Rae Company purchased a new vehicle by paying $10,000 cash on the purchase date and agreeing to pay $3,000 every three months during the next five years; the first payment is due three months after the purchase date.Rae's incremental borrowing rate is 12%.At what amount would the vehicle be reported at on the balance sheet as of the purchase date?

Question

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The vehicle ($54,633) is equal to the present value of the twenty remaining payments [$3,000 F1F1F1S1F1F1F10 14.8775 (present value of a 3%, 20-period ordinary annuity)] plus the initial $10,000 payment.

Rae Company Purchased a New Vehicle by Paying $10,000 Cash