Question

A village purchases road maintenance equipment for $90,000. Equipment is acquired on an installment basis with three annual installments of $36,190 (the amount required to liquidate a loan of $90,000 over three periods at an interest rate of 10%). Long term Debt is not reported in Governmental funds, GASB standards require that the proceeds of long-term debt be shown as 'other financing - sources'. What is the total cost of the road maintenance equipment?

1) $90,000
2) $108,570
3) $109,570
4) $118,570

Answer 1

The total cost of the road maintenance equipment is $109,570.

Step-by-step explanation:

The total cost of the road maintenance equipment is $109,570.

• The equipment was purchased for $90,000.
• The equipment was acquired on an installment basis with three annual installments of $36,190 each.
• The installments are required to liquidate a loan of $90,000 over three periods at an interest rate of 10%.
• The interest is included in the annual installments.