M09_136A_exam1

# M09_136A_exam1 - 35. Wesellit, Inc. sold some land to...

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35. Present value of a lump sum of \$1: Period Rate PV factor 2 10.00% 0.8264 NOTE: CIRCLE THE FACTOR YOU USED FOR PART. CREDIT 24 0.83% 0.8201 2 20.00% 0.6944 (I) Compute the purchase price of the transaction. (II) Record the journal entry required on the date of the transaction for the seller (Wesellit). (III) Wesellit, Inc. sold some land to WePayLater, Inc. The agreed price was \$1,000,000 payable in \$700,000 cash and a \$300,000 0% note due in 2 years. Had WePayLater gone out to a bank to borrow the money, the bank would have charged a rate of 8% to lend them the \$300,000 for two years with interest compounding monthly. The net book value of the equipment on NoFreeLunch's books on the date of the transaction was \$550,000. The present value factors below should be useful in answering the questions: Assuming your journal entries are the only ones booked, record the journal entries required at the end of MONTH 1, and MONTH 2 (again for the seller).

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35. Present value of a lump sum of \$1: Period Rate PV factor Note Gross 300000 2 10.00% 0.8264 24 0.83% 0.8201 2 20.00% 0.6944 (I) Compute the purchase price of the transaction. PV of cash 700,000 PV of note 246,030 (\$247,933.88) 946,030 (II) Record the journal entry required on the date of the transaction for the seller (Wesellit). Cash 700,000 Note receivable 300,000 Def. financing/ Imputed int. 53,970 (300,000-246,030) part iii treatment should match Land 550,000 Gain on sale 396,030 (946,030-550,000) - (III) MONTH ONE =246,030*.83% PV OF NOTE * Def. financing/ Imputed int. 2,042 REVISED Interest income 2,042 248,072 MONTH TWO =248,072*.83% * Deferred financing 2,059 Interest income 2,059 250,131 * If showed note receivable net (318,880) in part ii then this debit should be to "note receivable", will accept accrued interest. IF COMBINED IN PART II, THEN MONTH ONE Note receivable or interest rec. 2,042 Interest income 2,042 MONTH 2 Note receivable or interest rec. 2,059 Interest income 2,059 Wesellit, Inc. sold some land to WePayLater, Inc. The agreed price was \$1,000,000 payable in \$700,000 cash and a \$300,000 0% note due in 2 years. Had WePayLater gone out to a bank to borrow the money, the bank would have charged a rate of 8% to lend them the \$300,000 for two years with interest compounding monthly. The net book value of the equipment on NoFreeLunch's books on the date of the transaction was \$550,000. The present value factors below should be useful in answering the questions: Assuming your journal entries are the only ones booked, record the journal entries required at the end of year one and year two (again for the seller). may be combined- but
36. XYZ, Inc. experienced the following activity for the year ended December 31, 2008: - XYZ's effective income tax rate is 35% 1 Common stock was \$100,000 at the beginning of the year and there was no common stock activity during the year 2 Retained earnings was \$205,000 at the beginning of the year. 3

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## This note was uploaded on 09/24/2011 for the course ECON 136A taught by Professor Anderson during the Spring '08 term at UCSB.

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M09_136A_exam1 - 35. Wesellit, Inc. sold some land to...

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