on jan 1, 2006, vigeland company completed the followingtransaction (assume 10%

Question

on jan 1, 2006, vigeland company completed the followingtransaction (assume 10% annual interest rate) a) bought a delivery trucka dn agreed to pay $50000 at end of3 years b) rented anoffice building and was given the option of paying$10,000 at the end of each of the next 3 years or paying $28,000immediately c) established a savings account by depositing a single amountthat will increase to $40,000 at the end of 7 years d) decided to deposit a single sum in the bank that willprovide 10 equal annual year end payments of $15,000 to a retiredemployee (payments start dec. 31, 2006) ---- 1. a) what is the cost of the truck that should be recorded atthe time of purchase? b) which option for the office building should the companyselect? c) what single amount must be deposited in this accounton Jan 1, 2006 d) what single sum must be deposited in the bank on Jan. 1.2006 a) bought a delivery trucka dn agreed to pay $50000 at end of3 years b) rented anoffice building and was given the option of paying$10,000 at the end of each of the next 3 years or paying $28,000immediately c) established a savings account by depositing a single amountthat will increase to $40,000 at the end of 7 years d) decided to deposit a single sum in the bank that willprovide 10 equal annual year end payments of $15,000 to a retiredemployee (payments start dec. 31, 2006) ---- 1. a) what is the cost of the truck that should be recorded atthe time of purchase? b) which option for the office building should the companyselect? c) what single amount must be deposited in this accounton Jan 1, 2006 d) what single sum must be deposited in the bank on Jan. 1.2006

Explanation / Answer

1 (a) Cost of the Truck at the time ofpurchase               PV 3,10%X $50,000 0.751 X $50,000 $37,550 (b) RENTED option            = PVF-OA3,10%X $10,000            = 2.487 X $10,000            = $24,870 Immediately payment $28,000 Company select the rentedoption because Present value of total rent paying in3 year is$24,870 which is less amount of $28,000 payingimmediately. ( C) Future value is $40,000 Single amount must be deposited in the account on 1 jan,2006 is:            = PV7,10%X $40,000            = 0.513 X $40,000            = $20,520 ( D) Single sum must be deposited in the bank on 1 jan2006 is:            = PVF-OA10,10%X $15,000            = 6.145 X $15,000            = $96,625

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