Question

On January 1, Snipes Construction paid for earth-moving equipment by issuing a $320,000, 3-year note that specified 4% interest to be paid on December 31 of each year. The equipment’s retail cash price was unknown, but it was determined that a reasonable interest rate was 7%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)
what amount should Snipes record the equipment and the note?

Answer 1

Answer:

$294,803.84

Explanation:

The computation of the equipment and the note is shown below:

Rate = 7% and the time = 3 years

Cash flow                Table Value Amount        Present Value

Par (Maturity) Value 0.81629       $320,000        $261,212.80

Interest (Annuity)

($320,000 × 4%)          2.6243    $12,800                $33,591.04

Price of equipment                                  $294,803.84

The 0.81629 is

= 1 ÷ 1.07^3

And, the 2.6243 is the PVIFA factor