A firm acquired used equipment on January 1^st, 2014, by issuing a note calling for four equal payments to be made each December 31 starting in 2014. The note's principal value equals the negotiated price of $40,000, and the interest rate implied in the note is consistent with the market rate of interest for this level of risk (8%). What is the amount to be recorded for the equipment?

Question

Quizplus · Accepted Answer

The amount to be recorded for the equipment is $40,000, which is the principal value of the note issued to acquire the equipment. The fact that the payment is structured as four equal payments each December 31 starting in 2014 does not affect the initial recording of the equipment at its acquisition cost. The interest rate implied in the note is consistent with market rate of interest and is not relevant to the initial recording.

A Firm Acquired Used Equipment on January 1st, 2014, by Issuing

A Firm Acquired Used Equipment on January 1^st, 2014, by Issuing