HomeworkLib
Question

Purchase equipment on 1/1/A, agreeing to pay 5 yearly $10k installments, beginning immediately. The market interest...

Purchase equipment on 1/1/A, agreeing to pay 5 yearly $10k installments, beginning immediately. The market interest rate is 10%. What is the cost of the equipment?

explanation appreciated

business   accounting   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

Some important points before calculation :

1.       Interest in each installment shall be calculated as : (rate/rate +100) X (value if current installment+ total principal in upcoming installments)

2.            IN THIS CASE CALCULATION WILL BE IN REVERSE ORDER FROM LAST INSTALLMENT TO FIRST INSTALLMENT , BECAUSE LAST INSTALLMENT INCLUDES INTEREST ONLY FOR ITS PRINCIPAL.

3.    1ST INSTALLMENT SHALL CONSTITUTE AS ONLY PRINCIPAL AS IT IS PAID AT THE STARTING OF THE YEAR AT THE TIME OF PURCHASING .

INSTALLMENT NUMBER

CALCULATION OF INTEREST

INTEREST COMPONENT IN INSTALLMENT

PRINCIPAL COMPONENT IN INSTALLMENT

5

10/110 X 10000

909.09

9090.19

4

10/110 X10000+9090.91

1735.53

8264.47

3

10/110 X10000+9090.91+8264.47

2486.85

7513.15

2

10/110 X10000+9090.91+8264.47+7513.15

3169.86

6830.14

1

NIL

10000

TOTAL

8303.33

41697.95
0 0
Add a comment
Know the answer?
Add Answer to:
Purchase equipment on 1/1/A, agreeing to pay 5 yearly $10k installments, beginning immediately. The market interest...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Poe Company purchased equipment by paying $11,400 cash on the purchase date and agreeing to pay...

    Poe Company purchased equipment by paying $11,400 cash on the purchase date and agreeing to pay $4,400 every three months during the next five years. If Poe records a liability of $79,401, what is the interest rate Poe is being charged (choose the answer closest to the number you calculate)?

  • Jan 1, 2018 Acquired Equipment for $900,000, paying $100,000 as down payment and agreeing to pay...

    Jan 1, 2018 Acquired Equipment for $900,000, paying $100,000 as down payment and agreeing to pay the balance in four equal annual instalments. The equipment has 10 year life and a salvage value of $200,000. Make necessary entries in the year of purchase and in 2019.

  • Short Company purchased land by paying $10,000 cash on the purchase date and agreeing to pay...

    Short Company purchased land by paying $10,000 cash on the purchase date and agreeing to pay $10,000 for each of the next ten years beginning one-year from the purchase date. Short's incremental borrowing rate is 10%. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided.) The land reported on the balance sheet is closest to: Multiple Choice $100,000. $110,000. Oo oo $71,446. $38,550.

  • On 1/1/A, borrow $8k to be repaid in 5 equal annual installments on 12/31. a. How...

    On 1/1/A, borrow $8k to be repaid in 5 equal annual installments on 12/31. a. How much is each installment if i = 10%? b. Interest expense in 2nd year? explanation appreciated

  • Larkspur Corporation purchased a computer on December 31, 2019, for $144,900, paying $41,400 down and agreeing...

    Larkspur Corporation purchased a computer on December 31, 2019, for $144,900, paying $41,400 down and agreeing to pay the balance in five equal installments of $20,700 payable each December 31 beginning in 2020. An assumed interest rate of 10% is implicit in the purchase price. (a) Prepare the journal entry at the date of purchase. (Round factor values to 5 decimal places, e.g. 1.25124 and final answers to 2 decimal places, e.g. 52.75. Credit account titles are automatically indented when...

  • 1. Amna wants to purchase a used Lexus for OR 20,000.00. She could pay OR 5000.00...

    1. Amna wants to purchase a used Lexus for OR 20,000.00. She could pay OR 5000.00 at purchase and wishes to pay the balance in 5 yearly equal installments at a 12% interest. How much would Amna’s yearly installments payment be? 2. Mohammed wants to buy a house in another seven years. The type of house he wants to buy is currently selling for OR 50,000, and the price will increase at a compound rate of 10% per year. Mohammed...

  • At the end of 2016, LeaseCo leases identical equipment, agreeing to pay $500,000 rent each year...

    At the end of 2016, LeaseCo leases identical equipment, agreeing to pay $500,000 rent each year for the next 10 years. If the interest rate is 12%, then the present value of 10 payments of $500,000 discounted at 12% is $2,825,112 ($500,000 × 5.650223). Where does the 5.650223 come from? What did I forget to do?

  • 72. Short Company purchased land by paying $10,000 cash on the purchase date and agreeing to...

    72. Short Company purchased land by paying $10,000 cash on the purchase date and agreeing to pay $10,000 for each of the next ten years beginning one-year from the purchase date. Short's incremental borrowing rate is 10%. At what amount would the land be reported at on the balance sheet? A. $100,000 B. $38,550 C. $110,000 D. $71,446 74. Libby Company purchased equipment by paying $5,000 cash on the purchase date and agreeing to pay $5,000 every six months during...

  • At the beginning of 2018, VHF Industries acquired a equipment with a fair value of $9,112,050...

    At the beginning of 2018, VHF Industries acquired a equipment with a fair value of $9,112,050 by issuing a four-year, noninterest bearing note in the face amount of $12 million. The note is payable in four annual installments of $3 million at the end of each year (Fy of $1. PV of $1. FVA of $1. PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. What is the effective rate...

  • Cheyenne Corporation purchased a computer on December 31, 2019, for $140,700, paying $40,200 down and agreeing...

    Cheyenne Corporation purchased a computer on December 31, 2019, for $140,700, paying $40,200 down and agreeing to pay the balance in five equal installments of $20,100 payable each December 31 beginning in 2020. An assumed interest rate of 9% is implicit in the purchase price. (a) Prepare the journal entry at the date of purchase. (Round factor values to 5 decimal places, e.g. 1.25124 and final answers to 2 decimal places, e.g. 52.75. Credit account titles are automatically indented when...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT