Question

why is the answer a and not c?

Jackson Company purchased land by paying $12,000 cash on the purchase date and agreeing to pay $12,000 for each of the next ten years beginning one-year from the purchase date. Jackson's incremental borrowing rate is 10%. 000 At what amount would the land be reported at on the balance sheet? Seeis bo CIONI OG, \21000,PMTPN A$ 85,735 B. $120,000 C.$ 73,735 D.$132,000 E. $191,249 ds owol od Iliw OL ol od Iliw O 1sbu OO noa rid od Hiw 011 bau bloe eboo OLsbou Lbor O

Answer 1

Immediate cash payment = $12,000

10 annual payments of $12,000 each.

Interest rate (i) = 10%

Cost of land = Immediate cash payment + Annual cash payment x Present value annuity factor (i%,n)

= 12,000+12,000 x Present value annuity factor ( 10%,10)

= 12,000 + 12,000 x 6.14457

= 12,000 + 73,735

= $85,735

Correct option is A.

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