on march 31, 2011, Grimy corporation sold equipment by taking an $800,000, five
ID: 2487645 • Letter: O
Question
on march 31, 2011, Grimy corporation sold equipment by taking an $800,000, five year, non-interest bearing note and also receiving cash of $200,000. The prevailing market rate for similar debt is %8. Grimy will receive five equal yearly payments beginning on March 31, 2012. Assume that your year-end adjusting entries are reversed.. You do not need to show your revering entries.
A) Calculate the present value of the note. Show the funtions that were used on a financial calculator.
B) Prepare the journal entry for the sale of the equipment. Round to the enarest dollar.
Explanation / Answer
Year Cash inflows pv factor at 8% Present value of cash inflows 0 200000 1 800000 0.9259 740720 2 800000 0.8573 685840 3 800000 0.7938 635040 4 800000 0.735 588000 5 800000 0.6806 544480 NPV 3394080
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