Question

On December 30 of the current year, Azrael, Inc., purchased a machine from Abiss Corp. in exchange for a noninterest-bearing note requiring eight payments of $20,000. The first payment was made on December 30, and the others are due annually on December 30. At date of issuance, the prevailing rate of interest for this type of note was 11%. On Azrael's current year December 31 balance sheet, the note payable to Abiss was A. $94, 244 B. $114, 244 C. $102, 922 D. $104, 611

Answer 1

A) $94, 244

Step-by-step explanation:

The agreement required 8 installment payment of $20,000 each, the first one was due on the same day the agreement was made (December 30). The December 31 balance account of the note payable equals the present value of the 7 remaining payments:

the present value factor of an ordinary annuity for 7 years ans 11% interest rate = 4.712

so the present value of the note payable = $20,000 x 4.7122 = $94,244