Suppose an economy has enough labor, capital, and land to produce 1,000 apples per year. Apples are the only product of the economy and the price is $10 per apple. In 2019, money supply is $5, 000 and velocity of money is constant.

a. State the quantity theory of money.

b. Compute nominal GDP and velocity of money in 2019.

In 2020, the central bank of the economy increases the money supply by 10%.

c. Compute nominal GDP and price level in 2020. What is the inflation rate between 2019 and 2020?

d. According to the Fisher effect,

i. how are nominal and real interest rates related to one another?

ii. what will be the impact of the increase in money supply by 10% on nominal and real interest rates respectively?

Parker Corp. develops computer video games for sale. A new development project which began in 2018 reached technological feasibility at the end of Sept. 2019 and the project was available for release to customers early in 2020. Development costs incurred prior to Sept. 30 were $1,600,000 and costs incurred from Oct. 1 to product availability were $1,200,000. Revenues in 2020 from the sale of the new product were $4,000,000 and the company anticipates another $12,000,000 in revenues. The economic life of the software is 3 years.

(a) What amount should Parker capitalize as an intangible asset?

(b) What amount should be amortized in 2020?

(c) At the beginning of 2021, Parker estimates the net realizable value of the software to be $500,000. Prepare any entries required.

On January 1, 2020, Winthrop Inc. entered into a lease agreement to lease equipment:

• 5-year lease term
• Annual lease payments are $10,000
• First payment is on January 1, 2020 and the other payments are on 31 December each year
• At the end of the lease the leased asset will revert to the lessor
• The asset’s economic life is estimated at 10 years
• Winthrop could have obtained equivalent financing from its bank at a rate of 5%
• Winthrop’s fiscal year end is December 31
• The equipment has a fair value of $70,000

Required:

1. Calculate the present value of the lease payments.
2. Prepare the amortization table.
3. Classify the lease agreement.
4. Prepare the journal entry(ies) for the lessee for the 2020 fiscal year related to the lease arrangement.

Dobbs Company issues 9%, two-year bonds, on December 31, 2018, with a par value of $104,000 and semiannual interest payments.

Use the above straight-line bond amortization table and prepare journal entries for the following.

Required:
(a) The issuance of bonds on December 31, 2018.
(b) The first through fourth interest payments on each June 30 and December 31.
(c) The maturity of the bonds on December 31, 2020.

On January 1, 2020, Winthrop Inc. entered into a lease agreement to lease equipment:

• 5-year lease term
• Annual lease payments are $10,000
• First payment is on January 1, 2020 and the other payments are on 31 December each year
• At the end of the lease the leased asset will revert to the lessor
• The asset’s economic life is estimated at 10 years
• Winthrop could have obtained equivalent financing from its bank at a rate of 5%
• Winthrop’s fiscal year end is December 31
• The equipment has a fair value of $70,000

Required:

1. Calculate the present value of the lease payments.
2. Prepare the amortization table.
3. Classify the lease agreement.
4. Prepare the journal entry(ies) for the lessee for the 2020 fiscal year related to the lease arrangement.

On January 1, 2020, Winthrop Inc. entered into a lease agreement to lease equipment:

• 5-year lease term
• Annual lease payments are $10,000
• First payment is on January 1, 2020 and the other payments are on 31 December each year
• At the end of the lease the leased asset will revert to the lessor
• The asset’s economic life is estimated at 10 years
• Winthrop could have obtained equivalent financing from its bank at a rate of 5%
• Winthrop’s fiscal year end is December 31
• The equipment has a fair value of $70,000

Required:

1. Calculate the present value of the lease payments.
2. Prepare the amortization table.
3. Classify the lease agreement.
4. Prepare the journal entry(ies) for the lessee for the 2020 fiscal year related to the lease arrangement.