On January 1, 2013, the Montgomery company agreed to purchase a building by making six payments. The first three are to be $38,000 each, and will be paid on December 31, 2013, 2014, and 2015. The last three are to be $53,000 each and will be paid on December 31, 2016, 2017, and 2018. Montgomery borrowed other money at a 10% annual rate. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1and PVAD of $1) (Use appropriate factor(s) from the tables provided.)
Required:
1.At what amount should Montgomery record the note payable and corresponding cost of the building on January 1, 2013?
2.How much interest expense on this note will Montgomery recognize in 2013?
3:Kiddy Toy Corporation needs to acquire the use of a machine to be used in its manufacturing process. The machine needed is manufactured by Lollie Corp. The machine can be used for 11 years and then sold for $16,000 at the end of its useful life. Lollie has presented Kiddy with the following options (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.):
1.Buy machine. The machine could be purchased for $166,000 in cash. All maintenance and insurance costs, which approximate $11,000 per year, would be paid by Kiddy.
2.Lease machine. The machine could be leased for a 11-year period for an annual lease payment of $31,000 with the first payment due immediately. All maintenance and insurance costs will be paid for by the Lollie Corp. and the machine will revert back to Lollie at the end of the 11-year period.
Required:
Assuming that a 11% interest rate properly reflects the time value of money in this situation and that all maintenance and insurance costs are paid at the end of each year, find the present value for the following options. Ignore income tax considerations. (Negative amounts should be indicated by a minus sign.)