VCR Company owed a $73,311 debt due on January 1, 2012.An agreement was reached to pay it off in three equal annual payments of $30,000 each, starting on December 31, 2012.The interest rate was 11 percent.The balance in the liability account of VCR Company on January 1, 2014 is (round annual payment to nearest $1):
A)$90,000
B)$27,026
C)$73,311
D)$51,875

Question

Quizplus · Accepted Answer

The balance in the liability account on January 1, 2014, can be calculated by considering the payments made and the interest accrued. After the first payment on December 31, 2012, two payments remain. The present value of these payments, calculated using the 11% interest rate, gives the liability balance on January 1, 2014. The correct calculation involves discounting the two $30,000 payments due at the end of 2013 and 2014 back to January 1, 2014, which results in a balance of approximately $27,026.

VCR Company Owed a $73,311 Debt Due on January 1