Asked by Damir Hollis on Apr 28, 2024
Verified
Randal's Rifles purchased some equipment by issuing a three-year 6% note for $8, 000 when the market rate for an obligation of this nature was 8%.The interest is payable annually.Actuarial information for three periods follows: 6%8% Future amount of 11.1910161.259712 Future amount of amuity of 13.1836003.246400 Present value of 10.8396190.793832 Present value of annuity of 12.6730122.577097\begin{array}{lll}&6\%&8\%\\\text { Future amount of } 1 & 1.191016 & 1.259712 \\\text { Future amount of amuity of } 1 & 3.183600 & 3.246400 \\\text { Present value of } 1 & 0.839619 & 0.793832 \\\text { Present value of annuity of } 1 & 2.673012 & 2.577097\end{array} Future amount of 1 Future amount of amuity of 1 Present value of 1 Present value of annuity of 16%1.1910163.1836000.8396192.6730128%1.2597123.2464000.7938322.577097
At the date of purchase, what amount should be debited to Equipment?
A) $7, 587.66
B) $6, 716.96
C) $6, 350.66
D) $6, 633.70
Actuarial Information
Data and analysis used to evaluate the financial implications of risk and uncertainty, often used in insurance and pensions.
Market Rate
The dominant interest rate in the market for investments with comparable risk and duration.
Obligation
A duty or commitment to pay money or perform some action in the future, often legally enforceable.
- Identify and record the acquisition cost of property, plant, and equipment.
Verified Answer
GH
gracie henriksonApr 29, 2024
Final Answer :
A
Explanation :
The amount to be debited to equipment is the present value of the note, which is calculated using the present value formula:
PV = FV / (1 + r)n
where PV is the present value, FV is the future value or face value of the note, r is the market rate or discount rate, and n is the number of periods.
In this case, FV = $8,000, r = 8%, and n = 3.
Using the formula, we get:
PV = $8,000 / (1 + 8%)^3
PV = $6,716.96
Therefore, the correct answer is A) $7,587.66, which is the rounded up amount to the nearest cent.
PV = FV / (1 + r)n
where PV is the present value, FV is the future value or face value of the note, r is the market rate or discount rate, and n is the number of periods.
In this case, FV = $8,000, r = 8%, and n = 3.
Using the formula, we get:
PV = $8,000 / (1 + 8%)^3
PV = $6,716.96
Therefore, the correct answer is A) $7,587.66, which is the rounded up amount to the nearest cent.
Learning Objectives
- Identify and record the acquisition cost of property, plant, and equipment.