Randal's Rifles purchased some equipment by issuing a three-year 6% note for $8, 000 when the market rate for an obligation of this nature was 8%.The interest is payable annually.Actuarial information for three periods follows: $\begin{array}{lll}
&6\%&8\%\
\text { Future amount of } 1 & 1.191016 & 1.259712 \
\text { Future amount of amuity of } 1 & 3.183600 & 3.246400 \
\text { Present value of } 1 & 0.839619 & 0.793832 \
\text { Present value of annuity of } 1 & 2.673012 & 2.577097
\end{array}$
At the date of purchase, what amount should be debited to Equipment?

Question

Randal's Rifles purchased some equipment by issuing a three-year 6% note for $8, 000 when the market rate for an obligation of this nature was 8%.The interest is payable annually.Actuarial information for three periods follows: $\begin{array}{lll}
&6\%&8\%\
\text { Future amount of } 1 & 1.191016 & 1.259712 \
\text { Future amount of amuity of } 1 & 3.183600 & 3.246400 \
\text { Present value of } 1 & 0.839619 & 0.793832 \
\text { Present value of annuity of } 1 & 2.673012 & 2.577097
\end{array}$
 At the date of purchase, what amount should be debited to Equipment?

Quizplus · Accepted Answer

The amount to be debited to equipment is the present value of the note, which is calculated using the present value formula:

PV = FV / (1 + r)n

where PV is the present value, FV is the future value or face value of the note, r is the market rate or discount rate, and n is the number of periods.

In this case, FV = $8,000, r = 8%, and n = 3.

Using the formula, we get:

PV = $8,000 / (1 + 8%)^3 
PV = $6,716.96

Therefore, the correct answer is A) $7,587.66, which is the rounded up amount to the nearest cent.

Randal's Rifles Purchased Some Equipment by Issuing a Three-Year 6