M351 Time Value of Money Practice-Soln

# M351 Time Value of Money Practice-Soln - M351 Time Value of...

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M351 Time Value of Money Practice 1. ABC Company purchased a new machine. The transaction requires ABC to make three payments of \$200,000 each with the first payment 6 months after the purchase, the second two years after the purchase and the third five years after the purchase. Assume the applicable interest rate is 5% per six months. a. Prepare the journal entry for the purchase of the machine and the entry for ABC’s first payment. Machine = (PVsa, n=1, i=5%)(200,000) + (PVsa, n=4, i=5%)(200,000) + (PVsa, n=10, i=5%)(200,000) Machine = (.95238)(200,000) + (.82270)(200,000) + (.61391)(200,000) Borrowing = Machine cost = \$477,799 Machine. ...................................... 477,799 Note payable. ...................... 477,799 Interest expense. .......................... 23,890 Note payable. .............................. 176,110 Cash. ................................... 200,000

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2. ABC acquired a machine with a five year lease. First of the five annual payments of \$100,000 is at the time the lease is signed and the equipment is transferred to the lessee. Assume that a 10% per
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## This note was uploaded on 03/03/2012 for the course MGMT 351 taught by Professor Staff during the Spring '08 term at Purdue University.

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M351 Time Value of Money Practice-Soln - M351 Time Value of...

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