On October 1, 2013, 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, 2014. 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.

Question

Quizplus · Accepted Answer

The equipment should be recorded at the present value of the note payable. The present value of $500,000 annual payments for 5 years at an 11% interest rate is approximately $1,847,950.

On October 1, 2013, Justine Company Purchased Equipment from Napa