ANSWERS TO GROUP B PROBLEM
PBC–1
Option 1:
Present Values
$100,000
=
$100,000
Option 2:
$6,000 9.81815
=
$ 58,909
Option 3:
Years 1-10: $5,000 6.71008
=
$ 33,550
Years 11-20: + $7,000 6.71008 0.46319*
=
21,756
Total
=
$ 55,306
PBC-2
Req. 1
$100,000 x 0.89000 = $89,000
Req. 2
Equipment ……………………………………………………….
89,000
Notes Payable (long-term) ………………………………
89,000
Req. 3
Interest Expense ………………………………………………..
Notes Payable (long-term)* …………………………….
PBC-2 (continued)
Req. 5
Notes Payable (long-term)* …………………………..…….
100,000
Cash ……………………………………………………………
100,000
*Technically, the note becomes a current liability at the end of the first year, but for
consistency, we will continue to use the Notes Payable (long-term) account.
PBC-3
Req. 1
$20,000 x 2.67301 = $53,460.20 ($53,460 rounded)
Equipment ……………………………………………………….
53,460
Notes Payable (long-term) ……………………………..
53,460
PBC-3 (continued)
Req. 3
Interest = Principal x Rate x Time
= $53,460 x 6% x12/12
= $3,208
Interest Expense ………………………………………………..
3,208
Note Payable (long-term)* ………………………………….
16,792
Cash ……………………………………………………………
20,000
*Technically, the note becomes a current liability at the end of the first year, but for
consistency, we will continue to use the Notes Payable (long-term) account.
Req. 4
Interest = Principal x Rate x Time
= ($53,460 – $16,792) x 6% x12/12
= $2,200
Interest Expense ………………………………………………..
2,200
Notes Payable (long-term)* …………………………..…….
17,800
Cash ……………………………………………………………
20,000
*Technically, the note becomes a current liability at the end of the first year, but for
consistency, we will continue to use the Notes Payable (long-term) account.
Req. 5
Interest = Principal x Rate x Time
= ($53,460 – $16,792 – $17,800) x 6% x12/12
= $1,132
Interest Expense ………………………………………………..
1,132
Notes Payable (long-term)* …………………………..…….
18,868
Cash ……………………………………………………………
20,000
*Technically, the note becomes a current liability at the end of the first year, but for
consistency, we will continue to use the Notes Payable (long-term) account.
PBC-4
(a)
The market interest rate is indicated by the Annual Yield above, which is 5.0%.
(b)
PBC-4 (continued)
(c)
Begin by using the app to determine the annual coupon payment. Express the interest