Question

Present and future value tables of 1 at 11% are presented below. PV of $1 FV of $1 PVA of $1 FVA of $1 1 0.90090 1.11000 0.90090 1.0000 2 0.81162 1.23210 1.71252 2.1100 3 0.73119 1.36763 2.44371 3.3421 4 0.65873 1.51807 3.10245 4.7097 5 0.59345 1.68506 3.69590 6.2278 6 0.53464 1.87041 4.23054 7.9129 Polo Publishers purchased a multi-color offset press with terms of $30,000 down and a noninterest-bearing note requiring payment of $20,000 at the end of each year for three years. The interest rate implicit in the purchase contract is 11%. Polo would record the asset at:

Answer 1

Answer: $78,874.2‬0

Explanation:

The asset would be recorded at the present value of the sum of the down payment and the subsequent noninterest-bearing note payments because this is the cost of the equipment.

Payments are for 3 years.

Discount rate is 11%

$20,000 payment is constant so can be treated as annuity.

= 30,000 + ( 20,000 * PVA, 3 years, 11%)

= 30,000 + (20,000 * 2.44371)

= 30,000 + 48,874.2‬0

= $78,874.2‬0