Question

Lincoln Company purchased merchandise from Grandville Corp. on September 30, 2018. Payment was made in the form of a noninterest-bearing note requiring Lincoln to make six annual payments of $6,400 on each September 30, beginning on September 30, 2021. (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: Calculate the amount at which Lincoln should record the note payable and corresponding purchases on September 30, 2018, assuming that an interest rate of 11% properly reflects the time value of money in this situation. Amount recorded

Answer 1

Amount recoreded =  21975

PVA = 6400 X 4.23054* = 27075

*Present value of an ordinary annuity of $1:n= 6,i= 10% (from PVA of $1)

PV = 27075 x 0.81162* = 21975

*Present value of $1:n= 2,i= 10% (from PV of $1)