On January 1,2008,BP Company purchased equipment on a three-year note.To determine the amount at which to record the machine,the three annual year-end payments must be calculated by using.

Question

Quizplus · Accepted Answer

To determine the amount at which to record the machine, BP Company needs to calculate the present value of the payments it will make over the next three years. An annuity is a stream of equal payments made at regular intervals, and the present value of an annuity of $1 per period can be used to determine the lump-sum amount that would be required today to fund that annuity. Therefore, Choice A (present value of an annuity of $1 per period) is the best choice for BP Company to use to calculate the three year-end payments.

On January 1,2008,BP Company Purchased Equipment on a Three-Year Note