Question

Rusty Corporation purchased a rust-inhibiting machine by paying $56,500 cash on the purchase date and agreed to pay $11,300 every three months during the next two years. The first payment is due three months after the purchase date. Rusty's incremental borrowing rate is 12%. The liability reported on the balance sheet as of the purchase date, after the initial $56,500 payment was made, is closest to:

Answer 1

Find the multiple choices below:

A) 133,900

B) 82,400

C) 123,803

D) 79,323

The correct option is D,79,323

Step-by-step explanation:

The liability to be reported can be ascertained by using the pv formula in excel.

The pv implies present value of future cash flows of $11,300 every three months.

The applicable formula is :=-pv(rate,nper,pmt,fv)

the rate is quarterly rate of 12%/4=3%

nper is the number of times the $11,300 would be paid 2*4=8 times

pmt is the quarterly payment of $11,300

fv is the future value which is unknown and taken as zero

=-pv(3%,8,-11,300,0)

pv=$79,322.52

This is the liability that would be shown on the balance sheet after the initial payment of $56,500