Fall 2013_Acc 3100_Ch 14

Interest of 42000 was payable semiannually on june 30

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Unformatted text preview: $42,000 was payable semiannually on June 30 and December 31. January 1, At Issuance Skill Graphics (Borrower) Cash Note payable 700,000 First BancCorp (Lender) Note receivable Cash 700,000 700,000 700,000 14-17 Long­Term Notes At Each of the Six Interest Dates Skill Graphics (Borrower) Interest expense Cash 42,000 First BancCorp (Lender) Cash Interest revenue 42,000 42,000 42,000 At Maturity Skill Graphics (Borrower) Notes payable Cash 700,000 First BancCorp (Lender) Cash Notes receivable 700,000 700,000 700,000 14-18 Note Exchanged for Assets or Services Skill Graphics purchased a package labeling machine from Hughes– Barker Corporation by issuing a 12%, $700,000, 3-year note that requires interest to be paid semiannually. The machine could have been purchased at a cash price of $666,633. The cash price implies an annual market rate of interest of 14%. That is, 7% is the semiannual discount rate that yields a present value of $666,633 for the note’s cash flows (interest plus principal) computed as follows: Present value of an ordinary annuity of $1: n=6, i=7% Interest Principal $ 42,000 × 4.76654 = $700000 ×...
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