Question

Chapters 6, 7, and 10: Application of Interest Concepts to Notes, Bonds, and Leases The problems below involve application of interest concepts to various liability-related scenarios.

Required—Provide the information requested in each problem along with supporting calculations.

1. Corp1 issued $250,000 of 3-year bonds with 5% interest payable semiannually at a time when the market rate of interest was 6%. How much did the company receive in issuance proceeds?

2. Corp2 issued $500,000 of 4-year bonds with 6% interest payable semiannually at a time when the market rate of interest was 8%. What is the total amount of interest expense the company will have reported for these bonds over their 4-year life? Note—Answer this question without creating an amortization schedule.

3. Corp3 issued $750,000 of 5-year bonds with 7% interest payable semiannually at a time when the market rate of interest was 10%. What will be the bonds’ carrying value after the company makes its 7th interest payment? Note—Answer this question without creating an amortization schedule.

4. Corp4 bought machinery by paying $20,000 down and signing a $30,000 note requiring three end-of-year payments to the seller of $10,000 each beginning one year from today. If the loan reflects 3% interest, what should the company record as the cost of the machine?

5. Corp5 bought machinery by paying $20,000 down and signing a $30,000 non-interest-bearing note due in full three years from today. If the loan reflects 3% interest, what should the company record as the cost of the machine?

6. Corp6 sold used machinery with an original cost of $99,000 and accumulated depreciation of $46,000, receiving $20,000 from the buyer and the buyer’s $30,000 note requiring three end-of-year payments of $10,000 each beginning one year from today. If the loan reflects 3% interest, what amount of gain or loss should the company record on the machine’s disposal?

7. Corp7 sold used machinery with an original cost of $99,000 and accumulated depreciation of $53,000, receiving $20,000 from the buyer and the buyer’s non-interest-bearing note due in full three years from today. If the loan reflects 3% interest, what amount of gain or loss should the company record on the machine’s disposal?

8. Corp8 manufactures office copiers and printers. Its best seller is a machine that costs $5,000 to build and can be sold for $7,500. The company has made the machine available for commercial lease under a standard two-year agreement calling for beginning-of-the year payments reflecting the company’s desired rate of return of 8%. What is the amount of the rental payment the company requires?

9. Corp9 manufactures office copiers and printers. Its best seller is a machine that costs $5,000 to build and can be sold for $7,500. The company has made the machine available for commercial lease under a standard two-year agreement calling for end-of-the year payments reflecting the company’s desired rate of return of 8%. What is the amount of the rental payment the company requires?

10. Corp10 is buying custom-built machinery with a contract purchase price of $943,420. The manufacturer has offered the company a payment plan that would require five annual beginning-of-year payments of $200,000 each. a. If the company accepts the offer, what will be the total amount of interest expense it will incur over the five-year life of the loan? b. If the company can buy the machinery outright by obtaining outside financing elsewhere at 2%, should it do or should it accept the manufacturer’s offer instead? Explain briefly?

Answer 1

please post the other questions separately

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