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nekit [7.7K]
2 years ago
15

E14-18 Note with unrealistic interest rate; lender; amortization schedule. Amber Mining and Miling, Inc., contracted with Truax

Corporation to have constructed a custom-made lathe. The machine was completed and ready for use on January 1, 2016. Amber paid for the lathe by issuing a $600,000, 3 year note that specified 4% interest, payable annually on December 31 of each year. The cash market price of the lathe was unknown. It was determined by comparison with similar transactions that 12% was a reasonable rate of interest.1. Prepare the journal entry on January 1, 2016 for Truax Corporation's sale of the lathe.2. Prepare and amortization schedule for the three-year term of the note.3. prepare the journal entries to record (a) interest for each of the three years and (b) payment of the note at the maturity for Truax.
Business
1 answer:
Serhud [2]2 years ago
7 0

Answer:

Explanation:

To find the fair value of bond we calculate the present value of future cashflows at 12% market rate.

No. of cashflows Cashflows Discount factor Present value

     3                  24000           2.401831268 57643.95044

     1                 600000           0.711780248 427068.1487

                                                                  484712.0991

1) Entries

invest at amortized cost   600000

               Asset                      484712

               Gain                        115287.91

2) Amortization Schedule

Year Amount           IRR 7%             CR 4%     Closing

 1     600000          72000         -24000     648000

 2     648000         77760      -24000     701760

 3     701760    84211.2    -24000    761971

3)

Year-1

Cash                  24000

Investment        48000

     interest Income         72000

To record the interest income  

Year-2

Cash                  24000

Investment        53760

     interest Income         77760

To record the interest income  

Year-3

Cash                  24000

Investment        60211

     interest Income         84211

To record the interest income  

year-3

Cash 761971

     Investment 761971

To record the maturity of investment

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Answer:  The market demand curve for soft drinks will shift to the left and the market supply curve will shift to the left as well: equilibrium quantity will decrease and the equilibrium price may rise, fall, or remain the same. The graphs below illustrate this idea.

Explanation:

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2 years ago
Barbara buys the same market basket each week and spends $60 on it. This week Barbara brought $60 to the store but could not buy
Arisa [49]

Answer:

there was inflation

Explanation:

Inflation may be defined as the rise in the price or the increase in the cost of a product or commodities in the market. It is when you pay more price for the same commodity that you have bought it in a less price earlier.

When there is inflation, the price of goods in the market increases.

In the context, Barbara usually buys the same market basket every week at a price of $ 60. But this week she could not buy the market basket even though she had $ 60 with her. This is because the price of the market basket increased this week due to inflation and now cost more than $60. So Barbara could not buy the market basket.

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3 years ago
An analyst is evaluating two​ companies, A and B. Company A has a debt ratio of​ 50% and Company B has a debt ratio of​ 25%. In
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Answer:

C) Company B has a higher operating return on assets than Company A, but Company A has a higher return on equity than Company B.

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3 years ago
5,000 7.5 percent coupon bonds outstanding, $1,000 par value, 19 years to maturity, selling for 105 percent of par; the bonds ma
vitfil [10]

Answer:

10.53%

Explanation:

WACC = wE*rE + wP*rP + wD*rD(1-tax)

<u>Market values;</u>

Debt = 1.05 *5,000*1000 = 5,250,000

Preferred stock = 15,500 *107 = 1,658,500

Common equity = 105,000 *63 = 6,615,000

Total market value = 13,523,500

wE = 6,615,000/ 13,523,500 = 0.4891

wP= 1,658,500/13,523,500 = 0.1226

wD = 5,250,000/13,523,500 = 0.3882

<u>Cost of capital;</u>

Cost of common equity, rE using CAPM;

rE = 0.06 + (1.13*0.09) = 0.1617

rE = 16.17%

Cost of preferred stock = 6%

Cost of debt

using a financial calculator, input the following; N= 38, PV = -1050, PMT = 37.5,

FV =1000, then CPT I/Y = 3.51% . So annual rate = 3.51% *2 = 7.02%

WACC = (0.4891*0.1617) +(0.1226* 0.06) + [0.3882 *0.0702(1-0.31)]

WACC = 0.0791 + 0.007356 + 0.0188

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4 0
3 years ago
This is for my principles of business class
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Profit of 10,750.     91,750 - 81000= 10,750/

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