Problem 81
Time zero investment = $750,000 x .630 = $472,500
Proof
$472,500 x (1.08 x 1.08 x 1.08 x 1.08 x 1.08 x 1.08) = $749,798
Difference due to use of tables (Table A)
Problem 83
(1)
Trust fund at time zero = $100,000 x .397 = $39,700
(2)
End of Year 1 payment = $4,000 x .926
= $ 3,704
End of Year 2 payment = $4,500 x .857
= $ 3,857
End of Year 3 payment = $5,000 x .794
= $ 3,970
End of Year 5 payment = $6,000 x .735
= $ 4,410
Total loan
$15,941
(1)
Present value of $3,100 / year for three years at 6 percent (least amount you will accept today) =
$3,100 x 2.673 = $8,286
Proof
Year
Beginning
Balance
Ending Balance
Before Payment
Payment
1
$8,286
$8,783
$3,100
2
5,683
6,024
3,100
3
2,924
3,100
3,100
(4)
Present value at beginning of year 3 of $3,000 received annually for 9 years (assuming “through year
11” means to the end of year 11) discounted at 12 percent per year = $3,000 x 5.328 = $15,984.
Present value of $15,984 received two years hence, discounted at 12 percent = $15,984
x
.797 =
$12,739.
Problem 84
Year
Beginning
Balance
Ending Balance
Before Payment
Payment
1
$164,440
$184,173
40,000
2
144,173
161,473
40,000
3
121,473
136,050
40,000
4
96,050
107,576
40,000
5
67,576
75,685
40,000
6
35,685
39,967
39,967
Problem 85
(1)
W&H Company’s 2006 financial statements should disclose the IRS suit, if material. The company
should include in its 2006 financial statements a provision for a payment of at least $270,000 to the
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IRS.
(2)
The full loss should be included in the company’s 2006 financial statements.
(3)
The suit should be disclosed in the 2006 financial statements, if material. A comment can be made
that if an adverse finding is reached by the court, insurance should offset part of the damage payment.
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 Spring '10
 Harris
 Depreciation, 1924, 1922, 1927, 1946

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