Question

Bruins Co. acquired a machine on June 30, 20x1 and gave the seller a $20,000 cash...

Bruins Co. acquired a machine on June 30, 20x1 and gave the seller a $20,000 cash down payment and a two year, $100,000, non-interest bearing note calling for four payments of P&I in the amount of $25,000 each. The payments are to be made semi-annually with the first payment beginning on December 31, 20x1. The prevailing rate of interest was 12% APR.

3%

6%

12%

Present Value of Ordinary Annuity of $1 for 4 periods

3.72

3.47

3.04

Present Value of Ordinary Annuity of $1 for 8 periods

7.02

6.21

4.97

Bruins uses the straight-line method to depreciate its equipment with a 5-year life and no salvage.

Determine the Book Value of the Equipment as of December 31, 20x1: $___________

Group of answer choices

$96,000

$108,000

$96,075

$85,400

Business   Accounting   
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Homework Answers

Answer #1

Present value of total cash payment Made on the Acquisition of the Machine

= Down payment + PVA of $1 at 6% for 4 Period

interest rate = 12% Per annum = 12%/2 =6% for Semi-annual Period

Periods =2 years = Semi-annual Periods = 2*2 = 4 periods

PV of Total Cash payments = 20,000+ (25,000*3.47)

= 20,000+86,750

cost of the Machine = 106,750

Book value of the Machine on 31st Dec

annual Depreciation = Cost / Life in years 106,750/5 = 21,350

For 6months = 10,675

Book Value = Cost - Depreciation for six Months

=106,750-10,675

= $96,075

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