Answer each of the following unrelated questions:
(a) On January 1, 2007, Sandstone Corporation sold a building that cost $250,000 and had accumulated depreciation of $100,000 on the date of sale. A $300,000 non-interest-bearing note due on January 1, 2013 was received as consideration. The prevailing rate of interest for a note of this type on January 1, 2007 was 11%. At what amount should the gain from the sale of the building be reported?
(b) On January 1, 2001, Sandstone Corporation purchased $200,000 face value, 9%, 10-year bonds of Walters Inc. The bonds mature on January 1, 2011, and pay interest annually beginning January 1, 2002. The market rate of interest is 11%. How much did Sandstone pay for the bonds?
(c) Sandstone Corporation brought a new machine and agreed to pay for it in equal annual installments of $4,000 at the end of each of the next 10 years. Assume an 11% market rate of interest applies to this contract, how much was recorded as the cost of the machine?
(d) Sandstone Corporation purchased a special tractor on December 31, 2013. The purchase agreement stipulated that Sandstone should pay $20,000 at the time of purchase and $5,000 at the end of each of the next 8 years. The tractor should be recorded on December 31, 2013, at what amount, assuming the market rate of interest was 11%?
(e) Sandstone Corporation wants to withdraw $100,000 from an investment fund at the end of each year for 9 years. What should be the required initial investment at the beginning of the first year if the fund earns 11%?
11% Interest Table Factors
|
Period
|
Present Value of $1 (Table 6-2)
|
Present Value of an Ordinary Annuity of $1 (Table 6-4)
|
|
6
|
.53464
|
4.23054
|
|
7
|
.48166
|
4.71220
|
|
8
|
.43393
|
5.14612
|
|
9
|
.39092
|
5.53705
|
|
10
|
.35218
|
5.88923
|