Question

Coronado Industries is issuing $10.00 million 12% bonds in a private placement on July 1, 2017. Each $1300 bond pays interest semi-annually on December 31 and June 30 of each year. The bonds mature in ten years. At the time of issuance, the market interest rate for similar types of bonds was 8%. What is the expected selling price of the bonds?

On December 30, 2017, Bramble Corp.. purchased a machine from Cullumber Company in exchange for a zero-interest-bearing note requiring eight payments of $204000. The first payment was made on December 30, 2017, and the others are due annually on December 30. At date of issuance, the prevailing rate of interest for this type of note was 10%. Present value factors are as follows:

	Period	Present Value of Ordinary Annuity of 1 at 10%	Present Value of Annuity Due of 1 at 10%
	7	4.868	5.355
	8	5.335	5.868

On Bramble's December 31, 2017 balance sheet, the net note payable to Cullumber is

On January 1, 2017, Sheffield Corp. sold goods to Pharoah Company. Pharoah signed a zero-interest-bearing note requiring payment of $209000 annually for seven years. The first payment was made on January 1, 2017. The prevailing rate of interest for this type of note at date of issuance was 8%. Information on present value factors is as follows:

	Period	Present Value of 1 at 8%	Present Value of Ordinary Annuity of 1 at 8%
	6	0.6302	4.6229
	7	0.5835	5.2064

Sheffield should record sales revenue in January 2017 of

On July 1, 2017, Ed Wynne signed an agreement to operate as a franchisee of Bonita Industries, for an initial franchise fee of $870000. Of this amount, $290000 was paid when the agreement was signed and the balance is payable in four equal annual payments of $145000 beginning July 1, 2018. The agreement provides that the down payment is not refundable and no future services are required of the franchisor. Wynne's credit rating indicates that he can borrow money at 15% for a loan of this type. Information on present and future value factors is as follows:

Present value of 1 at 15% for 4 periods	0.57
Future value of 1 at 15% for 4 periods	1.75
Present value of an ordinary annuity of 1 at 15% for 4 periods	2.85

Wynne should record the acquisition cost of the franchise on July 1, 2017 at

Answer 1

Answer 1.
Table Value Based on
n=	20	(10 Years X 2)
i=	4.00%	(8% / 2)
Cash Flow	Amount	Present Value
Interest - $10,000,000 X 12% X 6/12	600,000	8,154,198
		($60,000 X 13.59033)
Principal	10,000,000	4,563,900
		($10,000,000 X 0.45639)
Issue Price of Bonds		12,718,098
Premium on issue of Note		2,718,098
Answer 2.
Cash Flow	Amount	Present Value
Interest -	-	-
Payment of Annual Installment	204,000	1,197,072
		($204,000 X 5.868)
Issue Price of Notes Payable		1,197,072
Answer 3.
Cash Flow	Amount	Present Value
Interest -	-	-
Payment of Annual Installment	209,000	1,175,186
		($209,000 X 5.6229)
Issue Price of Notes Receivable / sales Revenue		1,175,186
Answer 4.
Cash Flow	Amount	Present Value
Intial Fees Paid	290,000	290,000
		($290,000 X 1)
Payment of Annual Installment	145,000	413,250
		($145,000 X 2.85)
Accquisition Cost of Franchisee		703,250