On January 31, 2010, Richie Company acquired a new machine by paying $40, 000 cash and agreeing to pay $20, 000 annually for three years, beginning on January 31, 2011.Assuming an interest rate of 10%, Richie should record the acquisition cost of the machine on January 31, 2010, at
A)$100, 000
B)$ 94, 712
C)$ 89, 738
D)$ 62, 092

Question

Quizplus · Accepted Answer

The acquisition cost includes the cash payment and the present value of the future payments. The present value of $20,000 annually for three years at 10% interest is calculated and added to the $40,000 cash payment.

On January 31, 2010, Richie Company Acquired a New Machine