On January 31, 2016, Manning Company acquired a new machine by paying $40,000 cash and agreeing to pay $20,000 annually for four years, beginning on January 31, 2017. Assuming an interest rate of 10%, Manning should record the acquisition cost of the machine on January 31, 2016, at
A) $120,000.
B) $109,737.
C) $103,397.
D) $102,092.

Question

Quizplus · Accepted Answer

The acquisition cost includes the cash payment and the present value of the future payments. The present value of the $20,000 annual payments for four years at a 10% interest rate is calculated using the present value of an annuity formula. Adding this to the $40,000 cash payment gives the total acquisition cost.

On January 31, 2016, Manning Company Acquired a New Machine