Rachel Corporation purchased a building by paying $90,000 cash on the purchase date, agreeing to pay $50,000 every year for the next nine years and one payment of $100,000 ten years from the purchase date. The first payment is due one year after the purchase date. Rachel's incremental borrowing rate is 10%. The liability reported at on the balance sheet as of the purchase date, after the initial $90,000 payment was made, is closest to:
A)$326,500.
B)$460,000.
C)$287,950.
D)$416,500.

Question

Quizplus · Accepted Answer

The present value of the future payments is $416,500. The initial payment of $90,000 reduces the liability to $326,500.

Rachel Corporation Purchased a Building by Paying $90,000 Cash on the Purchase