Textbook Problem

Present Values

Phillips Enterprises signed notes to make the following two purchases on January 1, 2020:

a. new piece of equipment for $60,000, with payment deferred until December 31, 2021. The appropriate interest rate is 9% compounded annually.

b. small building from Richter Construction. The terms of the purchase require a $75,000 payment at the end of each quarter, beginning March 31, 2020, and ending June 30, 2022. The appropriate interest rate is 2% per quarter.

Required:

Note: Round answers to two decimal places.

1. Prepare the cash flow diagrams for these two purchases.

2. Prepare the entries to record these purchases in Phillips' journal.

3. Prepare the cash payment and interest expense entries for Purchase b at March 31, 2020, and June 30, 2020.

4. Prepare the adjusting entry for Purchase a at December 31, 2020.

5. Future Value of Annuity at an Interest Rate of 0.154% per Week.