Compute the following using the interest factors given below from the interest tables:
a) Compute the price (present value) of the bond issued by ABC Company: Face Value=$7,000,000. Nominal interest rate 5%, market rate 6%, life of bond is 8 years. present value of $1 interest factor for 8 years and 6%: .6768 present value of annuity interest factor 8 years 6%: 6.2098
b) VHP company leased a group of equipment from 5 years at $152,000 a year lease payments. Assuming the interest rate is 7% (interest factor 4.1002). Compute PVA of leased assets and lease liability.
c) XYK Company purchased a building for $1,300,000, paid $300,000 cash and borrowed 1,000,000 using 15 year 6% mortgage. Note: the present value of annuity interest facto for 15 years and 6% is 9.7122. compute the annual payments of the mortgage. (PVA/interest factor)
Compute the following using the interest factors given below from the interest tables:
a) Compute the price (present value) of the bond issued by ABC Company: Face Value=$7,000,000. Nominal interest rate 5%, market rate 6%, life of bond is 8 years. present value of $1 interest factor for 8 years and 6%: .6768 present value of annuity interest factor 8 years 6%: 6.2098
b) VHP company leased a group of equipment from 5 years at $152,000 a year lease payments. Assuming the interest rate is 7% (interest factor 4.1002). Compute PVA of leased assets and lease liability.
c) XYK Company purchased a building for $1,300,000, paid $300,000 cash and borrowed 1,000,000 using 15 year 6% mortgage. Note: the present value of annuity interest facto for 15 years and 6% is 9.7122. compute the annual payments of the mortgage. (PVA/interest factor)
Related questions
Problem 21-1 Glaus Leasing Company agrees to lease machinery to Jensen Corporation on January 1, 2014. The following information relates to the lease agreement.
1. The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years.
2. The cost of the machinery is $475,000, and the fair value of the asset on January 1, 2017, is $681,000.
3. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $91,000. Jensen depreciates all of its equipment on a straight-line basis.
4. The lease agreement requires equal annual rental payments, beginning on January 1, 2017.
5. The collectibility of the lease payments is reasonably predictable, and there are no important uncertainties surrounding the amount of costs yet to be incurred by the lessor. 6. Glaus desires a 9% rate of return on its investments. Jensenâs incremental borrowing rate is 10%, and the lessorâs implicit rate is unknown. Calculate the amount of the annual rental payment required. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971.)
Annual rental payment $
Compute the present value of the minimum lease payments. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971.)
Present value of minimum lease payments $
Prepare the journal entries Jensen would make in 2017 and 2018 related to the lease arrangement. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places e.g. 58,971.)
| Date | Account Titles and Explanation | Debit | Credit | |||||
| 1/1/2017 | Leased Asset | $ | ||||||
| Lease Liabilty | $ | |||||||
| (to record the lease) | ||||||||
| Lease Liabilty | $ | |||||||
| Cash | $ | |||||||
| (to record lease payment) | ||||||||
| 12/31/2017 | Depreciation expense | $ | ||||||
| Accumulated depreciation -Capital Lease | $ | |||||||
| (to record depreciation) | ||||||||
| Interest Expense | $ | |||||||
| Interest Payable | $ | |||||||
| (to record interest) | ||||||||
| 1/1/2018 | Lease Liablity | $ | ||||||
| Interest Payable | $ | |||||||
| Cash | $ | |||||||
| 12/31/2018 | Depreciation expense | $ | ||||||
| Accumulated depreciation -Capital Lease | $ | |||||||
| (to record depreciation) | ||||||||
| Interest Expense | $ | |||||||
| Interest Payable | $ | |||||||
| (to record interest) | ||||||||
| (d) | ||||||||
| Date | Account Titles and Explanation | Debit | Credit | |||||
| 1/1/2017 | Lease Receivables | $681,000 | ||||||
| Cost of Goods Sold | $475,000 | |||||||
| Sales | $681000 | |||||||
| Inventory | $475000 | |||||||
| (Sales-type Lease) | ||||||||
| Cash | $ | |||||||
| Lease Receivable | $ | |||||||
| (to record lease payment) | ||||||||
| 12/31/2017 | Interest Receivable | $ | ||||||
| Interest Revenue | $ | |||||||
| 1/1/2018 | Cash | $ | ||||||
| Lease receivable | $ | |||||||
| Interest Receivable | $ | |||||||
| 12/31/2018 | Interest Receivable | $ | ||||||
| Interest Revenue | $ | |||||||
Each of the four independent situations below describes acapital lease in which annual lease payments are payable at thebeginning of each year. (FV of $1, PV of $1, FVA of $1, PVA of $1,FVAD of $1 and PVAD of $1) (Use appropriate factor(s) fromthe tables provided.)
| Situation | ||||||||||||||||||
| 1 | 2 | 3 | 4 | |||||||||||||||
| Lease term (years) | 4 | 7 | 5 | 8 | ||||||||||||||
| Lessorâs rate of return | 10 | % | 11 | % | 9 | % | 12 | % | ||||||||||
| Fairvalue of leased asset | $ | 61,000 | $ | 361,000 | $ | 86,000 | $ | 476,000 | ||||||||||
| Lessorâs cost of leased asset | $ | 61,000 | $ | 361,000 | $ | 56,000 | $ | 476,000 | ||||||||||
| Residual value: | ||||||||||||||||||
| Guaranteed by lessee | 0 | $ | 61,000 | 0 | $ | 41,000 | ||||||||||||
| Unguaranteed | 0 | 0 | $ | 18,000 | $ | 26,000 | ||||||||||||
| Determine theannual lease payments for each situation: |
