VCR Company owed a $73,311 debt due on January 1,2012.An agreement was reached to pay it off in three equal annual payments of $30,000 each,starting on December 31,2012.The interest rate was 11 percent.The balance in the liability account of VCR Company on January 1,2014 is (round annual payment to nearest $1):
A) $27,026
B) $51,875
C) $73,311
D) $90,000

Question

Quizplus · Accepted Answer

The balance on January 1, 2014, is the present value of the remaining payments. After the first payment on December 31, 2012, the remaining balance is reduced by the principal portion of the payment. The second payment on December 31, 2013, further reduces the balance. The remaining balance is the present value of the final payment due on December 31, 2014, discounted at 11%.

VCR Company Owed a $73,311 Debt Due on January 1,2012