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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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Future Value of a Single Cash Flow

Jenkins Products has just been paid $25,000 by Shirley Enterprises, which has owed Jenkins this amount for 30 months but been unable to pay because of financial difficulties. Had it been able to invest this cash, Jenkins assumes that it would have earned an interest rate of 12% compounded monthly (1% per month).

Required:

Note: Round answers to two decimal places.

1. Prepare a cash flow diagram for the investment that could have been made if Shirley had paid 30 months ago.

2. Determine how much Jenkins has lost by not receiving the $25.000 when it was due 30 months ago.

3. CONCEPTUAL CONNECTION Indicate whether Jenkins would make an entry to account for this loss. Why or why not?

To determine

(a)

Introduction:

The future value of amount includes the compound interest and the initial cash flow. It considers the time value of money.

To prepare:

Cash Flow diagram.

Explanation

Cashflow = $25,000

Interest = 12% p.a.

No. of months = 30

Com...

To determine

(b)

Introduction:

The future value of amount includes the compound interest and the initial cash flow. It considers the time value of money.

To calculate:

The amount lost for receiving $25,000 after 30 months.

To determine

(c)

Introduction:

The future value of amount includes the compound interest and the initial cash flow. It considers the time value of money.

To discuss:

If journal entry will be passed to record the amount lost.

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