Question

Libby Company purchased equipment by paying $6,500 cash on the purchase date and agreed to pay $6,500 every six months during the next four years. The first payment is due six months after the purchase date. Libby's incremental borrowing rate is 8%. The equipment reported on the balance sheet as of the purchase date is closest to (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided.)

A) $58,500.

B) $50,263.

C) $52,000.

D) $43,763.

Libby Company purchased equipment by paying $6,900 cash on the purchase date and agreed to pay $6,900 every six months during the next four years. The first payment is due six months after the purchase date. Libby's incremental borrowing rate is 10%. The liability reported on the balance sheet as of the purchase date, after the initial $6,900 payment was made, is closest to: (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided.)

A) $44,596.

B) $62,100.

C) $51,496.

D) $55,200

Answer 1

Answer 1 -

The equipment reported on the balance sheet as of the purchase date is closest to:-

6500 + 6500 * PVIFA ( 4 % , 8 )

r = 8 % / 2 = 4 % ( since payment is made semi annually )

n = 4 years * 2 = 8

6500 + ( 6500 * 6.7327 )

$ 50263 ( option b is correct )

Answer 2 -

The liability reported on the balance sheet as of the purchase date, after the initial $6,900 payment was made, is closest to:-

6900 * pvifa ( 5% , 8 )

6900 * 6.4632

$ 44596

Option A is correct.