Exercise A3-18

Present Values

UsePresent Value Tablesor your calculator to complete the requirements below.

Phillips Enterprises signed notes to make the following two purchases on January 1, 2020:

1. new piece of equipment for $60,000, with payment deferred until December 31, 2021. The appropriate interest rate is 9% compounded annually.
2. small building from Richter Construction. The terms of the purchase require a $75,000 payment at the end of each quarter, beginning March 31, 2020, and ending June 30, 2022. The appropriate interest rate is 2% per quarter.

Required:

Round your answers to the nearest cent, if rounding is required.

1.Complete the information needed to prepare a cash flow diagrams for these two purchases.

a. n = 2years

i = 9% per year

Amount of Payment or Deposit = 1/1/20 = unknown present value amount 12/31/2021 = $60,000

b

n =10 quarters

i = 2% per quarter

Amount of Payment or Deposit- 1/1/20 unknown present value amount, 3/31/2020-6/30/2022 = $75,000

2.Prepare the entries to record these purchases in Phillips' journal.

2020 Jan. 1

Equipment- 50,500.8

Notes Payable- 50,500.8

(Record purchase of equipment)

2020 Jan. 1

Building- 673693.88

Notes Payable- 673693.88

3.Prepare the cash payment and interest expense entries for Purchase b at March 31, 2020, and June 30, 2020. If an amount box does not require an entry, leave it blank.

March 31, 2020

Interest Expense- ?

Notes Payable- ?

Cash- 75,000

June 30, 2020

Interest Expense- 12,243.36

Notes Payable-62,756.64

Cash- 75,000

4.Prepare the adjusting entry for Purchase a at December 31, 2020.

Dec. 31, 2020

Interest Expense- ?

Notes Payable-?