Question

On july 1, 2021, markwell company acquired equipment. markwell paid $175,000 in cash on july 1, 2021, and signed a $700,000 noninterest-bearing note for the remaining balance which is due on july 1, 2022. an interest rate of 5% reflects the time value of money for this type of loan agreement. (pv of $1, pva of $1) (use appropriate factor(s) from the tables provided.) for what amount will markwell record the purchase of equipment? multiple choice a. $834,048. b. $841,666. c. $741,666. d. $875,000.

Answer 1

Okay, here are the step-by-step calculations to solve this problem:

1) Markwell paid $175,000 in cash on July 1, 2021. This is part of the purchase amount.

2) They signed a $700,000 noninterest-bearing note due July 1, 2022. Since it is noninterest-bearing, we need to discount it to get the present value on July 1, 2021.

3) The interest rate that reflects the time value of money is given as 5%.

4) Looking at the present value of an annuity table for 1 period at 5%, the factor is 0.95238.

5) So the present value of the $700,000 note on July 1, 2021 is:

$700,000 × 0.95238 = $666,666

6) The total amount Markwell will record for the purchase of equipment is:

The $175,000 cash paid + the present value of the note of $666,666

= $175,000 + $666,666 = $841,666

Therefore, the answer is B: $841,666

Hope this explanation helps! Let me know if you have any other questions.