Question

For which of the following transactions would the use of the present value of an annuity due concept be appropriate in calculating the present value of the asset obtained or liability owed at the date of incurrence? A. A capital lease is entered into with the initial lease payment due upon the signing of the lease agreement.

B. A capital lease is entered into with the initial lease payment due one month subse-quent to the signing of the lease agreement.
C. A ten-year 8% bond is issued on January 2 with interest payable semiannually on July 1 and January 1 yielding 7%.
D. A ten-year 8% bond is issued on January 2 with interest payable semiannually on July 1 and January 1 yielding 9%.

Answer 1

The present value of an annuity due is used for scenario A, where the initial payment of a capital lease is made immediately upon signing the lease agreement.

Step-by-step explanation:

The use of the present value of an annuity due concept would be appropriate in situations where payments are made at the beginning of each period. In the given scenarios, option A, which involves a capital lease with the initial lease payment due upon the signing of the lease agreement, fits this description. This is because the first payment is made immediately, and thus each subsequent payment is made at the beginning of the period. Calculating the present value of such a lease would require accounting for the fact that all payments are made one period earlier than they would be in an ordinary annuity. Therefore, scenario A is where the present value of an annuity due would be used to calculate the present value at the date of incurrence.

Answer 2

A capital lease is entered into with the initial lease payment due upon the signing of the lease agreement. The annuity begins with a payment

Step-by-step explanation:

An annuity-due represnet an annuity were payment or deposits are perform at the beginning of the period.

B no. It doesn't start with a payment.

C no, there is no payment at issuance.

D same as C only the rates changes but this, do not change the essence of the annuity it is still a common annuity not annuity-due