The terms of the arrangement require the operator to: Construct a road-completing construction within two years Maintain and operate the road for three years Resurface the road at the end of Year 4 The government pays the operator P200 per year in Years 3 to 5 for making the road available to the public The road is turn-over to the government at the end of Year 5 The operators determine that the implied interest rate is 24.42%. The operator finances the arrangement entirely with debt. The debt proceeds are taken as the contract cost are paid. The debt is payable as follows: 75 in each of years 3 and 4 and P40 in year 5. The effective interest rate is 25.77% The operator makes the following estimates: Year Contract Cost Stand-alone selling price Construction Services 1 70 Forecast cost +10% 80 Forecast cost +20%

The terms of the arrangement require the operator to: Construct a road-completing construction within two years Maintain and operate the road for three years Resurface the road at the end of Year 4 The government pays the operator P200 per year in Years 3 to 5 for making the road available to the public The road is turn-over to the government at the end of Year 5 The operators determine that the implied interest rate is 24.42%. The operator finances the arrangement entirely with debt. The debt proceeds are taken as the contract cost are paid. The debt is payable as follows: 75 in each of years 3 and 4 and P40 in year 5. The effective interest rate is 25.77% The operator makes the following estimates: Year Contract Cost Stand-alone selling price Construction Services 1 70 Forecast cost +10% 80 Forecast cost +20%

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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