Unformatted text preview: Value Factor for i = 6% and n = 6) + [($5,000 0%) Present Value of an Ordinary Annuity Factor for i = 6% and n = 6]
= $5,000 .7050 (from Table 4 in Appendix A) + $0
= $3,525.00 = ($8,000 Present Value Factor for i = 12% and n = 6) + [($8,000 4%) Present Value of an Ordinary Annuity Factor for i = 12% and n = 6]
= ($8,000 .5066 (from Table 4 in Appendix A) + ($320 4.1114
(from
Table 5 in Appendix A)
= $4,052.80 + $1,315.65
= $5,368.45 = ($3,000 Present Value Factor for i = 8 % and n = 7) + [($3,000 8%) Present Value of an Ordinary Annuity Factor for i = 8% and n = 7]
= ($3,000 .5835 (from Table 4 in Appendix A) + ($240 5.2064)
(from Table 5 in Appendix A)
= $1,750.50 + $1,249.54
= $3,000.00 = ($10,000 Present Value Factor for i = 6 % and n = 10) + [($10,000 10%) Present Value of an Ordinary Annuity Factor for i = 6% and n = 10]
= ($10,000 .5584 (from Table 4 in Appendix A) + ($1,000 7.3601 (from Table 5 in Appendix A)
= $5,584.00 + $7,360.10
= $12,944.10 E11–5
a. Present Value $11,348 Present Value Factor = Present Value of Face Value + Present Value of Interest Payments
= ($20,000 Present Value Factor for i = ? and n = 5) +
[($20,000 0%) Present value of an ordinary annuity factor
for i = ? and n = 5]
= ($20,000 Present Value Factor) + $0
= 0.5674 Looking in the n = 5 row of Table 4 in Appendix A reveals that a present value factor of 0.5674 corresponds
to an annual effective interest rate of 12%.
b. Equipment (+A)
Discount on Notes Payable (–L) 11,348
8,652
Notes Payable (+L)
20,000 Purchased equipment by issuing a note.
c. Interest Expense = Book Value of Debt Effective Interest Rate
= ($20,000 – $8,652) 12%
= $1,361.76 d. Balance Sheet Value e. Interest expense is computed as the debt's book value times the effective interest rate. For a note issued
at a discount, the book value will increase over time until the book value equals the face value immediately
prior to the note maturing. Since the book value is greater at the beginning of Year 2 than it was at the
beginning of...
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 Fall '08
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 Accounting

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