Question
For which of the following transactions would the use of the present value of an ordinary annuity concept be appropriate in calculating the present value
For which of the following transactions would the use of the present value of an ordinary annuity concept be appropriate in calculating the present value of the asset obtained or the liability owed at the date of incurrence?
a.A capital lease is entered into with the initial lease payment due one month subsequent to the signing of the lease agreement.
b.A capital lease is entered into with the initial lease payment due upon the signing of the lease agreement.
c.A ten-year 8% bond is issued on January 2 with interest payable semiannually on January 2 and July 1 yielding 7%.
d.A ten-year 8% bond is issued on January 2 with interest payable semiannually on January 2 and July 1 yielding 9%.
On December 30, 2020, AGH, Inc. purchased a machine from Grant Corp. in exchange for a zero-interest-bearing note requiring eight payments of $150,000. The first payment was made on December 30, 2020, and the others are due annually on December 30. At date of issuance, the prevailing rate of interest for this type of note was 11%. Present value factors are as follows:
Present Value of OrdinaryPresent Value of
PeriodAnnuity of 1 at 11%Annuity Due of 1 at 11%
74.7125.231
85.1465.712
On AGH's December 31, 2020 balance sheet, the net note payable to Grant is
a.$706,800.
b.$771,900.
c.$785,325.
d.$856,800.
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