On January 1, 2013, DB purchased a used cement truck from NC. The carrying value of the truck on NC's books was $12,500. DB paid cash of $2,000 and gave a 2-year note that required semi-annual payments of $4,000 each payable at the end of each semi-annual period (the market rate of interest was 12 percent). A similar truck reportedly was sold recently for $14,000. DB Company should record the cost of the truck as (rounded to the nearest dollar):

Question

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The cost of the truck to DB should be recorded as the present value of all payments made for the truck. This includes the $2,000 cash payment and the present value of the note payable, which consists of four semi-annual payments of $4,000 each at a 12 percent annual interest rate, compounded semi-annually. Calculating the present value of these payments at the given interest rate will give a total cost close to $15,860.

On January 1, 2013, DB Purchased a Used Cement Truck