Question

14. On December 30, 2017, Sheffield Corp.. purchased a machine from Pharoah Company in exchange for a zero-interest-bearing note requiring eight payments of $218,000. The first payment was made on December 30, 2017, and the others are due annually on December 30. At date of issuance, the prevailing rate of interest for this type of note was 10%. On Sheffield's December 31, 2017 balance sheet, the net note payable to Pharoah isA. $1,279,315B. $1,288,137C. $1,070,368D. $1,163,014

Answer 1

Amount due annually = $218,000
Prevailing rate of interest = 10%
Remaining installments = 7
present value annuity factor at 10% for 7 years = 4.86842
the net note payable to Pharoah on Dec 31 2017 balance sheet = present value of all installments due
= (218000*4.86842) + 218,000 = 1,279,315
Answer: (A) 1279315