Answer:
A. It allows people and businesses to pay off expensive purchases
over time.
Explanation:
A credit facility is an arrangement where a buyer obtains goods or services and pays for them over a long time. Credit contrasts cash payment, where the buyer pays make full payment for a product when acquiring it.
Credit allows a business to acquire expensive items and assets. Should a business be in need of something that it cannot afford to pay on a cash basis, it can negotiate favorable credit terms with the seller. Payments for such an item are spread over an agreed period. The buyer pays through small and affordable installments until they clear the debt.
Choi Home Repair needs to accumulate $22,000 in 6 years to purchase new equipment. What sinking fund payment (in $) would they need to make at the end of each three months, at 4% interest compounded quarterly?
Answer: $815.62
Explanation:
This is an annuity because it is to be a specific payment per period.
As it is in 6 years, it is a Future Value calculation.
Number of periods = 6 years * 4 quarters = 24 quarters
Interest = 4%/ 4 quarters = 1%
Future Value = Annuity * Future Value interest factor of Annuity, 24 periods, 1%
22,000 = Annuity * 26.9735
Annuity = 22,000/26.9735
Annuity = $815.62
Performance appraisals can be improved by: Improving appraisal formats Selecting the right raters Training raters to rate more accurately Understanding how raters process information All of the choices are correct
Answer:
All of the choices are correct
Explanation:
Performance appraisals is one of the tools that helps in the maximizing and enhancing the energies of the employees towards achieving the goals. It is the way through which the performance of the employees are evaluated and analyzed. Some of the methods include providing rewards, promoting or demoting the employees and facilitating transfers. It helps in the flow of better communication of the employees and the employers. The improvement in the productivity of the employees, growth in the company's turnover and good relationship are some of the outputs of the performance appraisals.
Manuel and Poornima White live in Swarthmore, PA. Poornima's father, Shen, lives in Sweden. For each of the following transactions, identify whether it is included in the calculation of U.S. GDP as part of consumption (C), investment spending (I), government purchases (G), exports (X), or imports (IM).
a. A product’s inclusion in one category does not necessarily imply that it is excluded from other categories.
b. The Federal Aviation Administration expands the runways at Philadelphia International Airport, which is just a few miles from Manuel and Poornima's house.
c. Poornima buys a new BMW, which was assembled in Germany.
d. Shen in Sweden orders a bottle of Vermont maple syrup from the producer's website.
e. Manuel's employer upgrades all of its computer systems using U.S.-made parts.
f. Poornima gets a new video camera that was made in the United States.
Answer:
a. The Federal Aviation Administration expands the runways at Philadelphia International Airport, which is just a few miles from Manuel and Poornima's house.
Identification: Government spending. This is the spending done by government in buying goods and services
b. Poornima buys a new BMW, which was assembled in Germany.
Identification: Imports. These are purchases by domestic consumers from foreign countries
c. Shen in Sweden orders a bottle of Vermont maple syrup from the producer's website.
Identification: Exports. These are purchases by foreign consumers from home countries
d. Manuel's employer upgrades all of its computer systems using U.S.-made parts.
Identification: Investment. It is a part of GDP if made in accumulation of capital and inventory
e. Poornima gets a new video camera that was made in the United States.
Identification: Consumption. This includes consumer's spending on durables and non-durable produced domestically.
Match each balance sheet item to its correct category.
Categories: Assets, Liabilities, Equity
Balance sheet items: Cash, Rent, Loan, wages payable, retained earnings, computers, furniture, owners personal investment
Answer:
See below
Explanation:
Assets, Liabilities, and Equity form the basis for preparing the balance sheet. They make the accounting equation of Assets= Liabilities + Equity.
Assets are the valuables a business owns. They can be in the form of cash, money in the banks, financial instruments, properties, machines, or motor vehicles.
Assets will be
Cashcomputers,furnitureLiabilities are what the business owes to third parties and supplies. Liabilities are usually in the monetary form, such as loans, rent, and accounts payable.
Liabilities
Rent, Loanwages payable,Equity is the owner's contribution to the business. They include capital and retained earnings.
Equity
retained owners personal investment earnings,Last year, Brian bought a bond for $10,000 that promises to pay him $800 per year. This year, he can buy a bond for $10,000 that promises to pay $900 per year. If Brian wants to sell his old bond, what is its price likely to be?
Answer:
the price likely to be $8,889
Explanation:
The computation of the price likely to be is shown below:
The rate of interest in the last year
= $800 ÷ $10,000
= 8%
Now this year the rate of interest it would be
= $900 ÷ $10,000
= 9%
Now the price likely to be is
= $800 ÷ 9%
= $8,889
hence, the price likely to be $8,889
hence, the same is to be considered
The market price of a security is $50. Its expected rate of return is 13%. The risk-free rate is 4% and the market risk premium is 6%. What will be the market price of the security if its beta doubles (and all other variables remain unchanged)? Assume that the stock is expected to pay a constant dividend in perpetuity.
Answer: New Market price =$29.55
Explanation:
Using the CAPM,Capital Asset Pricing Model CAPM formule , The expected return on stock is given as
Er = Rf +β( Mr)
which means
Expected return = Risk free rate + beta (market risk premium)
13%= 4% +beta (6%)
beta= 13%-4%/6%=0.13-0.04 /0.06
beta= 1.5
The dividend expected to be paid is given as
Expected dividend, D = Price of security X Expected return
= 50 X 13%
= $6.5
Now, if beta doubles, Expected return becomes
Er = Rf + 2β( Mr)
Er= 4% + 2 x 1.5( 6%)
=4%+ 3.0( 6%)
0.04 + 0.18
Er = 0.22 = 22%
New Market price
Expected dividend, D = Price of security X Expected return
Price = Expected dividend, D/Expected return
= $6.5/0.22
=$29.55
What was the opening price of Dow Jones Industrial Average on Dec 04, 2018 in the format of XXXXX.XX?
Answer:
$17,910.02
Explanation:
As per online search, the opening price was $17,910.02
Dow Jones Industrial Average (^DJI)
DJI - DJI Real-Time Price. Currency in USD
Summary
Time Period:
Dec 03, 2014 - Dec 05, 2014
Currency in USD
Download
Date Open High Low Close
Dec 03, 2014 17,880.90 17,924.15 17,855.59 17,912.62
Dec 04, 2014 17,910.02 17,937.96 1 7,814.81 17,900.10
To _____ an activity means to shorten the time it will take. A. smash B. fund C. crash D. aggregate E. matrix
Over the past 100 years, the rate of return on stocks has averaged about _____, and the return on bonds has averaged approximately _____.A. â10%; 5%B. 7%; 2%C. 1%; 2%D. 20%; 25%
Answer: B. 7%; 2%
Explanation:
0ver the past 100 years, stocks have showed a positive average return of 7% whilst bonds have shown a return of 2%. This makes sense because stocks generally offer higher returns than bonds which are fixed.
Stocks react to a variety of factors including interest rates and market fluctuations which makes them more risky whereas bonds which are fixed income securities are more stable in their returns making them less of a risk.
Stocks therefore offer a higher return to compensate for this risk as opposed to bonds.
The Pierce Co. just issued a dividend of $2.35 per share on its common stock. The company is expected to maintain a constant 5 percent growth rate in its dividends indefinitely. If the stock sells for $44 a share, what is the company's cost of equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Cost of equity__________ %
Answer:
r = 0.106079 or 10.6079% rounded off to 10.61%
Explanation:
Using the constant growth model of dividend discount model, we can calculate the price of the stock today. The DDM values a stock based on the present value of the expected future dividends from the stock. The formula for price today under this model is,
P0 = D0 * (1+g) / (r - g)
Where,
D0 is the dividend paid recently
D0 * (1+g) is dividend expected for the next period /year
g is the growth rate
r is the required rate of return or cost of equity
To calculate the cost of equity (r), we will plug in the values for P0, D0 and g in the formula,
44 = 2.35 * (1+0.05) / (r - 0.05)
44 * (r - 0.05) = 2.4675
44r - 2.2 = 2.4675
44r = 2.4675 + 2.2
r = 4.6675 / 44
r = 0.106079 or 10.6079% rounded off to 10.61%
The company's cost of equity is 10.61%.
The formula that can be used to determine the cost of equity is:
r = [tex]\frac{D_{1} }{P}[/tex] - g
Where:
[tex]D_{1}[/tex] = dividend next year = $2.35 x (1.05) = $2.47g = growth rate P = value of the stock = $44r = [tex]\frac{2.47}{44} + 0.05[/tex] = 10.61%
A similar question was answered here: https://brainly.com/question/13745120
When an increase in government purchases causes firms to purchase additional plant and equipment, we have seen a demonstration of a. the multiplier effect. b. the investment accelerator. c. the crowding-out effect. d. supply-side economics. e. none of the above.
Answer:
b. the investment accelerator
Explanation:
An investment accelerator can be defined as a positive effect that an increase in income or demand has on investment expenditures. Thus, an increase in the level of gross domestic product will cause a significant increase in the level of an investment.
Hence, when an increase in government purchases causes firms to purchase additional plant and equipment, we have seen a demonstration of the investment accelerator.
The Dell Corporation borrowed â$ at â% interest perâ year, which must be repaid in equal EOY amountsâ (including both interest andâ principal) over the next years. How much must Dell repay at the end of eachâ year? How much of the total amount repaid isâ interest?
Answer:
A. $2,098,000 per year
B. $2,588,000
Explanation:
A. Calculation for How much must Dell repay at the end of each year
First step is to calculate (A/P, 7%, 6 )which will give us (0.2098)
Now let Calculate the amount to repay
Amount to repay= $10,000,000 (A/P, 7%, 6)
Amount to repay= $10,000,000 (0.2098)
Amount to repay = $2,098,000 per year
Therefore the amount that Dell will repay at the end of each year will be $2,098,000 per year
2. Calculation for How much of the total amount repaid is interest
Total interest repaid = ($2,098,000*6 years)− $10,000,000
Total interest repaid=$12,588,000-$10,000,000
Total interest repaid= $2,588,000
Therefore the total amount repaid interest will be $2,588,000
Assume the bondâs quoted ("clean") price is $1,044.56, the bond has the coupon rate of 8.1% and that the coupons are paid semiannually. Further assume that the bond has the face value of $1,000. What is the bondâs invoice ("dirty") price if the last coupon payment took place four months ago?
Answer:
$1,071.56
Explanation:
Calculation for the
Clean price is the bond's invoice ("dirty") price
Using this formula
Dirty price= Clean price + ( Face value × Coupon rate × No. of months ÷ Total number of months in a year)
Let plug in the formula
Dirty price=$1,044.56 +($1,000 × 8.1% × 4 ÷ 12)
Dirty price= $1,044.56 + $27
Dirty price= $1,071.56
Therefore the bond's invoice ("dirty") price will be $1,071.56
Company X has 100 shares outstanding. It earns $1,000 per year and announces that it will use all $1,000 to repurchase its shares in the open market instead of paying dividends. Calculate the number of shares outstanding at the end of year 1, after the first share repurchase, if the required rate of return is 10 percent.a) 110.0
b) 100.0
c) 90.91
d) 89.0
Answer:
d) 89.0
Explanation:
The value of the company today is the present value of its cash flows in perpetuity which is the cash flows divided by the required rate of return.
value of the firm=$1000/10%=$10,000
share price=value of the firm/shares outstanding
share price=$10,000/100=$100
number of shares to be repurchased=$1000/$100=10
number of shares after repurchase=100-10=90
note that when 90.91 is rounded to a whole, it turns out to be 92 while 89 is rounded to 90
A series of monthly cash flows is deposited into an account that earns 12% nominal interest compounded monthly. Each monthly deposit is equal to $2,100. The first monthly deposit occurred on June 1, 2008 and the last monthly deposit will be on January 1, 2015. The account also has equivalent quarterly withdrawals from it. The first quarterly withdrawal is equal to $5,000 and occurred on October 1, 2008. The last $5,000 withdrawal will occur on January 1, 2015. How much remains in the account after the last withdrawal?
Answer:
The amount left in the account after last withdrawal is $61,945
Explanation:
The first monthly deposit occurred on June 1, 2008 and the last monthly deposit will be on January 1, 2015 = 80 deposit
Monthly deposit = 2,100
Interest rate = 12% / 1% per month
Firstly, we calculate the future worth of the monthly deposit
FW = A(F/A, i, n)
A = 2,100, i = 1%, n= 80
FW = $2100*[(1+0.01)^80 - 1 / 0.01]
FW = $2100*[2.216715 - 1 / 0.01]
FW = $2100*(121.671)
FW = $255,509.10
We calculate the effective interest rate
i(effective) = (1 + i nominal monthly interest rate)^n - 1
i `%, n = 3(no of months in quarter)
i (effective) = (1+0.01)^3 - 1
i (effective) = (1.01)^3 - 1
i (effective) = 1.030301 - 1
i (effective) = 0.030301
i (effective) = 3.0301%
The effective quarterly interest rate is 3.0301%
We calculate the future worth of the quarterly drawings
FW = A[(1+i)^n - 1 / i]
A = 5,000(drawing), i = 3.0301%, n = 26(number of drawings)
FW = 5,000*[(1+0.030301)^26 - 1 / 0.030301]
FW = 5,000*[2.17303717 - 1 / 0.030301]
FW = 5,000*(38.71282)
FW = $193,564.10
The future worth of the quarterly withdrawal is $193,564.10
We calculate the amount left in the account after last withdrawal
Amount left in account = FW(monthly deposits) - FW(quarterly drawings)
Amount left in account = $255,509.10 - $193,564.10
Amount left in account = $61,945
Thus, the amount left in the account after last withdrawal is $61,945
A company reports the following amounts for 2021:_________. Inventory (beginning) $ 20,000 Inventory (ending) 35,000 Purchases 170,000 Purchase returns 10,000 Calculate cost of goods sold, the inventory turnover ratio, and the average days in inventory for 2021. (Use 365 days in a year. Round your intermediate and final answers to 1 decimal place.)
Answer:
Cost of goods sold $145,000
Inventory turnover ratio 5.27 times
Average days in turnover 69 days
Explanation:
1. Cost of goods sold
= Beginning inventory + [Purchases - Purchases return ] - Ending inventory
= $20,000 + [$170,000 - $10,000] - $35,000
= $20,000 + $160,000 - $35,000
= $145,000
2. Inventory turnover ratio
= Cost of goods sold ÷ Average inventory
Given that;
Cost of goods sold = $145,000
Average inventory = (Beginning inventory + Ending inventory) ÷2
= ($20,000 + $35,000) ÷ 2
= $27,500
Therefore,
Inventory turnover ratio = $145,000 ÷ $27,500
= 5.27 times
3. Average days in turnover
= Average inventory / Cost of sales × Number of days in period
Average inventory = $27,500
Cost of sales = $145,000
Number of days = 365 day
Average days in turnover = ($27,500/$145,000) × 365 days
= 69 days
A company currently using an inspection process in its material receiving department is trying to install an overall cost reduction program. One possible reduction is the elimination of one inspection position. This position tests items for which the probability of a material defect averages 0.01. By inspecting all items, the inspector is able to remove all defects. The inspector can inspect 50 units per hour. The hourly rate including fringe benefits for this position is $10. If the inspection position is eliminated, defects will go into product assembly and will have to be replaced later at a cost of $11 each when they are detected in final product testing.
Assume that the line will operate at the same rate (i.e., the inspection rate) if the inspection operation was eliminated.
a-1. If the inspector position is eliminated, what will the hourly cost of defects be? (Round your answer to 2 decimal places.)
Cost per hour $
a-2. Should this inspection position be eliminated based on costs alone?
Yes
No
b. What is the cost to inspect each unit? (Round your answer to 2 decimal places.)
Cost per unit $
c. Is there benefit (or loss) from the current inspection process? How much? (Input all amounts as positive values. Round your answers to 2 decimal places.)
Hourly Per unit
(Click to select)LossBenefit $ $
Answer:
a-1. If the inspector position is eliminated, the defects will not be detected. These cost the company $11 to replace.
Defects per hour = 50 * 0.01 = 0.5 units
Cost per hour = 0.5 * 11 = $5.50
a-2. Based on costs alone, the inspection position should be eliminated. This is because the cost of having the Inspection position is $10 but it would only cost the company $5.50 if the position was not there so the cost of the inspection position is more than the cost incurred if it wasn't there.
b. = Inspection fees/ Units inspected per hour
= 10/50
= $0.50 per unit
c. Cost without Inspection is $5.50. With Inspection is $10.
Hourly Loss = 5.50 - 10
= -$4.50
Per unit loss = -4.50/50
= -$0.09
Yukelson Company owns the building occupied by its administrative office. The office building was reflected in the accounts at the end of last year as follows:
Cost when acquired $ 396,000
Accumulated depreciation (based on straight-line depreciation, an estimated life of 50 years, and a $36,000 residual value) 72,000
During January of this year, on the basis of a careful study, management decided that the total estimated useful life should be changed to 30 years (instead of 50) and the residual value reduced to $30,000 (from $36,000)). The depreciation method will not change.
Required:
1. Compute the annual depreciation expense prior to the change in estimates.
2. Compute the annual depreciation expense after the change in estimates.3. What will be the net effect of changing estimates on the balance sheet, net income, and cash flows for the year?
Answer:
1. Compute the annual depreciation expense prior to the change in estimates.
annual depreciation = ($396,000 - $36,000) / 50 = $7,200 per year
2. Compute the annual depreciation expense after the change in estimates.
annual depreciation = ($324,000 - $30,000) / 20 = $14,700 per year
3. What will be the net effect of changing estimates on the balance sheet, net income, and cash flows for the year?
Any changes in an asset's useful life are reported prospectively, this means that they do not affect any past records, only future records are affected. In this case, the depreciation expense per year will increase form $7,200 to $14,700, so net income will be negatively affected by it. Cash flows will not be affected, since depreciation expense is a non-cash expense. P,P&E on the balance sheet will be affected because the net value of the building will decrease faster.
The four P's include _____. product process promotion price
small business entrpanership
Answer:
These are the four Ps: the product (the good or service); the price (what the consumer pays); the place (the location where a product is marketed); and promotion (the advertising).
Explanation:
Describe how the IRR is calculated, and describe the information this measure provides about a sequence of cash fl ows. What is the IRR criterion decision rule?
Answer:
The Internal Rate of Return is the discount rate that discounts a series of cashflows such that the Net Present Value becomes zero.
It is calculated in the same way the NPV is calculated which is to subtract the discounted cash outflows from the discounted cash inflows but this time it will be the subject of the equation which will be equated to zero.
Formula therefore is;
[tex]\frac{Cf_{1} }{(1 + IRR_{1} )} + \frac{Cf_{2}}{(1 + IRR_{2} )^{2} } + \frac{Cf_{n} }{(1 + IRR_{n} )^{n} } - Cf_{0} = 0[/tex]
Excel worksheets, financial calculators and solving the equation can all be used to find IRR.
The higher the IRR, the better for a project because it means that the project has high cash inflows that would take a higher rate to discount to zero.
The decision rule is the pick a project that has a higher IRR than the firm's Required rate of return because it means that the NPV will be more than zero.
Ace Industries has current assets equal to $5 million. The company's current ratio is 2.0, and its quick ratio is 1.6. What is the firm's level of current liabilities? What is the firm's level of inventories?
Answer:
=1.25
Explanation:
Current ratio= current asset/ current liabilities
Current ratio= $5 million./ Current Liabilities
Cross multiply we have
But current ratio is 2.0
2= 5/ current liabilities
current liabilities= 5/2
=2.5million
Quick ratio= current Asset- inventory/current liabilities
1.5=( 5- inventory)/2.5
Cross multiply we have
1.5×2.5= ( 5- inventory)
3.75= ( 5- inventory)
inventory= 5-3.75
=1.25
Therefore, the firm's level of inventories is 1.25
Accurate Metal Company sold 39,000 units of its product at a price of $390 per unit. Total variable cost per unit is $196, consisting of $187 in variable production cost and $9 in variable selling and administrative cost. Compute the manufacturing margin for the company under variable costing.
Answer:
Manufacturing margin = 7566000
Explanation:
given data
sold = 39,000 units
price = $390 per unit
Total variable cost = $196 per unit
variable production = $187
variable selling and administrative cost = $9
solution
first we get here the sales revenue that will be
sales revenue = 39000 × 390
sales revenue = 15210000
and
Cogs = 39000 × 196 = 7644000
so here Manufacturing margin will be
Manufacturing margin = 15210000 - 7644000
Manufacturing margin = 7566000
how long will it take 13,000 to grow to 18,000 if the investment earns at the interest rate of 3% compunded monthly
Answer:
130 months
Explanation:
The computation of the time period is shown below:
Given that
Present value = $13,000
Future value = $18,000
PMT = $0
RATE = 3% ÷ 12 = 0.25%
The formula is shown below:
= NPER(RATE;PMT;-PV;FV;TYPE)
The present value comes in positive
After applying the above formula, the time period is 130 months
Therefore the time that should be needed is 130 months
She has read a number of newspaper articles about a huge IPO being carried out by a leading technology company. She wants to purchase as many shares in the IPO as possible and would even be willing to buy the shares in the open market immediately after the issue. What advice do you have for her?
Answer:
Explanation:
I believe the best advice that can be given is to do thorough research into the company before investing and do not invest more than you are willing to lose. Initial Public Offerings (IPO) can be incredibly risky investments because they can be complete scams or can be legit startup companies but make one mistake and quickly go bankrupt causing the shares to be worthless and you lose all of your money. But with great risk comes great reward, If they do manage to take you off you can make a lot of money. Therefore, research and invest only what you can live without is the best advice.
Sean and Jenny are married, file a joint return and have two dependent children, Blake, age 9 and Jake, age 5. Sean has earned income of $72,000. Jenny was a full-time student (for nine months) with no income. They paid a qualified day care center $7,000. What amount of child and dependent care credit can Sean and Jenny receive?
a. $600.
b. $900.
c. $1,000.
d. $1,200.
Answer:
$900
Explanation:
Calculation for What amount of child and dependent care credit can both Sean and Jenny receive
Child and dependent care credit=($500 * 9 months *20 %
Child and dependent care credit=$900
Note that $500 is the standard amount while the 20% is the tax credit
Therefore the amount of child and dependent care credit can both Sean and Jenny receive will be $900
A corporate bond currently yields 8.5 percent. Tax-except municipal bonds with the same risk, maturity, and liquidity currently yield 5.5 percent. At what tax rate would investors be indifferent between the two bonds? a. 35.29% b. 40.00% c. 24.67% d. 64.71% e. 30.04%
Answer:
a. 35.29%
Explanation:
The computation of the tax rate that could be non-different between the two bonds is shown below:
Given that
Corporate Bond yield = 8.5%
Municipal bonds yield = 5.5%
based on the above information
Tax Rate is
= 1 - ( Municipal bonds yield - Corporate Bond yield)
= 1 - (5.5% ÷ 8.5%)
= 35.29%
Hence, the tax rate is 35.29%
We simply applied the above formula so that the correct value could come
And, the same is to be considered
Explain why it is important for entrepreneurs to talk with industry experts when
developing new business concepts(10 Marks)
Answer:
Find the explanation below.
Explanation:
It is important for entrepreneurs to talk with industry experts when developing new business concepts because they provide valuable information on the intricacies required to be successful in the business. The industry experts have acquired enough experience that makes it possible for them to provide advice on the;
1. right tools and technologies that would guarantee smoother business
2. the legal standards that must never be compromised
3. logistics management that is cost-effective, as well as,
4. trending and profitable industry procedures.
It is only normal that people with more and vast experience in a field would have valuable information that would prove useful to start-ups. Associating with such people would result in better business decision-making.
Kevin Rogers is interested in buying a five-year bond that pays a coupon of 10 percent on a semiannual basis. The current market rate for similar bonds is 8.8 percent. What should be the current price of this bon?
a. $1, 099.
b. $982
c. $1.048
d. $965
Answer:
c. $1.048
Explanation:
Assuming face value to be $1000
Semi annual coupon = (10% of 1000) / 2 = 50
Number of periods = 5 * 2 = 10
Semi annual rate = 8.8% / 2 = 4.4%
Current price = Coupon * [1 - 1 / (1 + r)^n] / r + FV / (1 + r)^n
Current price = 50 * [1 - 1 / (1 + 0.044)^10] / 0.044 + 1000 / (1 + 0.044)^10
Current price = 50 * [1 - 0.650122] / 0.044 + 650.122225
Current price = 50 * 7.951768 + 650.122225
Current price = 397.5884 + 650.122225
Current price = 1047.710625
Current price = $1,048
On July 1, 2020, Sweet Inc. made two sales.
1. It sold land having a fair value of $909,890 in exchange for a 4-year zero-interest-bearing promissory note in the face amount of $1,431,725. The land is carried on Sweet's books at a cost of $594,900.
2. It rendered services in exchange for a 3%, 8-year promissory note having a face value of $409,660 (interest payable annually).
Sweet Inc. recently had to pay 8% interest for money that it borrowed from British National Bank. The customers in these two transactions have credit ratings that require them to borrow money at 12% interest.
Required:
Record the two journal entries that should be recorded by Sweet Inc. for the sales transactions above that took place on July 1, 2020.
Answer:
1.
DR Note Receivable $1,431,725
CR Land $594,900
Gain on Disposal of land $314,990
Discount on Notes Receivable $521,835
Working
Gain on disposal = 909,890 - 594,900 = $314,990
Discount on Notes receivable = 1,431,725 - 909,890 = $521,835
2.
First find present value of the 8-year promissory note;
= 409,660 / ( 1 + 12%)⁸
= $165,454.80
Annual payment of 3% = 3% * 409,660 = $12,289.80
Paid every year for 8 years, the present value at 12% is;
= 12,289.80 * Present value interest factor for annuity, 12%, 8 years
= 12,289.80 * 4.9676
= $61,050.81
Present value of the note (revenue for services rendered) = 61,050.81 + 165,454.80 = $226,505.61
Discount on note receivable = 409,660 - 226,505.61 = $183,154.39
DR Notes Receivable $409,660
CR Service Revenue $226,505.61
Discount on Notes Receivable $$183,154.39
Your uncle repays a $300 loan from Tenth National Bank (TNB) by writing a $300 check from his TNB checking account. Assume these funds are the
only loans and deposits available for your uncle and the bank.