Question

Develop a response in either Word or Excel and follow the instructions outlined in the Assignments...

Develop a response in either Word or Excel and follow the instructions outlined in the Assignments Menu for submission.

Answer each of the following unrelated questions:

On January 1, 2007, Sandstone Corporation sold a building that cost $250,000 and had accumulated depreciation of $100,000 on the date of sale. A $300,000 non-interest-bearing note due on January 1, 2013 was received as consideration. The prevailing rate of interest for a note of this type on January 1, 2007 was 11%. At what amount should the gain from the sale of the building be reported?

On January 1, 2001, Sandstone Corporation purchased $200,000 face value, 9%, 10-year bonds of Walters Inc. The bonds mature on January 1, 2011, and pay interest annually beginning January 1, 2002. The market rate of interest is 11%. How much did Sandstone pay for the bonds?

Sandstone Corporation brought a new machine and agreed to pay for it in equal annual installments of $4,000 at the end of each of the next 10 years. Assume an 11% market rate of interest applies to this contract, how much was recorded as the cost of the machine?

Sandstone Corporation purchased a special tractor on December 31, 2013. The purchase agreement stipulated that Sandstone should pay $20,000 at the time of purchase and $5,000 at the end of each of the next 8 years. The tractor should be recorded on December 31, 2013, at what amount, assuming the market rate of interest was 11%?

Sandstone Corporation wants to withdraw $100,000 from an investment fund at the end of each year for 9 years. What should be the required initial investment at the beginning of the first year if the fund earns 11%?

11% Interest Table Factors

Period

Present Value of $1

(Table 6-2)

Present Value of an Ordinary Annuity of $1 (Table 6-4)

6

.53464

4.23054

7

.48166

4.71220

8

.43393

5.14612

9

.39092

5.53705

10

.35218

5.88923

Homework Answers

Answer #1

At what amount should the gain from the sale of the building be reported?

Gain on sale of Building = Present Value of the Note minus the book value of the building = 300000/(1+11%)6 -(250000-100000) = 160392.3 - 150000 = 10392.25

How much did Sandstone pay for the bonds?

Sandstone needs to pay = Present Value of face value + Present Value of all interest payments

We can calculate with the help of financial calculator:

PMT = 18,000

N = 10yrs

FV = 200000

I/Y = 11%

CPT -> PV = $290,638.72

Sandstone needs to pay = $290,638.72

How much was recorded as the cost of the machine?

Cost of the machine = Present Value of all the installments of 4000

Using financial calculator:

PMT = 4000

N = 10

FV = 0

I/Y = 11%

CPT PV = $33,200

Cost of the machine = $33,200

The tractor should be recorded on December 31, 2013, at what amount?

Price of the Tractor = down payment + PV of 8 instalments = 20000 + PV of 8 emi of 5000

Using financial calculator we can calculate pV of the instalments

PMT = 5000

FV = 0

N = 8

I/Y = 11%

CPT PV = 34312.76

Cost of Tractor = $20,000+$34,312.76 = $54,312.76

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