Question

On January 1, Ott Company sold goods to Fox Company. Fox signed a noninterest-bearing note requiring payment of $60,000 annually for 7 years. The first payment was made on January 1. The prevailing rate of interest for this type of note at date of issuance was 10%. Information on present value factors is as follows:

Answer 1

Answer:

$321,600

Explanation:

• The present value of the note is equal to the first payment ($ 60,000) and remaining six payment (60,000 x 4.36 = $261,000).
• Thus Sales revenue of ($60,000 + $261,000) is recorded.

Present value of ordinary annuity

%            of 1 at 10%

6                 .56              4.36

7                  .51               4.87