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Starting on January 1, year 1, $350 is deposited in an accountpaying 8% annually. Each January 1 thereafter, up to and includingJanuary 1, year 10. Starting January 1, year 15 ( the date of thefirst withdrawal), five uniform annual withdrawals are made. Thelast withdrawal will exhaust the fund. How much will be withdrawneach year?

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Patrina Schowalter
Patrina SchowalterLv2
28 Sep 2019

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Series of Compound Interest Techniques

The following are several situations involving compoundinterest.

Required:

Using the appropriate table, solve each of the following:

(Click here to access the time value of money tables to use withthis problem.)

1.Hope Dearborn invests $40,000 on January 1, 2016, in a savingsaccount that earns interest of 8% compounded semiannually. Whatwill be the amount in the fund on December 31, 2021?

Round your answer to two decimal places.

$

2. Ben Johnson receives a bonus of $5,000 each year on December31. Beginning on December 31, 2016, he deposits his bonus everyyear in a savings account that earns interest of 12% compoundedannually. What will be the amount in the fund on December 31, 2020,after he deposits his bonus received on that date?

Round your answer to two decimal places.

$

3. Ron Sewert owes $30,000 on a non-interest-bearing note dueJanuary 1, 2026. He offers to pay the amount on January 1, 2016,provided that it is discounted at 10% on a compound annual discountbasis. What would he have to pay on January 1, 2016, under thisassumption?

Round your answer to two decimal places.

$

4. June Stickney purchased an annuity on January 1, 2016, which,at a 12% annual rate, would yield $6,000 each June 30 and December31 for the next 6 years. What was the cost of the annuity toStickney?

Round your answer to two decimal places.

$

5. Five equal annual contributions are to be made to a fund,with the first deposit on December 31, 2016. Determine the equalcontributions that, if invested at 10% compounded annually, willproduce a fund of $30,000 on December 31, 2021.

Round your answer to two decimal places.

$

6. Beginning on December 31, 2017, 6 equal annual withdrawalsare to be made. Determine the equal annual withdrawals if $11,000is invested at 10% interest compounded annually on December 31,2016.

Round your answer to two decimal places.

$

1) Answer each of the following independent situations,showing complete work (with the time value of money). All interestrates are given as annual interest rates.

a) On January 1, 2016, Adelphi Corporation sold awarehouse that cost $411,000 and that had accumulated depreciationof $136,000 on the date of sale. Adelphi received as considerationa $400,000 non-interest-bearing note, due on January 1, 2020. Therewas no established exchange price for the building, and the notehad no ready market. The prevailing rate of interest for a note ofthis type on January 1, 2016, was 8%. At what amount should thegain or loss from the sale of the building be reported? (2 points)[This is a present value problem, where $400,000 is theFV]

b) On January 1, 2016, Adelphi Corporation issued 1,000of the 6%, 10-year bonds. The bonds have a par value of $1,000 perbond, and pay interest semi-annually beginning January 1, 2017.Adelphi sold the bonds to yield 8% annually. How much did Adelphireceive as the issue price of the bonds? (2 points) [Thisis a present value problem. You have to use 3% to calculate thesemi-annual interest payment, 4% as the rate to look up the PVfactor, and 20 as the number ofperiods]

c) Adelphi Corporation bought new equipment and agreedto pay for it in five equal annual installments of $10,000 startingon the date of the purchase. Assuming that a prevailing annualinterest rate of 10% applies to this contract, how much shouldAdelphi record as the purchase cost of the equipment? (2 points)[This is a present value of annuity dueproblem]

d) Adelphi Corporation purchased a special conveyorsystem on January 1, 2016. The purchase agreement stipulated thatAdelphi should pay $15,000 at the time of purchase and $50,000 atthe end of each of the 5 years starting with 2016. The conveyorsystem should be recorded on January 1, 2016 at what amount,assuming an appropriate annual interest rate of 8%? (2 points)[This is a present value of ordinary annuityproblem]

e) Adelphi Corporation wants to withdraw $500,000 eachyear from an investment fund at the end of each of the next 9 yearsbeginning with 2016. What should be the required initial investmentat the beginning of 2016 if the fund earns 12% per year? (2 points)[This is a present value of ordinary annuityproblem]

Arnez Co. follows the practice of recording prepaid expenses andunearned revenues in balance sheet accounts. The company’s annualaccounting period ends on December 31, 2013. The followinginformation concerns the adjusting entries to be recorded as ofthat date.

a.

The Office Supplies account started the year with a $2,800balance. During 2013, the company purchased supplies for $11,564,which was added to the Office Supplies account. The inventory ofsupplies available at December 31, 2013, totaled $2,464.
b.

An analysis of the company's insurance policies provided thefollowing facts.
Policy Date ofPurchase Months ofCoverage Cost
A April 1, 2012 24 $ 10,464
B April 1, 2013 36 9,216
C August 1, 2013 12 8,064

The total premium for each policy was paid in full (for allmonths) at the purchase date, and the Prepaid Insurance account wasdebited for the full cost. (Year-end adjusting entries for PrepaidInsurance were properly recorded in all prior years.)
c.

The company has 15 employees, who earn a total of $2,500 insalaries each working day. They are paid each Monday for their workin the five-day workweek ending on the previous Friday. Assume thatDecember 31, 2013, is a Tuesday, and all 15 employees worked thefirst two days of that week. Because New Year’s Day is a paidholiday, they will be paid salaries for five full days on Monday,January 6, 2014.
d.

The company purchased a building on January 1, 2013. It cost$870,000 and is expected to have a $45,000 salvage value at the endof its predicted 25-year life. Annual depreciation is $33,000.
e.

Since the company is not large enough to occupy the entirebuilding it owns, it rented space to a tenant at $2,100 per month,starting on November 1, 2013. The rent was paid on time on November1, and the amount received was credited to the Rent Earned account.However, the tenant has not paid the December rent. The company hasworked out an agreement with the tenant, who has promised to payboth December and January rent in full on January 15. The tenanthas agreed not to fall behind again.
f.

On November 1, the company rented space to another tenant for$1,903 per month. The tenant paid five months' rent in advance onthat date. The payment was recorded with a credit to the UnearnedRent account.
Required:
1.

Use the information to prepare adjusting entries as of December31, 2013.
Adjustingentries (all dated December 31, 2013).

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