Answer:
The Barrett Company
Amount to record the note payable and merchandise purchase on January 1, 2021:
= $294,340
Explanation:
a) Calculation of Present Value of Future Cash Outflows by January 1, 2021:
1. Dec. 31, 2024, present value of $38,000 annuity for 4 years = $38,000 x 3.170 = $120,460
2. Dec. 31, 2025, present value of $280,000 for 5 years = $280,000 x 0.621 = $173,880
Total payment = $294,340 ($120,460 + 173,880)
b) The present value of $38,000 as an annuity lasting 4 years is calculated using the annuity factor of 3.170 at 10% interest rate.
c) The present value of $280,000 after 5 years is calculated using the discount factor of 0.621 at 10% interest rate.
d) These produce a value when added that gives the amount at which the note payable and corresponding merchandise purchased on January 1, 2021 by the Barrett Company should be recorded.
