When a long-term note is given in exchange for equipment, the amount considered as paid for the machine is:
A) The invoice price.
B) The wholesale price.
C) The present value of cash outflows discounted at the stated rate.
D) The present value of the note payments discounted at the market rate.

Question

Quizplus · Accepted Answer

The amount considered as paid for the machine is the present value of the note payments discounted at the market rate. This is because the long-term note represents a promise to pay a certain amount of money over time, and the present value of those payments reflects the value of the machine at the time of the exchange. The other options (invoice price and wholesale price) do not take into account the time value of money or the financing terms, and the present value of cash outflows discounted at the stated rate would only be applicable if the exchange involved cash payments.

When a Long-Term Note Is Given in Exchange for Equipment