X Transport Ltd. purchased from Delhi Motors 3 Tempos costing Rs. 50,000 each on the hire 
purchase system on 1-1-2011. Payment was to be made Rs. 30,000 down and the remainder in 3 
equal annual instalments payable on 31-12-2011, 31-12-2012 and 31-12-2013 together with 
interest @ 9%. X Transport Ltd. write off depreciation at the rate of 20% on the diminishing 
balance. It paid the instalment due at the end of the first year i.e. 31-12-2011 but could not pay 
the next on 31-12-2012. Delhi Motors agreed to leave one Tempo with the purchaser on 1-1-2013 
adjusting the value of the other 2 Tempos against the amount due on 31-12-2012. The Tempos 
were valued on the basis of 30% depreciation annually. 
Show the necessary accounts in the books of X Transport Ltd. and Delhi Motors Tempos for the 
years 2011, 2012 and 2013.

You have purchased a pre-owned motor vehicle in terms of a suspensive sales agreement. You are required to pay monthly instalments from today, 1 June, 2x01 to 1 May 2x06. The cash price of the car is R128 496.00. Finance charges are linked to the prime overdraft rate; the rate is prime plus a premium of 1% per annum. The prime rate is currently 8% per annum, interest compounded monthly.

Required:

(a) Determine the equal monthly instalment amount required to purchase the motor vehicle over five years.

The long-term liabilities section of CPS Transportation’sDecember 31, 2017, balance sheet included the following: (FV of $1,PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)(Use appropriate factor(s) from the tablesprovided.)

a. A lease liability with 13 remaining lease payments of $16,000each, due annually on January 1:

The incremental borrowing rate at the inception of the lease was11% and the lessor’s implicit rate, which was known by CPSTransportation, was 10%.

b. A deferred income tax liability due to a single temporarydifference. The only difference between CPS Transportation’staxable income and pretax accounting income is depreciation on amachine acquired on January 1, 2017, for $580,000. The machine’sestimated useful life is five years, with no salvage value.Depreciation is computed using the straight-line method forfinancial reporting purposes and the MACRS method for tax purposes.Depreciation expense for tax and financial reporting purposes for2018 through 2021 is as follows:

The enacted federal income tax rates are 35% for 2017 and 40% for2018 through 2021. For the year ended December 31, 2018, CPS’sincome before income taxes was $980,000.

On July 1, 2018, CPS Transportation issued $680,000 of 9% bonds.The bonds mature in 10 years and interest is payable each January 1and July 1. The bonds were issued at a price to yield the investors10%. CPS records interest at the effective interest rate.

Required:
1. Determine CPS Transportation’s income taxexpense and net income for the year ended December 31, 2018.
2. Determine CPS Transportation’s interest expensefor the year ended December 31, 2018.
3. Prepare the long-term liabilities section ofCPS Transportation's December 31, 2018, balance sheet.

22 Mr. Sullivan is borrowing $2 million to expand his business. The loan will be for ten years at 12% on the declining balance, and will be repaid in equal annual instalments. At the end of the first year, how much will he have reduced the principal? a. 113968.33 b. 353968.33 C. 240000 d. 127644.53 e. None of the above. The correct answer is 'a'.