Question

Rusty Corporation purchased a rust-inhibiting machine by paying $54,500 cash on the purchase date and agreed to pay $10,900 every three months during the next two years. The first payment is due three months after the purchase date. Rusty's incremental borrowing rate is 12%. The machine reported on the balance sheet as of the purchase date is closest to: (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided.)

Answer 1

Answer:

$131,014.62

Explanation:

According to the scenario, computation of the given data are as follows,

Cash Payment = $54,500

Payment to be paid every three month = $10,900

Number of payment = 4 × 2 = 8

Interest rate = 12% annual

Interest rate (3 months) = 12% × (3÷ 12) = 3%

So, Purchase price of machine = PV of future payment + Cash payment

Where, PV of Future payment = Instalment payment × (PVAF 3%, 8)

By using PVAF table, we get

PV of Future payment = $10,900 × 7.01969 = $76,514.621

Hence, By putting the value in the formula, we get

Purchase price of machine = $76,514.62 + $54,500

= $131,014.62