P5-2

P5-3

1. On June 30, 2024, the Stone Company purchased equipment from Paper Corp. Stone agreed to pay $10,000 on the purchase date and the balance in five annual installments of $8,000 on each June 30 beginning June 30,2025 . Assuming that an interest rate of 10% properly reflects the time value of money in this situation, at what amount should Stone value the equipment? 2. Stone needs to accumulate sufficient funds to pay a $400,000 debt that comes due on December 31, 2029. The company will accumulate the funds by making five equal annual deposits to an account paying 6% interest compounded annually. Determine the required annual deposit if the first deposit is made on December 31, 2024. 3. On January 1, 2024, Stone leased an office building. Terms of the lease require Johnstone to make 20 annual lease payments of $120,000 beginning on January 1,2024. A 10% interest rate is implicit in the lease agreement. At what amount should Stone record the lease liability on January 1,2024, before any lease payments are made? P5-3 Analysis of alternatives 1 LO5-3, LO5-8 1. Pay $1,000,000 in cash immediately. 2. Pay $420,000 immediately and the remainder in 10 annual installments of $80,000, with the first installment due in one year. 3. Make 10 annual installments of $135,000 with the first payment due immediately. 4. Make one lump-sum payment of $1,500,000 five years from date of purchase. Required; Determine the best alternative for Hard Hat, assuming that Hard Hat can borrow funds at an 8% interest rate