Question

ohnstone Company is facing several decisions regarding investing and financing activities. Address each decision independently. (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.) 1. On June 30, 2021, the Johnstone Company purchased equipment from Genovese Corp. Johnstone agreed to pay Genovese $24,000 on the purchase date and the balance in six annual installments of $7,000 on each June 30 beginning June 30, 2022. Assuming that an interest rate of 10% properly reflects the time value of money in this situation, at what amount should Johnstone value the equipment?

Answer 1

Value of equipment =$54,487

Step-by-step explanation:

Value of equipment = Down payment + Present value of annual installment

Present value of annual installment = $7,000 * Cumulative PV Factor at 10% for 6 periods

= $7,000 * 4.355261 = $30,487

Value of equipment = $24,000 + $30,487 = $54,487