Question

Problem 5-2 (Algo) Present and future value (LO5-7,5-8, 5-10) Johnstone Company is facing several decisions regarding investing and financing activities. Address each decision independently. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) 1. On June 30, 2021, the Johnstone Company purchased equipment from Genovese Corp. Johnstone agreed to pay Genovese $14,000 on the purchase date and the balance in five annual installments of $6,000 on each June 30 beginning June 30, 2022. Assuming that an interest rate of 11% properly reflects the time value of money in this situation, at what amount should Johnstone value the equipment? 2. Johnstone needs to accumulate sufficient funds to pay a $440,000 debt that comes due on December 31, 2026. The company will accumulate the funds by making five equal annual deposits to an account paying 6% interest compounded annually. Determine the required annual deposit if the first deposit is made on December 31, 2021. 3. On January 1, 2021, Johnstone leased an office building. Terms of the lease require Johnstone to make 20 annual lease payments of $124,000 beginning on January 1, 2021. An 11% interest rate is implicit in the lease agreement. At what amount should Johnstone record the lease liability on January 1, 2021, before any lease payments are made? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 On June 30, 2021, the Johnstone Company purchased equipment from Genovese Corp. Johnstone agreed to pay Genovese $14,000 on the purchase date and the balance in five annual installments of $6,000 on each June 30 beginning June 30, 2022. Assuming that an interest rate of 11% properly reflects the time value of money in this situation, at what amount should Johnstone value the equipment? (Round your final answers to nearest whole dollar amount.) Show less Table values are based on: n = j Present Value Cash Flow Amount Installments Down Payment Value of the equipment < Required 1 Required 2 >

Answer 1

Below is the solution, please comment if any further explaination needed

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1.

Table values are based on:
n =	5
i =	11%
Cash Flow	Amount	Present Value
Installments	$6,000	$22,175
Down Payment	$14,000	14,000
Value of the equipment	$36,175

PV = $14,000 + 6,000 (3.6959*) = $36,175 = Equipment

*Present value of an ordinary annuity of $1: n = 5, i = 11% (from PVA of $1)

2.

Table or calculator function:	FVAD of $1
Future Value:	$440,000
n=	5
i=	6%
Deposit:	$73,636

$440,000 = Annuity amount × 5.9753*

Annuity amount = 440,000 / 5.9753 = $73,636

*Future value of an annuity due of $1: n = 5, i = 6% (from FVAD of $1)

3.

Table or calculator function:	PVAD of $1
Payment:	$124,000
n=	20
i=	11%
Liability:	$1,096,072

PVAD = $124,000 (8.83929*) = $1,096,072 = Lease liability

*Present value of an annuity due of $1: n = 20, i = 11% (from PVAD of $1)