Hager Company acquires a computer from Volusia Computer Company. The cash price (fair value) of the computer is $37,938. Hager Company gives a three-year, interest-bearing note with a maturity value of $40,000. The note requires annual payments of 6% of face value, or $2,400 per year, payable at the end of each year. The interest rate implicit in the note is 8% per year.

a. How do you make an amortization schedule for the note like Table 11.2. using excel. What are the formulas to input?

b. What do the journal entries for Hager Company over the life of the note look like. (Ignore entries for depreciation expense on the computer. )

Table 11.2

Amortization Schedule for $300 Million Face Value 10-Year Zero Coupon Bonds Priced Initially to Yield 8% Compounded Semiannually

Balance at Beg Interest Expense Cash Increase in Balance at

Period of Period (2) for Period (3) Payment (4) Liability (5) End of Period (6)

1. $136,916,084 $5,476,643 $0 $5,476,643 $142,392,727 2. 142,392,727 5,695,709 0 5,695,709 148,088,436

3. 148,088,436 5,923,537 0 5,923,537 154,011,974

4. 154,011,974 6,160,479 0 6,160,479 160,172,453

5. 160,172,453 6,406,898 0 6,406,898 166,579,351

6. 166,579,351 6,663,174 0 6,663,174 173,242,525

7. 173,242,525 6,929,701 0 6,929,701 180,172,226

8. 180,172,226 7,206,889 0 7,206,889 187,379,115

9. 187,379,115 7,495,165 0 7,495,165 194,874,280

10. 194,874,280 7,794,971 0 7,794,971 202,669,251

11. 202,669,251 8,106,770 0 8,106,770 210,776,021

12. 210,776,021 8,431,041 0 8,431,041 219,207,062

13. 219,207,062 8,768,282 0 8,768,282 227,975,344

14. 227,975,344 9,119,014 0 9,119,014 237,094,358

15. 237,094,358 9,483,774 0 9,483,774 246,578,132

16. 246,578,132 9,863,125 0 9,863,125 256,441,258

17. 256,441,258 10,257,650 0 10,257,650 266,698,908

18. 266,698,908 10,667,956 0 10,667,956 277,366,864

19. 277,366,864 11,094,675 0 11,094,675 288,461,539

20. 288,461,539 11,538,462 0 11,538,462 300,000,000

b. Required Cash Flows Present Value Factor for 10% Interest Present Value of Required Cash Flows

Rate Compounded Semiannually for 10 Years

$1,000,000 at end of 10 years 0.37689a $376,890

$50,000 every six months for 10 years 12.46221b 623,110

Issue Price $1,000,000

aAppendix Table 2, 5% column and 20-period row.

bAppendix Table 4, 5% column and 20-period ro

c. Required Cash Flows Present Value Factor for 12% Interest Rate

Compounded Semiannually for 10 Years

$1,000,000 at end of 10 years 0.31180a $311,800

$50,000 every six months for 10 years 11.46992b 573,496

Issue Price $1,000,000

aAppendix Table 2, 6% column and 20-period row.

bAppendix Table 4, 6% column and 20-period row