Required: 1. In transaction (a), determine the present value of the debt.. 2-a. In transaction (b), what single amount must the company deposit on January 1 of this year? 2-b. In transaction (b), what is the total amount of interest revenue that will be earned? 3-a. In transaction (c), what is the amount of each of the equal annual payments that will be paid on the note? 3-b. In transaction (d, what is the total amount of interest expense that will be incurred?
Required: 1. In transaction (a), determine the present value of the debt.. 2-a. In transaction (b), what single amount must the company deposit on January 1 of this year? 2-b. In transaction (b), what is the total amount of interest revenue that will be earned? 3-a. In transaction (c), what is the amount of each of the equal annual payments that will be paid on the note? 3-b. In transaction (d, what is the total amount of interest expense that will be incurred?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:AP9-10 (Algo) Computing Present Values LO9-7,9-8
On January 1, Ellsworth Company completed the following transactions (use an 8% annual interest rate for all transactions): (FV of $1.
PV of $1. EVA of $1, and PVA of $1)
Note: Use appropriate factor(s) from the tables provided.
a. Borrowed $2,350,000 to be repaid in five years. Agreed to pay a fixed amount of $157,000 at the end of each year for five years
and a one-time payment of $2,350,000 at the end of the 5th year.
b. Established a plant remodeling fund of $1,700,000 to be available at the end of Year 10. A single sum that will grow to $1,700,000
will be deposited on January 1 of this year.
c. Purchased a $764,000 machine on January 1 of this year and paid cash, $407,000. A four-year note is signed for the balance.
The note will be paid in four equal year-end payments starting on December 31 of this year.
Required:
1. In transaction (a), determine the present value of the debt.
2-a. In transaction (b), what single amount must the company deposit on January 1 of this year?
2-b. In transaction (b), what is the total amount of interest revenue that will be earned?
3-a. In transaction (c), what is the amount of each of the equal annual payments that will be paid on the note?
3-b. In transaction (c), what is the total amount of interest expense that will be incurred?
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