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"Homework Quiz—3

"Homework Quiz—3 - Name Section...

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Name Section Homework Quiz—3 1. ABC Company owes $500,000 plus $80,000 accrued interest to Megacapital. ABC’s debt is an 8% note which matures in 2018. ABC is in arrears as its operations became unprofitable three years ago and remain so. On December 31, 2010 Megacapital agreed to accept a used machine in exchange for ABC’s entire obligation. The machine has a cost of $800,000, accumulated depreciation of $250,000, and a fair value of $400,000. 1a : In the space below write ABC’s entry to record the debt settlement 1b : In the space below write Megacapital’s entry to record the debt settlement 1
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2. On September 1, 2010 DEF Company borrowed using a $1,000,000, five–year bond with semiannual interest payments of 3%. The effective interest rate on the bond is 4% per six months. You have the following excerpts from time value of money tables: Future value single amount: Periods 3% 4% 5 1.15927 1.21665 10 1.34392 1.48024 Present Value of a single amount Periods 3% 4% 5 .86261 .82193 10 .74409 .67556 Future value of an ordinary annuity Periods 3% 4% 5 5.30914 5.41632 10 11.46338 12.00611 Present value of an ordinary annuity
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