Question

Libby Company purchased equipment by paying $5,000 cash on the purchase date and agreeing to pay $5,000 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 equipment reported on the balance sheet as of the purchase date is closest to:

a. $45,000

b. $38,664.

C. $33,664.

d. $40,000

Answer 1

a. $45,000

Step-by-step explanation:

The balance records the purchase value of any asset or the value which is known as the historical cost of the asset.

Hence,

$5000 at every 6 months, in four years it will be = 4*2*5000 = $40,000.

And currently the company is paying $5000 cash upfront.

Therefore, the total cost of the equipment to be reported in the balance sheet will be = 40000+5000 = $45,000.

Thanks buddy.