1. If you won $1,000,000 in the state lottery and had a choice between receiving $50,000 a year for 20 years or getting a one-time payment of $560,000, which would you take?
What factors are important to consider?
Let us assume that for #1 above, you are indifferent to receiving the money now, or over a period of 20 years. Meaning, you have no immediate use that would require a large sum of money now, and you are not in a situation where you would need a cash flow for 20 years.
And the interest rate is 6%
How about if the interest rate is 7%
2. What might a declining balance of long term debt mean to the company?
3. Maverick Company sold 1,000 Rollomatics during 2014 at a total price of $6,000,000 with a warranty guarantee that the product was free of any defects (this is included in the sales price of , $6,000,000). The cost of Rollomatics sold is 4,000,000. The term of the assurance warranty is 2 years, with an estimated cost of $30,000.
In addition, Maverick sold extended warranties related to 400 Rollomatics for 3 years beyond the 2 year period for $12,000.
What are the Journal Entries Maverick Company should make in 2014 related to the sale & the related warranties?