Ohrid Company purchased machinery on December 31, 2010 for $262,241, paying $80,000 down and agreeing to pay the balance of $182,241 in four equal annual installments of $60,000 plus 12% implied interest. The interest expense reported on Ohrid's 2011 income statement is $21,869. The carrying value of the note as of December 31, 2012 is $101,403.
Ohrid Company purchased machinery on December 31, 2010 for $262,241, paying $80,000 down and agreeing to pay the balance of $182,241 in four equal annual installments of $60,000 plus 12% implied interest. The interest expense reported on Ohrid's 2011 income statement is $21,869. The carrying value of the note as of December 31, 2012 is $101,403.
Ohrid Company purchased machinery on December 31, 2010 for $262,241, paying $80,000 down and agreeing to pay the balance of $182,241 in four equal annual installments of $60,000 plus 12% implied interest. The interest expense reported on Ohrid's 2011 income statement is $21,869. The carrying value of the note as of December 31, 2012 is $101,403.
(Payable in Installments) OHRID COMPANY purchased machinery on December 31,2010, paying P80,000 down and agreeing to pay the balance in four equal installments of P60,000 payable each December 31. Implicit in the purchase price is an assumed interest of 12%. The following data are abstracted from the present value tables: Present value of 1 at 12% for 4 periods 0.63552 Present value of an ordinary annuity of 1 at 12% for 4 periods 3.03735 1. What is the cost of the machinery purchased on December 31,2010? A. P233,083 C. P262,241 B. P320,000 D. P290,842 2. How much interest expense should be reported on Ohrid’s income statement for the year ended December 31,2011? A. P38,131 C. P17,293 B. P21,869 D. P42,707 3. What is the carrying value of the note at December 31,2012? A. P120,000 C. P99,310 B. P144,110 D. P101,403 SOLUTION 7-11 1. Down payment P80,000 Present value of installment payments (P60,000x3.03735) 182,241 Cost of machinery P262,241 Answer: C 2. Interest expense for 2011(see amortization schedule) P21,869 Answer: B 3. Carrying value of note at Dec. 31,2012 (see amortization schedule) P101,403 Answer: D SCHEDULE OF NOTE DISCOUNT AMORTIZATION Date Payment Discount Carrying Amortization Value of note 12.31.10 P182,241 12.31.11 P60,000 P21,8691 144,1102 12.31.12 60,000 17,293 101,403 12.31.13 60,000 12,168 53,571 12.31.14 60,000 6,429 0 1 P21,869 = P182,241 x 12% 2 P144,110 = P182,241 – P60,000 + P21,869