Libby Company purchased equipment by paying $5,800 cash on the purchase date and

Question

Libby Company purchased equipment by paying $5,800 cash on the purchase date and agreeing to pay $5,800 every six months during the next four years. The first payment is due six months after the purchase date. Libby's incremental borrowing rate is 6%. The liability reported on the balance sheet as of the purchase date, after the initial $5,800 payment was made, is closest to: (Table A.1, Table A.2, Table A.3, and Table A.4) (Use appropriate factor(s) from the tables provided.) $52,200. $40,714. $46,400. $46,514.

Explanation / Answer

The answer is 5800 * 8 = $ 46,400.

As the total of 8 instalments has to be paid in 4 years.

The liability would be recorded at the actual value. Time value of the money would not be taken into account.

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