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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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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.

To determine

(a)

Introduction:

Compound interest considers the time value of money. Present value of Cashflow means the amount that should be invested to earn a specific amount on a specific date.

To prepare:

Cash Flow for investments.

Explanation

a. Investment Date = January 1, 2020

Cashflow (f) = $60,000

Interest = 9% p.a.

Maturity Date = December 31, 2021

No. of years = 2

Compounded annually,

No. of periods = 2

Interest Rate = 9%

b...

To determine

(b)

Introduction:

Compound interest considers the time value of money. Present value of Cashflow means the amount that should be invested to earn a specific amount on a specific date.

To record:

Journal entries for the investments.

To determine

(c)

Introduction:

Compound interest considers the time value of money. Present value of Cashflow means the amount that should be invested to earn a specific amount on a specific date.

To record:

Journal entries for the interest expense and payment for second investment.

To determine

(d)

Introduction:

Compound interest considers the time value of money. Present value of Cashflow means the amount that should be invested to earn a specific amount on a specific date.

To record:

Adjusting journal entry for the first investment.

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