ORIE 3150 Homework #5 Fall 2011 Answers (1)

# ORIE 3150 Homework #5 Fall 2011 Answers (1) - ORIE 3150...

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ORIE 3150 Homework #5 Due October 19, 2011 1. Cartman Industries purchased a machine for \$300,000 cash on March 1, 2006. The company used straight-line depreciation with a \$45,000 salvage value and a useful life of 10 years. The company sold the machine for \$200,000 cash on February 1, 2010. The company’s fiscal year end is December 31. Show the journal entry to record the sale of the machine using the mid-year convention. Don’t forget to update the depreciation in the year of disposal. The company recorded full year depreciation of \$25,500 per year. The mid-year convention was used. Prior to the sale the t accounts look like: 12,750 \$ 300,000 \$ 25,500 \$ 25,500 \$ 25,500 \$ 89,250 \$ 300,000 \$ Machine Accumulated Depreciation Update the depreciation. Half of the full-year depreciation is shown in the year of disposal. February 1, 2010 Depreciation Expense \$12,750 Accumulated Depreciation \$12,750 Now the t-accounts look like this: 12,750 \$ 300,000 \$ 25,500 \$ 25,500 \$ 25,500 \$ 12,750 \$ 102,000 \$ 300,000 \$ Machine Accumulated Depreciation Thus the journal entry to record the disposal is: February 1, 2010 Cash \$200,000 Accumulated Depreciation 102,000 Machine \$300,000 Gain on Sale 2,000

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2. Mainewater Drilling Inc. issues a bond to fund their latest natural gas drilling project. The face value of the bond was \$40,000,000, with a face interest rate of 8% and a term of 10 years. The bond was issued on January 1, 2011, with interest payments on June 30 and December 31 each year. The bond was issued at a discount, and was sold for \$39,400,000. Find the resulting yield for the bond. IRR Yield 0 (39,400,000.00) 4.11146% 8.222930% 1 1,600,000.00 2 1,600,000.00 3 1,600,000.00 4 1,600,000.00 5 1,600,000.00 6 1,600,000.00 7 1,600,000.00 8 1,600,000.00 9 1,600,000.00 10 1,600,000.00 11 1,600,000.00 12 1,600,000.00 13 1,600,000.00 14 1,600,000.00 15 1,600,000.00 16 1,600,000.00 17 1,600,000.00 18 1,600,000.00 19 1,600,000.00 20 41,600,000.00
3. Noah Vanderhoff Inc. invests \$10,000,000 on January 1, 2008 into a corporate salmon farm in British Columbia. He sells some of the shares of stock on January 1, 2009 for

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## This note was uploaded on 12/11/2011 for the course ORIE 3150 taught by Professor Callister during the Fall '08 term at Cornell University (Engineering School).

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ORIE 3150 Homework #5 Fall 2011 Answers (1) - ORIE 3150...

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