Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 102

Present value calculations Using a present value table, your calculator, or a computer program present value function, answer the following questions:

Required:

a. What is the present value of nine annual cash payments of $4,000, to be paid at the end of each year using an interest rate of 6%?

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b. What is the present value of $15,000 to be paid at the end of 20 years, using an interest rate of 18%?

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c. How much cash must be deposited in a savings account as a single amount in order to accumulate $300,000 at the end of 12 years, assuming that the account will earn 10% interest?

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d. How much cash must be deposited in a savings account (as a single amount) in order to accumulate $50,000 at the end of seven years, assuming that the account will earn 12% interest?

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e. Assume that a machine was purchased for $60,000. Cash of $20,000 was paid, and a four-year, 8% note payable was signed for the balance.

1. Use the horizontal model, or write the journal entry, to show the purchase of the machine as described.

2. How much is the equal annual payment of principal and interest due at the end of each year? Round your answer to the nearest $1.

3. What is the total amount of interest expense that will be reported over the life of the note? Round your answer to the nearest $1.

4. Use the horizontal model, or write the journal entries, to show the equal annual payments of principal and interest due at the end of each year.

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