time value of money help accounting 2

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Question 1:

a.  A bank lends you $150,000.  You are to repay the loan in equal semi-annual payments over 12 years at 10% compounded semi-annually.  What are the semi-annual payments?

b. Prepare an amortization schedule showing the breakdown of the payments between principal and interest for the loan. 

c. Prepare the journal entry to record the first semiannual payment on the loan.

d. How much will you owe the bank after the second interest payment?

e. If you did not have access to a computer or financial calculator, how could you easily determine the amount of interest you would pay over the life of this loan?

f. Prove that your answer in e  is correct with an amortization schedule. 

Question 2:

On April 1, 2014, Bradey Company sold a patent to Penn Company in exchange for a $100,000 zero interest bearing note due on April 1, 2016.  There was no established exchange price for the patent and the note had no ready market value.  The prevailing interest rate for a note of this type on April 1, 2014 was 12%. The patent had a carrying value of $40,000 on January 1, 2014 and the amortization for the year ended December 31, 2014 would have been $8000.  The collection of the note receivable from Penn Company was reasonably assured.

Required: Prepare all journal entries and adjusting entries that  Bradey company would make for 2014,  2015 and 2016 related to the sale of the patent. Bradey’s fiscal year ends on December 31st.

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