5) New theater equipment was purchased on July 1, 20x2. Terms of purchase: An in

Question

5) New theater equipment was purchased on July 1, 20x2. Terms of purchase: An initial cash payment plus a non-interest bearing note payable (referred to as "Note Payable "B") were issued in exchange for the new theater equipment. 18,000 136,000 Initial cash payment: Maturity value of non-interest bearing note: Term of note (in number of years): Annual interest rate considered appropriate in circumstances: 7% DEPRECIATION of new theater equipment: Estimated life (in number of years ) The residual value (as a percentage of original cost) is estimated at: 12 12%

Explanation / Answer

Asset will be capitalised and liabilitiy recorded at present value of future payments:

Entry:

Note amortisation:

deprecitaion = (cost-salvage value)/use fule life

Salvage value= 114966*12%= 13796

Depreciation=(114966-13796)/12= 8431

Present value of payments: Particulars Year 0 Year 5 Payment 18000 136000 Discount factor@ 7% 1 0.712986 Present value 18,000.00 96,966.12 Total present value 114,966.12

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