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 $4,200 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 8% properly reflects the time value of money in this situation.

Answer 1

present value of payment at september 30 ,2020 = PVA8%,6 *annual payment

        = 4.62288*4200

          =$ 19416.10

present value at september 30 2018 =PVF 8%,2* PV at sep 30 2020

            = .85734*19416.1

         = 16646.20

the amount at which Lincoln should record the note payable and corresponding purchases on September 30, 2018 = $ 16646.20