Question

Lincoln Company purchased merchandise from Grandville Corp. on September 30, 2018. Payment was made in the...

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 $7,200 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.

Homework Answers

Answer #1

Annual payment = $2700

Date of first payment = September 30, 2021

Interest rate = 11%

Number of annual payment = 6

Present value of annual paymnet as on September 30, 2020 =

$2700 x Present value annuity factor(11%,6)

= $2700 x 4.2305 = $11422.35

Period from September 30, 2018 to September 30, 2020 = 2 years

Present value as on September 30, 2018 =

$11422.35 x Present value interest factor (11%,2)

= $11422.35 x 0.8116 = $9270.38

Amount at which Lincoln should record the note payable and corresponding purchases on September 30, 2018 is $9270.38

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