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(25 pts
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(25 pts.) Marmara University Copy Center buys three copier machines that each have a useful life of seven years and a salvage value of $1000/copier machine. A sinking fund is established to replace all the machines at the end of 7 years. The replacement cost will be $6,000/copier machine. If equal payments are made into the fund at the end of every 6 months and the fund earns interest at the rate of 12% compounded semiannually, what should each payment be?
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Ordering Question Click and drag on elements in order List the steps in processing transactions in the correct order. Post entry to ledger Analyze transactions using the accounting equation Record journal entry Identify transactions and source documents Rate your confidence to submit your answer
Expert Solution
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useful life = 7 years
Salvage Value =$1000/copier machine
Total Salvage Value =$1000*3 copiers
Total Salvage Value= $3000
Replacement Cost = $6000/copier machine
Total Replacement cost =$6000 * 3 copiers
Total Replacement Cost= $18000
Net amount needed for replacement = $18000 -$3000 = $15000
now,
Future Value of annuity = A * [(1+r)^n-1] / r
Future value of annuity = $15000
A = annual payment
r= rate per period i.e. 12%/2 = 6% or say 0.06 (since semiannually therefore dividing by 2)
n = no. of periods i.e. 7*2 = 14 (since semiannually therefore multiplying by 2)
15000 = A* {[(1+.06)^14-1] / 0.06}
15000 = A* {[(1.06)^14-1] / 0.06}
15000 = A* [(2.260904-1) / 0.06]
15000 = A* (1.260904/0.06)
15000 = A* 21.0150
A( annual payment) = $713.773
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Ans. The correct steps in processing transactions are as follow
Step I Identify transactions and source documents.
Step II Anaylse transactions using Accounting Equation
Step III Record Journal Entry
Step IV Post entry to ledger
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