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Chippewas inc has decided to purchase equipment from central Michigan industries on January 2, 2017, to...

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Accounting

Chippewas inc has decided to purchase equipment from centralMichigan industries on January 2, 2017, to expand its productioncapacity to meet customers demand for its product. Chippewas issuesan $800000, 5 year, zero interest bearing note to central Michiganfor the new equipment when the prevailing market rate of interestfor obligations of this nature is 12%. The company will pay off thenote in five $160000 installments due at the end of each year overthe life of the note.

Answer & Explanation Solved by verified expert
3.6 Ratings (281 Votes)
Year Payment Discount factor 12 Present value 1 160000 0892857 142857 2 160000 0797194 127551 3 160000 0711780 113885 4 160000 0635518 101683 5 160000 0567427 90788 Present value of Note 576764 Discount on notes payable 800000576764 223236 Year Opening value of Note Installment paid Interest expense Principal Paid Closing value of Note Discount on notes payable Jan 2 2017 576764 223236 Dec 31    See Answer
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