Asked by Johnny Reyes on Jun 15, 2024
Verified
The liability reported on the balance sheet as of the purchase date,after the initial $50,000 payment was made,is closest to:
A) $123,255.
B) $130,000.
C) $80,000.
D) $73,255.
Liability Reported
The recording of an obligation or debt that a company owes to outside parties in the financial statements.
Balance Sheet
A financial record that lists a corporation's assets, obligations, and the equity held by shareholders at a particular time.
- Familiarize oneself with the principles of recording financial activities involving long-term obligations and their consequences for the financial equilibrium displayed on balance sheets.
- Deploy the concepts of present value and future value in a range of financial processes.
Verified Answer
JM
janae mccallJun 16, 2024
Final Answer :
D
Explanation :
To calculate the liability reported on the balance sheet as of the purchase date, we need to find the present value of the future payments, using the incremental borrowing rate of 8%.
Step 1: Calculate the present value of the four $10,000 payments using the PV of annuity due table. The payments are due every three months for two years, so there are a total of eight payments:
PV = $10,000 x (PV annuity due, 8%, 8)
PV = $10,000 x 6.5728
PV = $65,728
Step 2: Add the present value of the future payments to the initial payment of $50,000:
PV of liability = $50,000 + $65,728
PV of liability = $115,728
Therefore, the liability reported on the balance sheet as of the purchase date, after the initial $50,000 payment was made, is closest to $73,255 (Option D).
Step 1: Calculate the present value of the four $10,000 payments using the PV of annuity due table. The payments are due every three months for two years, so there are a total of eight payments:
PV = $10,000 x (PV annuity due, 8%, 8)
PV = $10,000 x 6.5728
PV = $65,728
Step 2: Add the present value of the future payments to the initial payment of $50,000:
PV of liability = $50,000 + $65,728
PV of liability = $115,728
Therefore, the liability reported on the balance sheet as of the purchase date, after the initial $50,000 payment was made, is closest to $73,255 (Option D).
Learning Objectives
- Familiarize oneself with the principles of recording financial activities involving long-term obligations and their consequences for the financial equilibrium displayed on balance sheets.
- Deploy the concepts of present value and future value in a range of financial processes.