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)$73,918.
B)$123,918.
C)$130,000.
D)$169,560.

Question

Quizplus · Accepted Answer

The asset should be recorded at the present value of the payments. The present value of the $20,000 annual payments for five years at an 11% interest rate is $73,918. Adding the $50,000 down payment gives a total of $123,918.

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