On January 1, 20X6, Goldstein Company purchased a machine. The seller agreed that a total of $9,000 would be paid over a three-year period--$3,000 per year at the end of 20X6, 20X7, and 20X8. At the time the machine was purchased, the market rate of interest was 10%. What amount should be debited to the asset account, Machinery, on the date of purchase (round to the nearest dollar)?
A) $7,461
B) $9,000
C) $9,016
D) $9,948

Question

Quizplus · Accepted Answer

The amount to be debited to the Machinery account is the present value of the $9,000 to be paid over three years at the market rate of interest, which is 10%. This is calculated using the formula for the present value of an annuity. The present value of $3,000 paid at the end of each year for three years at a 10% interest rate is approximately $7,461.

On January 1, 20X6, Goldstein Company Purchased a Machine