Question

Roseland Company purchased merchandise from Royal Corp. on September 30, year 1. Payment was made in the form of a noninterest-bearing note requiring Roseland to make six annual payments of $4,400 on each September 30, beginning on September 30, year 4.

Required:

Calculate the amount at which Roseland should record the note payable and corresponding purchases on September 30, year 1, assuming that an interest rate of 12% properly reflects the time value of money in this situation.

Answer 1

Compute amount at which R should record the note payable as shown below: J 1 2 3 4 34 5 6 36 7 37 8 38 9 39 10 40 Total K L M Note PV factor Payment payable 0.892857 0.797194 0.71178 0.635518 0.567427 $4,400 $2,496.68 0.506631 $4,400 $2,229.18 0.452349 $4,400 $1,990.34 0.403883 $4,400 $1,777.09 .360610 $4,400 $1,586.68 0.321973 $4,400 $1,416.68 $11,496.64 0 Therefore, amount at which R should record for note payable on September 30 for year 1 at 12% rate is $11,496.64.

Calculation formulas: AJ K L M 29 Year PV factor Payment Note payable 30 1 =1/1.124330 31 2 =1/1.124131 32 3 =1/1.12AJ32 33 4 =1/1.124133 34 5 =1/1.124434 4400 =K34*L34 35 6 =1/1.12 J35 4400 =K35*L35 36 7 =1/1.124136 4400 =K36*L36 37 8 =1/1.124J37 4400 =K37*L37 38 9 =1/1.124338 4400 =K38*L38 39 10 =1/1.124439 4400 =K39*L39 40 Total =SUM(M34:M39)