On July 1, 2018, Markwell Company acquired equipment. Markwell paid $160,000 in cash on July 1, 2018, and signed a $640,000 noninterest-bearing note for the remaining balance which is due on July 1, 2019. An interest rate of 5% reflects the time value of money for this type of loan agreement.
-For what amount will Markwell record the purchase of equipment?

Question

On July 1, 2018, Markwell Company acquired equipment. Markwell paid $160,000 in cash on July 1, 2018, and signed a $640,000 noninterest-bearing note for the remaining balance which is due on July 1, 2019. An interest rate of 5% reflects the time value of money for this type of loan agreement. 
-For what amount will Markwell record the purchase of equipment?

Quizplus · Accepted Answer

Cash = ($800,000 × 20%) = $160,000. Borrowing = $800,000 ? $160,000 = $640,000. Recorded amount = $160,000 + ($640,000 × 0.95238*) = $769,523. *PV_n=1,i=5%

On July 1, 2018, Markwell Company Acquired Equipment