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On September 1, 2020, Sandhill Ltd
On September 1, 2020, Sandhill Ltd. purchased equipment for $39,900 by signing a two-year note payable with a face value of $39,900 due on September 1, 2022. The going rate of interest for this level of risk was 9%. The company has a December 31 year end. (The tables in this problem are to be used as a reference for this problem.)
Click here to view the factor table PRESENT VALUE OF 1.
Click here to view the factor table PRESENT VALUE OF AN ANNUITY OF 1.
Calculate the cost of the equipment, where necessary using any of the three methods (tables, financial calculator, or Excel), assuming the note is as follows: (Round factor values to 5 decimal places, e.g. 1.25124 and final answers to 0 decimal places, e.g. 5,275.)
1.An 9% interest-bearing note, with interest due each September 1.
2.A 2% interest-bearing note, with interest due each September 1.
3.A non-interest-bearing note.
Cost of the Equipment
- n 9% interest-bearing note$
2.A 2% interest-bearing note$
3.A non-interest-bearing note$
Expert Solution
Computation of Cost of the Equipment:
1) An 9% interest-bearing note, with interest due each September 1:
Cost of Equipment = $39,900*9%*2 Years = $7,182
2) A 2% interest-bearing note, with interest due each September 1:
Cost of Equipment = $39,900*2%*2 Years = $1,596
3) A non interest bearing note:
Cost of Equipment = $39,900*0%*2 Years = $0
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