Question

At the beginning of 2021, VHF Industries acquired a machine with a fair value of $9,127,520 by issuing a seven-year, noninterest bearing note in the face amount of $14 million. The note is payable in seven annual installments of $2 million at the end of each year. (FVOEŠI. PV 51. EVA of S1, PVA of S1,EVAD of $1 and PVA of S1) (Use appropriate factor(s) from the tables provided.) Required: 1. What is the effective rate of interest implicit in the agreement? 2. to 4. Prepare the necessary Journal entries. 5. Suppose the market value of the machine was unknown at the time of purchase, but the market rate of interest for notes of similar risk was 17%. Prepare the journal entry to record the purchase of the machine. Complete this question by entering your answers in the tabs below. Requiğd 1 Required 2 to Required what is the effective rate of interest implicit in the agreement? Required 24 >

Answer 1

Part 1

XI H. 2020-09(2) SEP.xlsx - Microsoft Excel ? X FILE HOME INSERT PAGE LAYOUT FORMULAS DATA REVIEW VIEW DEVELOPER Sign in > Calibri - 11 A A e Wrap Text General % Cut Le Copy Format Painter H Insert Delete Format Paste BI U - E 至 9 Merge & Center - $ % ) 4.0 .00 00 0 Conditional Format as Cell Formatting Table Styles Styles Σ AutoSum- Z Fill- Sort & Find & Clear Filter - Select - Editing Clipboard Font Г Alignment Г Number Cells F17 X for B C D E F G H 1 J K L M N o P 0 ДА 1 2 Fair value of notes Divided by: annual payments PV annuity factor @ for 7 years $ $ 3 9,127,520 2,000,000 4.56376 4 5 6 Year Year Year Year 7 1 1 1 1 8 2 2 2 2 9 3 3 3 PV factor @ 10% Remarks 0.90909 = 1/1.10 0.82645 = 0.90909 / 1.10 0.75131 = 0.82645 / 1.10 0.68301 = 0.75131 / 1.10 0.62092 = 0.68301 / 1.10 0.56447 = 0.62092 / 1.10 0.51316 = 0.56447 / 1.10 4.86842 PV factor @ 9% Remarks 0.91743 = 1/1.09 0.84168 = 0.91743 / 1.09 0.77218 = 0.84168/1.09 0.70843 = 0.77218 / 1.09 0.64993 = 0.70843 / 1.09 0.59627 = 0.64993/1.09 0.54703 = 0.59627 / 1.09 5.03295 3 4 PV factor @ 11% Remarks 0.90090 = 1/1.11 0.81162 = 0.9009 / 1.11 0.73119 = 0.81162 / 1.11 0.65873 = 0.73119 / 1.11 0.59345 = 0.65873 / 1.11 0.53464 = 0.59345 / 1.11 0.48166 = 0.53464 / 1.11 4.71220 PV factor @ 12% Remarks 0.89286 = 1/1.12 0.79719 = 0.89286 / 1.12 0.71178 = 0.79719 / 1.12 0.63552 = 0.71178 / 1.12 0.56743 = 0.63552 / 1.12 0.50663 = 0.56743 / 1.12 0.45235 = 0.50663 / 1.12 4.56376 10 4 4 4 11 5 5 5 5 5 12 6 6 6 7 6 7 13 7 Total 7 Total 14 Total Total 15 16 PV annuity factor @ for 7 years is 4.56376 which found at rate of 12%. 12% 17 Amortization schedule Carryin g value Payment made Interset Decrease in expense prinpial 18 Date Account titles Debit Credit Date of notes ctivate Windows Go to Settings to activate Windows LLAMA Sheet119 Sheet120 Sheet121 Sheet122 Sheet123 Sheet124 Sheet125 Sheet126 READY CIRCULAR REFERENCES 3 1 + 100% i Search the web and Windows O ENG US 03:17 22-09-20

Part 2 to 4

Date	Account titles	Debit	Credit
Jan 1, 21	Equipment	9,127,520
	Discount on notes payable (14000000-9127520)	4,872,480
	Notes payable		14,000,000
	(To record purchase of equipment.)
Dec 31, 21	Interest expense	1,095,302
	Notes payable	2,000,000
	Discount on notes payable		1,095,302
	Cash		2,000,000
	(To record interest expense.)
	Interest expense	986,739
Dec 31, 22	Notes payable	2,000,000
	Discount on notes payable		986,739
	Cash		2,000,000
	(To record interest expense.)

Amortization schedule
Date	Payment made	Interset expense	Decrease in prinpial	Carrying value of notes
Jan 1, 21				9,127,520
Dec 31, 21	2,000,000	1,095,302	904,698	8,222,822
Dec 31, 22	2,000,000	986,739	1,013,261	7,209,561

Part 5

Date	Account titles	Debit	Credit
Jan 1, 21	Equipment (2000000*4.71220)	9,424,400
	Discount on notes payable (14000000-9424400)	4,575,600
	Notes payable		14,000,000
	(To record purchase of equipment.)

Year	PV factor @ 11%	Remarks
1	0.90090	= 1 / 1.11
2	0.81162	= 0.9009 / 1.11
3	0.73119	= 0.81162 / 1.11
4	0.65873	= 0.73119 / 1.11
5	0.59345	= 0.65873 / 1.11
6	0.53464	= 0.59345 / 1.11
7	0.48166	= 0.53464 / 1.11
Total	4.71220