1. (a)
Identify the present value of debt.
1. (a)
Answer to Problem 9.11P
The present value of debt of Company B is
Explanation of Solution
Present value:
Present value is the current value of an amount that is to be paid or received in future. Present value is determined by using the formula:
Annuity:
An annuity is referred as a sequence of payment of fixed amount of cash flows that occurs over the equal intervals of time.
Working Notes:
Calculate the present value of debt for the borrowed money of $115,000 to be repaid in seven years:
Therefore, the present value of debt for the borrowed money of $115,000 to be repaid in seven years is $71,616.
(1)
Calculate the present value of annuity for an agreed amount interest each year for seven years:
Therefore, the present value of annuity for an agreed amount interest each year for seven years is $32,336.
(2)
2. (b)
Identify the single amount the company must deposit on January 1 and also to identify the total amount of interest revenue that will be earned.
2. (b)
Explanation of Solution
Determine the single amount that Company B must deposit on January 1:
Therefore, the single amount that Company B must deposit on January 1 is $285,185.
Identify the total amount of interest revenue that will be earned by Company B:
The total amount of interest revenue that will be earned by the Company B is $204,815
3.(c)
Identify the present value.
3.(c)
Answer to Problem 9.11P
The present value of Company B for given obligation is
Explanation of Solution
Therefore, Company B’s present value to pay $75,000 to discharged employees at the end of first year is $70,094.
Therefore, Company B’s present value to pay $112,500 to discharged employees at the end of second year is $98,262.
Therefore, Company B’s present value to pay $150,000 to discharged employees at the end of third year is $122,445.
4.(d)
Identify the amount of each of the equal annual payments that will be paid on the note by Company B and also to identify the total amount of interest expense that will be accrued by Company B.
4.(d)
Explanation of Solution
Identify the amount of each of the equal annual payments that will be paid on the note by Company B:
Therefore, The amount of each of the equal annual payments that will be paid on the note by Company B is $33,169.
Working Note:
Identify the total amount of interest expense that will be accrued by Company B:
Therefore, the total amount of interest expense that will be accrued by Company B is $29,845.
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Chapter 9 Solutions
FINANCIAL ACCOUNTING + CONNECT PLUS
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