Lincoln Company purchased merchandise from Grandville Corp. on September 30, 201

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 $4,400 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 9% properly reflects the time value of money in this situation.

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 $4,400 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 9% properly reflects the time value of money in this situation.
  

Amount Recorded: _______________

Explanation / Answer

Solution:

Annual payment starting from 30.09.2021 = $4,400

Nos of annual payments = 6

Interest rate = 9%

Amount at which note payable and purchases of merchandise recorded = Present value of annual payments discounted at 9%

= $4,400 * Cumulative PV Factor at 9% for 3rd to 8th year

=$4,400 * 3.775708

= $16,613

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