Question

On January 1, 2021, the Montgomery Company agreed to purchase a building by making six payments. The first three are to be $41,000 each, and will be paid on December 31, 2021 2022 and 2023. The last three are to be $56,000 each and will be paid on December 31, 2024 2025, and 2026. Montgomery borrowed other money at a 10% annual rate. (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.) Required: 1. At what amount should Montgomery record the note payable and corresponding cost of the building on January 1, 2021? 2. How much interest expense on this note will Montgomery recognize in 2021? (For all requirements, Round your final answers to nearest whole dollar amount.) 1. Amount recorded 2. Interest expense

Answer 1

As per the policy, since there is more than 1 question, I am answering both the parts of the first question:

1. Amount Recorded

PV factor for deferred annuity = PVA factor, n = 6, i = 10% - PVA factor, n = 3, i = 10% = 4.3553 - 2.4869 = 1.8684

Amount Recorded = $41,000(PVA factor, n = 3, i = 10%) + $56,000(PV factor for deferred annuity) = $41,000(2.4869) + $56,000(1.8684) = $101,962.9 + $104,630.4 = $206,593.3

2. Interest Expense

Interest in the year 2021 = $206,593.3 * 10% = $20,659.3