Question

Required 1 Required 2 Required 3 On June 30, 2021, the Johnstone Company purchased equipment from Genovese Corp. Johnstone agreed to pay Genovese $17,000 on the purchase date and the balance in five annual installments of $9,000 on each June 30 beginning June 30, 2022. Assuming that an interest rate of 10% properly reflects the time value of money in this situation, at what amount should Johnstone value the equipment? (Round your final answers to nearest whole dollar amount.) Show less Table values are based on: Present Value Cash Flow Amount Installments Down Payment Value of the equipment Required 2 >

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Answer 1

Solution

Johnstone company

Requirement 1

Table values are based on :

n = 5

i = 10%

Cash Flow Amount Present Value

Installment $ 9,000 $ 34,117

Down Payment $ 17,000 $ 17,000

Value of Equipment $ 51,117

Requirement 2

Table or calculator function : FVAD of $ 1

Future Value : $470,000

n = 5

i = 8%

Deposit 74,180

$470,000 = Annuity amount x 6.3359*

Future value of an annuity due of $1: n = 5, i = 8% (from FVAD of $1)

Requirement 3

Table or calculator function : PVAD of $ 1

Payment   $ 127,000

n = 15

i = 10%

Liability :

PVAD = $ 127,000 (8.36669*) =$10,62,570 = Lease Liability

Present value of an annuity due of $1 : n = 15 , i = 10% (From PVAD of $1)

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