Question

75. Rae Company purchased a new vehicle by paying $10,000 cash on the purchase date and agreeing to pay $3,000 every three months during the next five years; the first payment is due three months after the purchase date. Rae's incremental borrowing rate is 12%. At what amount would the liability be reported at on the balance sheet as of the purchase date, after the initial $10,000 payment was made? A. $44,633 B. $50,000 C. $54,633 D. $60,000

76. Rae Company purchased a new vehicle by paying $10,000 cash on the purchase date and agreeing to pay $3,000 every three months during the next five years; the first payment is due three months after the purchase date. Rae's incremental borrowing rate is 12%. At what amount would the vehicle be reported at on the balance sheet as of the purchase date? A. $44,633 B. $50,000 C. $54,633 D. $60,000

Answer 1

Question 75: Answer: A. $44,633 Explanation: The liability be reported at on the balance sheet as of purchase is the present value of the remaining payments (i.e. Present value of remaining Payments @3% of 20 period) The liability be reported at on the balance sheet = Present value of remaining Payments @3% of 20 period The liability be reported at on the balance sheet = $3,000 x 14.8775 The liability be reported at on the balance sheet = $44,632.50 or %3D $44,633 (Rounded Off) Question 76: Answer: C. $54,633 Explanation: Equipment Cost = Initial Payment + Present value of remaining Payments @3% of 20 period Equipment Cost = $10,000 + $3,000 x 14.8775 Equipment Cost = $10,000 + 44,632.50 Equipment Cost = $54,632.50 Vehicle be reported at on the balance sheet as of the purchase date = $54,633 %3D