Asked by Catherine Collins on Jul 05, 2024
Verified
On May 1, 2010, Mosier Company acquired a new machine by agreeing to pay five equal annual payments of $20, 000, beginning on May 1, 2010.Assuming an interest rate of 14% compounded annually, Mosier should record the acquisition cost of the machine on May 1, 2010, at
A) $ 68, 661.62
B) $ 78, 274.24
C) $ 87, 719.25
D) $100, 000.00
Compounded Annually
A method of calculating interest where the earned interest is added to the principal at the end of each year, increasing the amount that will earn interest in the following year.
Acquisition Cost
Refers to all of the costs involved in acquiring a new asset or company, including the purchase price and all associated expenses.
- Calculate loan and lease payments based on the principles of the time value of money.
Verified Answer
ZK
Zybrea KnightJul 06, 2024
Final Answer :
B
Explanation :
Using the present value of an annuity formula:
PV = Payment x [(1-(1+r)^-n)/r]
where PV is the present value, Payment is the yearly payment, r is the interest rate, and n is the number of payments.
PV = $20,000 x [(1-(1+0.14)^-5)/0.14]
PV = $20,000 x [(1-0.37635)/0.14]
PV = $20,000 x (4.2474)
PV = $84,948
Therefore, Mosier should record the acquisition cost of the machine on May 1, 2010, as $78,274.24 ($84,948 rounded to the nearest dollar). The correct answer is B.
PV = Payment x [(1-(1+r)^-n)/r]
where PV is the present value, Payment is the yearly payment, r is the interest rate, and n is the number of payments.
PV = $20,000 x [(1-(1+0.14)^-5)/0.14]
PV = $20,000 x [(1-0.37635)/0.14]
PV = $20,000 x (4.2474)
PV = $84,948
Therefore, Mosier should record the acquisition cost of the machine on May 1, 2010, as $78,274.24 ($84,948 rounded to the nearest dollar). The correct answer is B.
Learning Objectives
- Calculate loan and lease payments based on the principles of the time value of money.
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