Which of the following transactions would require the use of the present value of an annuity due concept in order to calculate the present value of the asset obtained or liability owed at the date of incurrence?
A) A capital lease is entered into with the initial lease payment due upon the signing of the lease agreement.
B) A capital lease is entered into with the initial lease payment due one month subse-quent to the signing of the lease agreement.
C) A ten-year 8% bond is issued on January 2 with interest payable semiannually on July 1 and January 1 yielding 7%.
D) A ten-year 8% bond is issued on January 2 with interest payable semiannually on July 1 and January 1 yielding 9%.

Question

Quizplus · Accepted Answer

An annuity due involves payments made at the beginning of each period, rather than at the end. The initial lease payment due upon signing of the lease agreement is an example of an annuity due and would require the use of present value of an annuity due concept to calculate the present value of the asset obtained or liability owed. Options B, C, and D involve regular payments made at the end of each period, which would use the present value of an ordinary annuity concept.

Which of the Following Transactions Would Require the Use of the Present