Rusty Corporation purchased a rust-inhibiting machine by paying $51,500 cash on

Question

Rusty Corporation purchased a rust-inhibiting machine by paying $51,500 cash on the purchase date and agreeing to pay $10,300 every three months during the next two years. The first payment is due three months after the purchase date. Rusty's incremental borrowing rate is 12%. The machine reported on the balance sheet as of the purchase date is closest to

A) 133,900

B) 82,400

C) 123,803

D) 72,303

Rusty Corporation purchased a rust-inhibiting machine by paying $51,500 cash on the purchase date and agreeing to pay $10,300 every three months during the next two years. The first payment is due three months after the purchase date. Rusty's incremental borrowing rate is 12%. The machine reported on the balance sheet as of the purchase date is closest to

A) 133,900

B) 82,400

C) 123,803

D) 72,303

Explanation / Answer

Number of payment = 4 * 2 = 8

Rate = 12 *3/12 = 3%

Present value of future payment = Payment *PVAF@3% ,8

                                                         = 10300 * 7.01969

                                                         = $ 72303

Purchase price of machine = 72303 + 51500

                                                = $ 123803

correct option is "C"

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