E7-15 solution - EXERCISE 7-15 1 Notes Receivable Discount...

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EXERCISE 7-15 1. Notes Receivable ................................. 1,101,460 Discount on Notes Receivable.. 401,460 Land ............................................. 590,000 Gain on Sale of Land ................. 110,000 ($700,000 – $590,000) $1,101,460 Face value of note .63552 Present value of 1 for 4 periods at 12% 700,000 Present value of note 1,101,460 Face value of note $ 401,460 Discount on note receivable Using a financial calculator: PV ? yields $(699,998) I 12% N 4 PMT - FV $ 1,101,460 Type 0 Excel formula: =PV(rate,nper,pmt,fv,type)
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EXERCISE 7-15 (Continued) 2. Notes Receivable ................................. 400,000 Discount on Notes Receivable.. 178,836 Service Revenue ........................ 221,164 Calculation of the present value of the note: Maturity value 400,000 Present value of $400,000 due in 8 years at 12%—$400,000 X .40388 $161,552 Present value of $12,000 payable annually for 8 years at 12% annually—$12,000 X 4.96764 59,612 Present value of the note and and interest 221,164 Discount $178,836 Using a financial calculator: PV ? Yields $ (221,165) I 12% N 8 PMT $ 12,000 FV
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