Acc421 Intermediate Accounting: Week 5 Assignment (E6-5, E6-10, P6-7, E23-11, E23-12)

Acc421 Intermediate Accounting
Week 5 Assignment (E6-5, E6-10, P6-7, E23-11, E23-12)
Write responses to Exercises E6-5 & E6-10, and Problem P6-7 in Ch. 6 and E23-11 & E23-12 in Ch. 23 of Intermediate Accounting.

E6-5 (Computation of Present Value)
Using the appropriate interest table, compute the present values of the following periodic amounts due at the end of the designated periods.
(a) \$30,000 receivable at the end of each period for 8 periods compounded at 12%.
(b) \$30,000 payments to be made at the end of each period for 16 periods at 9%.
(c) \$30,000 payable at the end of the seventh, eighth, ninth, and tenth periods at 12%.

E6-10 (Unknown Periods and Unknown Interest Rate)
Consider the following independent situations.
(a) Mike Finley wishes to become a millionaire. His money market fund has a balance of \$92,296 and has a guaranteed interest rate of 10%. How many years must Mike leave that balance in the fund in order to get his desired \$1,000,000?
(b) Assume that Serena Williams desires to accumulate \$1 million in 15 years using her money market fund balance of \$182,696. At what interest rate must Serena’s investment compound annually?

P6-7 (Time Value Concepts Applied to Solve Business Problems)
Answer the following questions related to Derek Lee Inc.
(a) Derek Lee Inc. has \$572,000 to invest. The company is trying to decide between two alternative uses of the funds. One alternative provides \$80,000 at the end of each year for 12 years, and the other is to receive a single lump sum payment of \$1,900,000 at the end of the 12 years. Which alternative should Lee select? Assume the interest rate is constant over the entire investment.
(b) Derek Lee Inc. has completed the purchase of new Dell computers. The fair market value of the equipment is \$824,150. The purchase agreement specifies an immediate down payment of \$200,000 and semiannual payments of \$76,952 beginning at the end of 6 months for 5 years. What is the interest rate, to the nearest percent, used in discounting this purchase transaction?
(c) Derek Lee Inc. loans money to John Kruk Corporation in the amount of \$600,000. Lee accepts an 8% note due in 7 years with interest payable semiannually. After 2 years (and receipt of interest for 2 years), Lee needs money and therefore sells the note to Chicago National Bank, which demands interest on the note of 10% compounded semiannually. What is the amount Lee will receive on the sale of the note?
(d) Derek Lee Inc. wishes to accumulate \$1,300,000 by December 31, 2017, to retire bonds outstanding. The company deposits \$300,000 on December 31, 2007, which will earn interest at 10% compounded quarterly, to help in the retirement of this debt. In addition, the company wants to know how much should be deposited at the end of each quarter for 10 years to ensure that \$1,300,000 is available at the end of 2017. (The quarterly deposits will also earn at a rate of 10%, compounded quarterly.) (Round to even dollars.)

E23-11 (SCF- Indirect Method)
Condensed financial data of Pat Metheny Company for 2008 and 2007 are presented below.
Pat Metheny Company
Comparative Balance Sheet
As of December 31, 2008 and 2007
2008 2007
Cash 1,800 1,150
Receivables 1,750 1,300
Inventory 1,600 1,900
Plant assets 1,900 1,700
Accumulated depreciation (1,200) (1,170)
Long-term investments (Held-to-maturity) 1,300 1,420
\$7,150 \$6,300

Accounts payable 1,200 900
Accrued liabilities 200 250
Bonds payable 1,400 1,550
Capital stock 1,900 1,700
Retained earnings 2,450 1,900
\$7,150 \$6,300

Pat Metheny Company
Income Statement
For the Year Ended December 31, 2008
Sales 6,900
Cost of goods sold 4,700
Gross margin 2,200
Income from operations 1,270
Other revenues and gains
Gain on sale of investments 80
Income before tax 1,350
Income tax expense 540
Net income 810
Cash dividends 260