A company has a fiscal year-end of December 31: (1) on October 1, $14,000 was paid for a one-year fire insurance policy; (2) on June 30 the company lent its chief financial officer $12,000; principal and interest at 6% are due in one year; and (3) equipment costing $62,000 was purchased at the beginning of the year for cash.

Prepare journal entries for each of the above transactions. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
  

1. On October 1, $14,000 was paid for a one-year fire insurance policy.

2. On June 30 the company lent its chief financial officer $12,000; principal and interest at 6% are due in one year.

3. Equipment costing $62,000 was purchased at the beginning of the year for cash.

Five years ago, Mr. K, who runs a restaurant, purchased a nearby site to expand the parking lot for the convenience of customers. For this purpose, 250 million won was loaned from a commercial bank under the condition of repayment of the same amount each year from a floating-rate mortgage product whose repayment interest rate fluctuates every year, and all of it has been repaid over the past five years. At this time, interest rates for five years changed to 5% in the first year, 7.5% in the second year, 10% in the third year, 12.5% in the fourth year and 15% in the fifth year, respectively.

(1) What is the annual real interest rate on this loan?

(2) What is the total interest paid by Mr. D for five years?

For each of the following four separate finance leases scenarios, determine the lease payment that the lessee should use to determine the appropriate lease classification.

a. Lease payments are $3,000 per month plus 5% of lessee net sales. Lessee sales for year one are estimated to be $100,000.

b. Lease payments are computed as the greater of (a) 5% of lessee net sales or (b) $3,000. Lessee sales for year one are estimated to be $100,000.

c. Annual lease payments are 10% of lessee annual sales, with no fixed portion. Lessee sales for year one are estimated to be $100,000.

d. Lease payments total $5,000 in year one and increase each year based on the annual increase in the CPI at the end of the preceding year. The CPI at the end of the current year is expected to be 2%.

Oregon Forest Products will acquire new equipment that falls under the five-year MACRS category. The cost is $300,000. If the equipment is purchased, the following earnings before depreciation and taxes will be generated for the next six years. Use Table 12-12. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.

The firm is in a 25 percent tax bracket and has a 11 percent cost of capital.

a. Calculate the net present value.

b. Under the net present value method, should Oregon Forest Products purchase the equipment asset?

Assume that TarMart purchased equipment at the beginning of fiscal year 2016 for $480,000 cash.  The equipment had an estimated useful life of 8 years and a residual value of $30,000.  

1.         What would depreciation expense be for year 3 under the straight-line method?

2.         What would depreciation expense be for year 3 under the double-declining balance method?

3.         What is the first year in which depreciation expense under the straight-line method is higher than under the declining balance method?

4.         Assume TarMart uses the straight-line depreciation method for its equipment.  Also assume that at fiscal year-end 2020, TarMart sold the equipment purchased at the beginning of fiscal year 2016 for $200,000 cash.  Prepare the journal entry to record the sale of the equipment at year-end 2020.

Bobby's sandwiches started business by acquiring $24,700 cash from the issue of common stock on January 1, Year 1. The cash acquired was immediately used to purchase equipment for $24,700 that had a $3,900 salvage value and an expected useful life of four years. The equipment was used to produce the following revenue stream (assume that all revenue transactions are for cash). At the beginning of the fifth year, the equipment was sold for $4,480 cash. Bobby uses straight-line depreciation.

Required
Prepare income statements, statements of changes in stockholders’ equity, balance sheets, and statements of cash flows for each of the five years. Present the statements in the form of a vertical statements model.

Consider the following three zero-coupon bonds: Bond Face Value Time to Maturity (Years) Market Price 1 $1,000 1 $940 2 $1,000 2 $820 3 $1,000 3 $768 a). Calculate the one-, two-, and three-year spot rates

b). Calculate the forward rate over the second year, and the one corresponding to the third year.

c). What price of the third bond would risk-neutral investors expect to prevail at the end of the second year?

d). Now assume that investors are risk averse with a two-year investment horizon. Further assume that for every year at maturity beyond two years, investors demand a 1.5% liquidity premium. What price of the third bond would risk-averse investors expect to prevail at the end of the second year?

West Hills Village (WHV) in Rapid City, South Dakota is evaluating a guideline lease agreement on laundry equipment that costs $250,000 and falls into the MACRS three-year class. The home can borrow at an 8 percent rate on a four-year loan if WHV decided to borrow and buy rather than lease. The laundry equipment has a four-year economic life, and its estimated residual value is $50,000 at the end of Year 4. If WHV buys the equipment, it would purchase a maintenance contract which costs $5,000 per year, payable at the beginning of each year. The lease terms, which include maintenance, call for a $71,000 lease payment at the beginning of each year. WNV's tax rate is 40 percent. Should the home lease or buy?

Please show how to do this in excel

6b3

Green Landscaping, Inc. is using net present value (NPV) when evaluating projects. Green Landscaping’s cost of capital is 10.30 percent. What is the NPV of a project if the initial costs are $2,106,000 and the project life is estimated as 10 years? The project will produce the same after-tax cash inflows of $512,558 per year at the end of the year.

Round the answer to two decimal places.

Your Answer:

6c3

Find the internal rate of return (IRR) for the following series of future cash flows. The initial outlay is $680,025.

Year 1: 189,200

Year 2: 141,300

Year 3: 192,700

Year 4: 164,900

Year 5: 187,000

Round the answer to two decimal places in percentage form. (Write the percentage sign in the "units" box)

You should use Excel or financial calculator.

Consider the Leverage Unlimited, Inc., zero coupon bonds of Year 22. The bonds were issued in Year 1 for $100. Determine the yield-to-maturity if the bonds are purchased at the following price. Round PVIF value in intermediate calculations to three decimal places. Use Table II to answer the question. Round your answers to one decimal place.

A). Issue price of $100 in Year 1. (Note: To avoid a fractional year holding period, assume that the issue and maturity dates are at the midpoint—July 1—of the respective years.   %

B). Market price as of July 1, Year 19, of $850. %

c). Explain why the returns calculated in Parts a and b are different. Over the period from Year 1 to Year 19, the general level of interest rates declined, causing bond prices to ______and yields to_______ .