Chapter 1 Problem 12-31 to 34
Problem 12-31 Answer B
Acquisition cost – July 1, 2008 4,614,000
Discount amortization from July 1 to December 31, 2008:
Interest accrued (5,000,000 x 8% x 6/12) 200,000
Interest income (4,614,000 x 10% x 6/12) 230,700 30,700
Book value – December 31, 2008 4,644,700
Problem 12-32 Answer D
Acquisition cost 4,766,000
Discount amortization:
Interest income (4,766,000 x 12%) 571,920
Interest received (5,000,000 x 10%) 500,000 71,920
Total 4,837,920
Annual installment on December 31, 2008 (1,000,000)
Book value –December 31, 2008 3,837,920
Problem 12-33 Answer A
Annual effective (5,000,000 x 14%) 700,000
Annual nominal (5,000,000 x 12%) 600,000
Difference 100,000
Multiply by present value factor using effective rate of 14% 5.216
Discount 521,600
Face value 5,000,000
Purchase price 4,478,400
Problem 12-34 Answer A
12/31/2008 (1,250,000 + 600,000 x .9091) 1,681,835
12/31/2009 (1,250,000 + 450,000 x .8264) 1,404,880
12/31/2010 (1,250,000 + 300,000 x .7513) 1,164,515
12/31/2011 (1,250,000 + 150,000 x .6830) 956,200
5,207,430
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