On October 1, 2009, Justine Company purchased equipment from Napa Inc. in exchange for a noninterest-bearing note payable in five equal annual payments of $500,000, beginning Oct 1, 2010. Similar borrowings have carried an 11% interest rate. The equipment would be recorded at:
A)$2,500,000.
B)$2,225,000.
C)$1,847,950.
D)$2,115,270.PVA = $500,000 x 3.69590* = $1,847,950 *PVA of $1: n=5; i=11%

Question

Quizplus · Accepted Answer

The equipment would be recorded at the present value of the note payable, which is $1,847,950. This is determined by using the present value of an annuity formula with a payment of $500,000, a term of 5 years, and an interest rate of 11%. Therefore, the correct answer is option C.

On October 1, 2009, Justine Company Purchased Equipment from Napa