On January 1, 20A, Tie Company purchased a machine that had a sticker (list) price of $22,000. The seller agreed to allow Tie Company to pay for the machine over a three-year period at 10% interest on the unpaid balance and with equal payments of
$8,444 due at the end of 20A, 20B, and 20C. What is the amount that should be debited to the asset account, Machinery, on the day the contract was initiated is (rounded to the nearest dollar)?
A) $22,000
B) $27,865
C) $20,999
D) $25,332

Question

Quizplus · Accepted Answer

The amount debited to the Machinery account should be the present value of the payments. The present value of $8,444 payments over three years at 10% interest is approximately $20,999.

On January 1, 20A, Tie Company Purchased a Machine That