Rachel Corporation purchased a building by paying $90,000 cash on the purchase date,agreeing to pay $50,000 every year for the next nine years and one payment of $100,000 ten years from the purchase date.The first payment is due one year after the purchase date.Rachel'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 building reported on the balance sheet as of the purchase date is closest to:
A)$326,505.
B)$460,000.
C)$287,950.
D)$416,505.

Question

Quizplus · Accepted Answer

The building's value on the balance sheet is calculated by adding the present value (PV) of all future payments to the initial cash payment. The PV of the $50,000 annual payments for 9 years at 10% interest is found using the PVA of $1 table (PVA = $50,000 * PVA factor for 9 years at 10%), and the PV of the $100,000 payment in 10 years is found using the PV of $1 table (PV = $100,000 * PV factor for 10 years at 10%). Adding these PVs to the initial $90,000 cash payment gives the total value of the building on the balance sheet.

Rachel Corporation Purchased a Building by Paying $90,000 Cash on the Purchase