Question

E6.11 (LO4) (Evaluation of Purchase Options) Rossi Excavating Inc. is purchasing a bulldozer. The equipment has a price of €100,000. The manufacturer has offered a payment plan that would allow Rossi to make 10 equal annual payments of €15,582, with the first payment due 1 year after the purchase Instructions a. How much total interest will Rossi pay on this payment plan? b. Rossi could borrow €100,000 from its bank to finance the purchase at an annual rate of 8%. Should Rossi borrow from the bank or use the manufacturer's payment plan to pay for the equipment?

E6.12 (LO4) (Analysis of Alternatives) Brubaker Inc., a manufacturer of high-sugar, low-sodium, low-cholesterol TV dinners, would like to increase its market share in the Sunbelt. In order to do so, Brubaker has decided to locate a new factory in the Florida. Brubaker will either buy or lease a site depending upon which is more advantageous. The site location committee has narrowed down the available sites to the following three buildings Building A: Purchase for a cash price of $610,000, useful life 25 years. Building B: Lease for 25 years with annual lease payments of $70,000 being made at the beginning of the year. Building C: Purchase for $650,000 cash. This building is larger than needed; however, the excess space can be sublet for 25 years at a net annual rental of $6,000. Rental payments will be received at the end of each year. Brubaker Inc. has no aversion to being a landlord. Instructions In which building would you recommend that Brubaker Inc. locate, assuming a 12% cost of funds?

E6.13 (LO5) (Computation of Bond Liability) Messier SA manufactures cycling equipment. Recently, the vice president of operations of the company has requested construction of a new plant to meet the increasing demand for the company's bikes. After a careful evaluation of the request, the board of directors has decided to raise funds for the new plant by issuing €3,000,000 of 11% term company bonds on March 1, 2019, due on March 1, 2034, with interest payable each March 1 and September 1. At the time of issuance, the market interest rate for similar financial instruments is 10% Instructions As the controller of the company, determine the selling price of the bonds

E6.14 (LO5) (Computation of Pension Liability) Calder, Inc. is a furniture manufacturing company with 50 employees. Recently, after a long negotiation with the local labor union, the company decided to initiate a pension plan as a part of its compensation plan. The plan will start on January 1, 2019. Each employee covered by the plan is entitled to a pension payment each year after retirement. As required by accounting standards, the controller of the company needs to report the pension obligation (liability). On the basis of a discussion with the supervisor of the Personnel Department and an actuary from an insurance company, the controller develops the following information related to the pension plan Average length of time to retirement 15 years Expected life duration after retirement 10 years Total pension payment expected each year after retirement for all employees. Payment made at the end of the year. $200,000 per year The interest rate to be used is 8% Instructions On the basis of the information above, determine the present value of the pension liability *

E7.23 (LO6) (Petty Cash) The petty cash fund of Teasdale's Auto Repair Service, a sole proprietorship, contains the following. 1. Coins and currency $ 10.20 2. Postage stamps 7.90 3. An I.O.U. from Richie Cunningham, an employee, for cash advance 40.00 4. Check payable to Teasdale's Auto Repair from Pottsie Weber, an employee, marked NSF 34.00 5. Vouchers for the following: Stamps $ 20.00 Two Premier Cup tickets for Nick Teasdale 170.00 Printer cleaning 14.35 204.35 $296.45 The general ledger account Petty Cash has a balance of $300. Instructions Prepare the journal entry to record the reimbursement of the petty cash fund.

*E7.24 (LO6) (Bank Reconciliation and Adjusting Entries) Kipling plc deposits all receipts and makes all payments by check. The following information is available from the cash records. June 30 Bank Reconciliation Balance per bank ￡7,000 Add: Deposits in transit 1,540 Deduct: Outstanding checks 2,000 Balance per books ￡6,540 Month of July Results Per Bank Per Books Balance July 31 ￡8,650 ￡9,250 July deposits 4,500 5,810 July checks 4,000 3,100 July note collected (not included in July deposits) 1,500 — July bank service charge 15 — July NSF check from a customer, returned by the bank (recorded by bank as a charge) 335 — Instructions a. Prepare a bank reconciliation going from balance per bank and balance per book to correct the cash balance. b. Prepare the general journal entry or entries to correct the Cash account.

Answer 1

Dear Student,

As per the HOMEWORKLIB POLICY, only the first question should be answered. Kindly take note of it.

Part A

Cost of equipment = 100,000

Number of equal annual payment = 10

Equal annual payment = 15582

By substituting these value in the above formula. We get;

Total payment by installment plan = 15582*10

Total payment by installment plan = 155820

Value of total interest = Total payment by installment plan – Cost of equipment = 155820-100000 = 55820

Therefore, the value of total interest that Rossi Excavating Inc. pays on this installment plan shall be $55820

Part B

Cost of equipment at the end of 10 year = Cost of equipment *(1+r)^ n

Here,

Bank interest rate (r) = 8 %

Cost of equipment= 100,000

Number of years (n) = 10 years

Thus,

Cost of equipment at the end of 10 year = 100000*(1.08^10) = $215893

Rossi should use the manufacturer's payment plan to pay for the equipment as there is difference of $60073 (215893-100000-55820)