On July 7, 2014, Lawrence Company sold some machinery to Johnson Construction Company. The sales contract requires Johnson to pay five equal annual payments of $75,000 each, beginning on July 7, 2014. What present value concept is most appropriate for this situation?
A) present value of an annuity due of $1 for five periods
B) present value of an ordinary annuity of $1 for five periods
C) future value of an annuity of $1 for five periods
D) future value of $1 for five periods

Question

Quizplus · Accepted Answer

Since the payments start immediately on the date of the sale (July 7, 2014), this situation represents an annuity due, where payments are made at the beginning of each period.

On July 7, 2014, Lawrence Company Sold Some Machinery to Johnson