Polo Publishers purchased a multi-color offset press with terms of $50,000 down and a noninterest-bearing note requiring payment of $20,000 at the end of each year for five years. The interest rate implicit in the purchase contract is 11%. Polo would record the asset at:
A)$109,618.
B)$123,918.
C)$130,000.
D)$169,560.$50,000 + ($20,000 x 3.69590) = $123,918 *PVA of $1: n=5; i=11%

Question

Quizplus · Accepted Answer

The asset would be recorded at the present value of the future payments, which can be calculated using the formula for present value of an annuity. Using the given interest rate of 11% and the payment amount of $20,000 per year for 5 years, the present value is $109,618. Adding the down payment of $50,000 gives a total asset value of $159,618. Therefore, the correct answer is B.

Polo Publishers Purchased a Multi-Color Offset Press with Terms of $50,000