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The equipment is recorded on January 1,2020 at

The equipment is recorded on January 1,2020 at

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Jet Air Inc. contracted with Systems Plus Inc. to manufacture heavy equipment. The equipment was completed and ready for use On January 1, 2020. Jet Air Inc. issued a $1,000,000 note to Systems Plus Inc. in exchange for the equipment that required 8% interest payments annually over 3 years on December 31 of each year. Although the fair value of the customized heavy equipment was not reasonably determinable, it was determined that 10% was a reasonable rate of interest for such a transaction. 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% 10.00% $1,000,000. O $1,051,540. Present value of single $1 (Table 2) 0.81630 0.79383 0.77218 0.75131 The equipment is recorded on January 1,2020 at $949,248 O $950,258. 3 0.88900 0.86384 0.83962 6 0.79031 0.74622 0.70496 0.66634 0.63017 0.59627 0.56447 Present value of $1 ordinary annuity (Table 4) 3 2.77509 2.72325 2.67301 2.62432 2.57710 2.53129 2.48685 6 5.24214 5.07569 4.91732 4.76654 4.62288 4.48592 4.35526
Transcribed Image Text:Jet Air Inc. contracted with Systems Plus Inc. to manufacture heavy equipment. The equipment was completed and ready for use On January 1, 2020. Jet Air Inc. issued a $1,000,000 note to Systems Plus Inc. in exchange for the equipment that required 8% interest payments annually over 3 years on December 31 of each year. Although the fair value of the customized heavy equipment was not reasonably determinable, it was determined that 10% was a reasonable rate of interest for such a transaction. 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% 10.00% $1,000,000. O $1,051,540. Present value of single $1 (Table 2) 0.81630 0.79383 0.77218 0.75131 The equipment is recorded on January 1,2020 at $949,248 O $950,258. 3 0.88900 0.86384 0.83962 6 0.79031 0.74622 0.70496 0.66634 0.63017 0.59627 0.56447 Present value of $1 ordinary annuity (Table 4) 3 2.77509 2.72325 2.67301 2.62432 2.57710 2.53129 2.48685 6 5.24214 5.07569 4.91732 4.76654 4.62288 4.48592 4.35526
Mitchell Inc. issued 64, 10%, $1,000 bonds on January 1, 2020, for $70,006. The bonds pay cash interest semiannually each June 30, and December 31, and were issued to yield 8%. The bonds mature December 31, 2025, and the company uses the effective interest method to amortize bond discounts or premiums. On January 1, 2020, Mitchell Inc. elects to account for the bonds using the fair value option. At December 31, 2021, the market rate on the bonds is 9%. Present value of a $1 single payment (Table 2) 4.00% 4.50% 5.00% 4 0.85480 0.83856 0.82270 6 8 0.79031 0.76790 0.73069 0.70319 0.67684 0.67556 12 0.62460 0.58966 10 The fair value of the bonds at 12/31/2021 is $66,111. O $70,006. $64,000. $68,309 Present value of a $1 ordinary annuity (Table 4) 4.00% 4.50% 3.62990 3.58753 0.74622 5.24214 5.15787 6.73274 6.59589 7.91272 0.55684 9.38507 9.11858 0.64393 0.61391 8.11090 5.00% 3.54595 5.07569 6.46321 7.72173 8.86325
Transcribed Image Text:Mitchell Inc. issued 64, 10%, $1,000 bonds on January 1, 2020, for $70,006. The bonds pay cash interest semiannually each June 30, and December 31, and were issued to yield 8%. The bonds mature December 31, 2025, and the company uses the effective interest method to amortize bond discounts or premiums. On January 1, 2020, Mitchell Inc. elects to account for the bonds using the fair value option. At December 31, 2021, the market rate on the bonds is 9%. Present value of a $1 single payment (Table 2) 4.00% 4.50% 5.00% 4 0.85480 0.83856 0.82270 6 8 0.79031 0.76790 0.73069 0.70319 0.67684 0.67556 12 0.62460 0.58966 10 The fair value of the bonds at 12/31/2021 is $66,111. O $70,006. $64,000. $68,309 Present value of a $1 ordinary annuity (Table 4) 4.00% 4.50% 3.62990 3.58753 0.74622 5.24214 5.15787 6.73274 6.59589 7.91272 0.55684 9.38507 9.11858 0.64393 0.61391 8.11090 5.00% 3.54595 5.07569 6.46321 7.72173 8.86325
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