Question

Libby Company purchased equipment by paying $6,800 cash on the purchase date and agreed to pay $6,800 every six months during the next four years. The first payment is due six months after the purchase date. Libby's incremental borrowing rate is 8%. The liability reported on the balance sheet as of the purchase date, after the initial $6,800 payment was made, is closest to: (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided.) Multiple Choice $52,583. $61,200. $54,400. $45,783.

Answer 1

The multiple choices are:

A) $44,596.

B) $62,100.

C) $51,496.

D) $ 45,782.67

The correct option is D,$ 45,782.67

Step-by-step explanation:

The liability to be reported on the balance sheet as of the date of purchase is the present value of the 8 semi-annual payments of $6,800 payable over a four-year period using the pv formula in excel as shown below.

=-pv(rate,nper,pmt,fv)

rate is the semi-annual interest which is 8%/2=4%

nper is the number of payments required which is 8

pmt is the semi-annual repayment amount of $6,800

fv is the future value of the amount payable which is not known and taken as zero

=-pv(4%,8,6800,0)

pv=$ 45,782.67