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

Question

Quizplus · Accepted Answer

The present value of an ordinary annuity is used when payments are made at the end of each period. In option A, the lease payments start one month after the lease agreement, fitting the ordinary annuity model.

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