A) On January 1, 2007, Sandstone Corporation sold a building that cost $250,000

Question

A) On January 1, 2007, Sandstone Corporation sold a building that cost $250,000 and had accumulated depreciation of $100,000 on the date of sale. A $300,000 non-interest-bearing note due on January 1, 2013 was received as consideration. The prevailing rate of interest for a note of this type on January 1, 2007 was 11%. At what amount should the gain from the sale of the building be reported?

B) On January 1, 2001, Sandstone Corporation purchased $200,000 face value, 9%, 10-year bonds of Walters Inc. The bonds mature on January 1, 2011, and pay interest annually beginning January 1, 2002. The market rate of interest is 11%. How much did Sandstone pay for the bonds?

C) Sandstone Corporation brought a new machine and agreed to pay for it in equal annual installments of $4,000 at the end of each of the next 10 years. Assume an 11% market rate of interest applies to this contract, how much was recorded as the cost of the machine?

D) Sandstone Corporation purchased a special tractor on December 31, 2013. The purchase agreement stipulated that Sandstone should pay $20,000 at the time of purchase and $5,000 at the end of each of the next 8 years. The tractor should be recorded on December 31, 2013, at what amount, assuming the market rate of interest was 11%?

E) Sandstone Corporation wants to withdraw $100,000 from an investment fund at the end of each year for 9 years. What should be the required initial investment at the beginning of the first year if the fund earns 11%?

11% Interest Table Factors

Period

Present Value of $1

(Table 6-2)

Present Value of an Ordinary Annuity of $1 (Table 6-4)

6

.53464

4.23054

7

.48166

4.71220

8

.43393

5.14612

9

.39092

5.53705

10

.35218

5.88923

Period

Present Value of $1

(Table 6-2)

Present Value of an Ordinary Annuity of $1 (Table 6-4)

6

.53464

4.23054

7

.48166

4.71220

8

.43393

5.14612

9

.39092

5.53705

10

.35218

5.88923

Explanation / Answer

Ans a Book value of building is $150000(250000-100000) Ans a Gain on sale of building 300000*PVF(6,11%)-150000 (300000*.53464)-150000 10392 Ans Ans b Sandstone Corporation will pay Present value of Principal+Present value of all the interest payment 200000*PV(10,11%)+200000*9%PVF-OA(10,11%) (200000*0.35218)+(18000*5.88923) 176442.1 Ans ans c   Cost of the machine 4000*PVF-OA(10,11%) 4000*5.88923 23556.92 an s d Tractor is recorded on Dec 31 20000+5000*PVF-OA(8,11%) 20000+5000*5.14612 45730.6 Ans e Initial Investment $100000*PVF-OA(9,11%) 100000*5.53705 553705 All problems are related with calculation of present vaue and presentr value of ordinary annity which is denoted as PVF-OA

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