Problem #1: Time Value of Money and Recognizing Revenue (50 points) MMMM Corpora

Question

Problem #1: Time Value of Money and Recognizing Revenue (50 points) MMMM Corporation produced fire suppression equipment system for the main factory of Morrison Door Inc. Upon delivery of the equipment of June 1, 2018, MMMM Corporation accepted a zero- interest note with a total face value of $1,500,000 payable in three years 1. MMMM Corporation determined that an interest rate of 9.25% was appropriate for providing financing to Morrison Door Inc. over three years. Your Answer a. Compute the fair value of the sales transaction implied by the terms of the agreement. (6 points including inputs in table below) SUPPORTING CALCULATIONS using a Financial Calculator or Excel: FINANCIAL CALCULATOR INPUTS EXCEL N I/Y PV PMT FV MODE Formula b. Determine the amounts of sales revenue and interest revenue that MMMM Corporation should recognize in its income statement for the year ended December 31, 2018. (4 points) Your Answers Sales Revenue Interest Revenue SUPPORTING CALCULATION:

Explanation / Answer

since all are independent questions i will solve 1st one
1a)fair value:
N=3
I/Y=9.25%
PV=needs to be found
pmt=0
fv=1500000
mode=0
=pv(9.25%,3,0,1500000,0)
=1150341.86
sales revenue=1150341.86
interest revenue=(7/12)*9.25%*1150341.86=62070.53

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