Short Company purchased land by paying $10,000 cash on the purchase date and agreeing to pay $10,000 for each of the next ten years beginning one-year from the purchase date.Short's incremental borrowing rate is 10%.(FV of $1,PV of $1,FVA of $1,and PVA of $1)(Use the appropriate factor(s)from the tables provided. )
- The land reported on the balance sheet is closest to:
A)$100,000.
B)$38,550.
C)$110,000.
D)$71,446.

Question

Quizplus · Accepted Answer

To calculate the present value of the ten years' payments, we need to use the formula for the present value of an annuity:
PV = PMT x (1 - 1 / (1+r)^n) / r
where PV is the present value, PMT is the payment amount, r is the interest rate, and n is the number of periods.

In this case, PMT = $10,000, r = 10%, and n = 10. Plugging in the values, we get:
PV = $10,000 x (1 - 1 / (1+0.1)^10) / 0.1
PV = $65,534.60

Therefore, the total cost of the land is:
$10,000 + $65,534.60 = $75,534.60

So the closest answer choice is D: $71,446. Since the question asks for the cost of the land reported on the balance sheet, we would round the answer to the nearest dollar: $71,447.

Short Company Purchased Land by Paying $10,000 Cash on the Purchase