Question

Lincoln Company purchased merchandise from Grandville Corp. on September 30, 2021. Payment was made in the form of a noninterest-bearing note requiring Lincoln to make six annual payments of $7,200 on each September 30, beginning on September 30, 2024. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided. Round your final answer to nearest whole dollar amount.)

Required:
Calculate the amount at which Lincoln should record the note payable and corresponding purchases on September 30, 2021, assuming that an interest rate of 11% properly reflects the time value of money in this situation.

Answer 1

Solution:

Amount at which Lincoln should record the note payable and corresponding purchases on September 30, 2021 = Present value of annual payments

= $7,200 * Cumulative PV factor at 11% for 3rd to 8th period

= $7,200 * 3.43360 = $24,722