
discount. They paid $92,278. The bonds mature Jan 1, 2021 and yield
a 10% rate. The intent of management is to hold the bonds until
maturity. Assuming that interest is payable July 1 and Jan 1 create
an effective interest amortization table.
What is the carrying value of the investment on 1/1/18 after the
adjusting entry had been made?
What is the amount of interest recognized in...
Speedy delivery company on Jan. 1 2021, purchased a van for $20,000. to complete the purchase,...Speedy delivery company on Jan. 1 2021, purchased a van for
$20,000. to complete the purchase, the company also incurred $800
shipping cost and $1,200 sales tax.
Speedy estimates that at the end of its the four- year service
life the van will be worth 4,000. during the four year period, the
company expects to drive the van 100,000 miles. actual miles driven
each year were 32,000 miles in year 1; 35,000 in year 2 and 27,000
in year 3...
Hasher Company obtained a cool mine in January 2018, incurring cost of land 12,000,000, legal costs...Hasher Company obtained a cool mine in January 2018, incurring
cost of land 12,000,000, legal costs of $30,000, registration fees
70,000, building for the employees 250,000, heavy drilling machines
5,000,000 and trucks 1,000,000. The company estimated 5,500,000
TONS in the mine during 10 years operation. The land will cost
2,500,000 to restated at the ending of the project ( the implicit
rate 6%) , and expected to sold the land at the end of extractions$
1,100,000, all other noncurrent assets...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
ADVERTISEMENT
|