Question

Question 5 O out of 0.5 points Emma Company purchased a machine from Noah Corporation on October 31, 2016. In payment for the $187,000 purchase, Emma issued a one-year installment note to be paid in equal monthly payments of X $17,144 at the end of each month. The payments include interest at an annual rate of 1896. When recording the December 31, 2016 payment, the Debit to Interest expense will be? 5 Question 6 O out of 0.5 points Ava, Inc., issued 8% bonds, dated January 1, with a face amount of $180,000 on January 1, 2016 for an issue price of 106.5. The bonds mature on December 31, 2025 (10 years). For bonds of similar risk and maturity the market yield is 10% Interest paid annually on December 31 What is the 1st year's interest expense? Question 7 out of 5 inte

Answer 1

Solution to the above Question 5:-

One year installment note is to be paid in 12 monthly installments-

Therefore, discounting factor= Annual Rate/12 =18/12

=1.5%.

As per the below amortisation schedule, the Interest Expense debited is -

Year	Cash flows($)(a)	Discounting [email protected]%(=1/(1+0.015)^no.of months) (b)	Present Value($)(c= a*b)	Interest($)(d=a-c)
1	17,144	0.99	16,890.64	253.36
2	17,144	0.97	16,641.03	502.97
3	17,144	0.96	16,395.10	748.90
4	17,144	0.94	16,152.81	991.19
5	17,144	0.93	15,914.10	1,229.90
6	17,144	0.91	15,678.91	1,465.09
7	17,144	0.90	15,447.20	1,696.80
8	17,144	0.89	15,218.92	1,925.08
9	17,144	0.87	14,994.01	2,149.99
10	17,144	0.86	14,772.42	2,371.58
11	17,144	0.85	14,554.11	2,589.89
12	17,144	0.84	14,339.03	2,804.97
Total	205,728	10.91	186998.27(=$187,000)	18729.73(=$18,728)

When recording the December 31, 2016, the debit to Interest Expense will be $18,728.(answer)

Solution to the above Question 6:-

Bond Face Value=$180,000, Interest rate= 8%,

Now, we have to calculate Present Value @ 10%(market yield) as per below schedule-

Year	Cash flows($)(a)	Discounting factor@10%(=1/(1+0.1)^no.of months) (b)	Present Value($)(c= a*b)
1	14,400	0.91	13,090.91
2	14,400	0.83	11,900.83
3	14,400	0.75	10,818.93
4	14,400	0.68	9,835.39
5	14,400	0.62	8,941.27
6	14,400	0.56	8,128.42
7	14,400	0.51	7,389.48
8	14,400	0.47	6,717.71
9	14,400	0.42	6,107.01
10	14,400	0.39	5,551.82
10	180000	0.39	69,397.79
Total			157,879.56(=157,880)

Present value of the Bond is $157,800.

Therefore, 1st year's Interest Expense =$157,800*10%

= $15,780.(answer)