Question

Short Company purchased land by paying $27,000 cash on the purchase date and agreed to pay $27,000 for each of the next seven years beginning one-year from the purchase date. Short's incremental borrowing rate is 7%. On the balance sheet as of the purchase date, after the initial $27,000 payment was made, the liability reported is closest to:_________.

a. $117,700.
b. $189,000.
c. $145,511.
d. $172,511.

Answer 1

c. $145,511

Step-by-step explanation:

Present value of Payment = Amount*PVADF at (7%, 1)

Present value of Payment = $27.000*6.38929

Present value of payment = $172.511

Liabilities reported after initial payment = $172,511 - $27,000

Liabilities reported after initial payment = $145,511