Question

On January 1, 2020, Sweet Corporation sold a building that cost $259,320 and that had accumulated depreciation of $102,520 on the date of sale. Sweet received as consideration a $249,320 non-interest-bearing note due on January 1, 2023. There was no established exchange price for the building, and the note had no ready market. The prevailing rate of interest for a note of this type on January 1, 2020, was 11%. At what amount should the gain from the sale of the building be reported? (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.) The amount of gain should be reported . On January 1, 2020, Sweet Corporation purchased 311 of the $1,000 face value, 11%, 10-year bonds of Walters Inc. The bonds mature on January 1, 2030, and pay interest annually beginning January 1, 2021. Sweet purchased the bonds to yield 11%. How much did Sweet pay for the bonds? (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.) Sweet must pay for the bonds +

Answer 1

Answer:

Gain fromsale of Building be reported =$25500

Book Value of Building in sweet Corporation = Cost of the Building - Accumulated depreciation

=$259320 - $102520

=$156800

Consideration receivable on january 1,2020 = $249320

Present value factor for 3 years at 11% = 1/(1+0.11)3 =0.73119

Present value of consideration receivable = $249320 X 0.73119 =$182300.29

Gain fromsale of Building be reported = Present value of consideration - Book value of asset

=$182300.29 - $156800 =$25500.29

Bond characterstics			Amount
	Principal				311,000
	interest				31,100
	Market interest rate			11%
	periods to maturity			10
	issue price				292683	answer	paid by Sweet
	Calculation of bond issue price
	Where
	i=	11.00%
	t=	10
	principal		*	PV of $1 at 11% for 10 yrs =
	311,000		*	0.35218		=	109528
	interest		*	PV of ordinary annuity at 11%=
	31100		*	5.88923		=	183155
	bond issue price					292683