Accounting Principles, Weygandt, Kieso, Kimmel - Solutions, summaries, and outlines. 2022 updated

APPENDIX C
Present Value Concepts

SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE C-1

1. 12% 6 2. 8% 20
10% 15 10% 5
4% 24 6% 8


BRIEF EXERCISE C-2

(a) i = 8%
? $30,000


0 1 2 3 4 5 6 7 8

Discount rate from Table 1 is .54027 (8 periods at 8%). Present value
of $30,000 to be received in 8 years discounted at 8% is therefore
$16,208.10 ($30,000 X .54027).


(b) i = 9%

? $30,000 $30,000 $30,000 $30,000 $30,000 $30,000


0 1 2 3 4 5 6

Discount rate from Table 2 is 4.48592 (6 periods at 9%). Present
value of 6 payments of $30,000 each discounted at 9% is therefore
$134,577.60 ($30,000 X 4.48592).



Appendix C-1

,BRIEF EXERCISE C-3

i = 10%
? $600,000


0 1 2 3 4 5

Discount rate from Table 1 is .62092 (5 periods at 10%). Present value of
$600,000 to be received in 5 years discounted at 10% is therefore $372,552
($600,000 X .62092). Ramirez Company should therefore invest $372,552
to have $600,000 in five years.


BRIEF EXERCISE C-4

i = 9%
? $700,000


0 1 2 3 4 5 6 7 8

Discount rate from Table 1 is .50187 (8 periods at 9%). Present value of
$700,000 to be received in 8 years discounted at 9% is therefore $351,309
($700,000 X .50187). LaRussa Company should invest $351,309 to have
$700,000 in eight years.


BRIEF EXERCISE C-5

i = 10%
? $36,000


0 1 2 3 4

Discount rate from Table 1 is .68301 (4 periods at 10%). Present value of
$36,000 to be received in 4 years discounted at 10% is therefore $24,588.36
($36,000 X .68301). Polley should receive $24,588.36 upon the sale of the note.



Appendix C-2

,BRIEF EXERCISE C-6

i = 8%
? $60,000


0 1 2 3

Discount rate from Table 1 is .79383 (3 periods at 8%). Present value of
$60,000 to be received in 3 years discounted at 8% is therefore $47,629.80
($60,000 X .79383). Marichal Company should receive $47,629.80 upon issu-
ance of the zero-interest bearing note.


BRIEF EXERCISE C-7

i = 6%

? $40,000 $40,000 $40,000 $40,000 $40,000 $40,000



0 1 2 3 4 14 15

Discount rate from Table 2 is 9.71225. Present value of 15 payments of
$40,000 each discounted at 6% is therefore $388,490 ($40,000 X 9.71225).
Colaw Company should pay $388,490 for this annuity contract.


BRIEF EXERCISE C-8

i = 11%

? $100,000 $100,000 $100,000 $100,000



0 1 2 3 4

Discount rate from Table 2 is 3.10245. Present value of 4 payments of
$100,000 each discounted at 11% is therefore $310,245 ($100,000 X 3.10245).
Sauder Enterprises invested $310,245 to earn $100,000 per year for four years.



Appendix C-3

, BRIEF EXERCISE C-9

i = 4%
? $200,000
Diagram
for
Principal
0 1 2 3 4 19 20

i = 4%

? $10,000 $10,000 $10,000 $10,000 $10,000 $10,000
Diagram
for
Interest
0 1 2 3 4 19 20

Present value of principal to be received at maturity:
$200,000 X 0.45639 (PV of $1 due in 20 periods
at 4% from Table 1) ...................................................................... $ 91,278.00
Present value of interest to be received periodically
over the term of the bonds: $10,000 X 13.59033
(PV of $1 due each period for 20 periods at 4%
from Table 2) .................................................................................. 135,903.30
Present value of bonds........................................................................ $227,181.30



BRIEF EXERCISE C-10

The bonds will sell at par or $200,000. This may be proven as follows:

Present value of principal to be received at maturity:
$200,000 X .37689 (PV of $1 due in 20 periods
at 5% from Table 1) ...................................................................... $ 75,378*
Present value of interest to be received periodically
over the term of the bonds: $10,000 X 12.46221
(PV of $1 due each period for 20 periods at 5%
from Table 2) .................................................................................. 124,622*
Present value of bonds........................................................................ $200,000*

*Rounded.




Appendix C-4