For which of the following transactions would the present value of an annuity due concept be most appropriate for calculating the present value of the asset acquired or liability assumed?
A) A rental agreement is entered into with the initial payment due immediately.
B) A rental agreement is entered into with the initial payment due one month from the signing of the agreement.
C) A note payable is obtained from a bank requiring monthly payments for six years, beginning at the end of the current month.
D) A machine is acquired by paying $20,000 cash and agreeing to pay equal annual amounts of $10,000 each at the end of the next three years.

Question

Quizplus · Accepted Answer

The present value of an annuity due concept is most appropriate for calculating the present value of transactions where payments are made at the beginning of each period. Choice A, a rental agreement with the initial payment due immediately, fits this description, as the payments start at the beginning of the period.

For Which of the Following Transactions Would the Present Value