Asked by Nicole Jamison on Jun 24, 2024
Verified
The land reported on the balance sheet is closest to:
A) $100,000.
B) $38,550.
C) $110,000.
D) $71,446.
Incremental Borrowing Rate
The interest rate a company would have to pay if it borrows funds, serving as an estimate for lease accounting when the implicit rate in the lease is unclear.
Balance Sheet
An accounting document that outlines the assets, liabilities, and owners' equity of a company on a specific date.
Land
A fixed asset category representing the ownership of a physical parcel of the earth's surface which is used in operations and has an indefinite useful life.
- Digest the concept of present value and how it integrates into the accounting for long-term financial commitments and capital assets.
Verified Answer
PV = PMT x (1 - 1 / (1+r)^n) / r
where PV is the present value, PMT is the payment amount, r is the interest rate, and n is the number of periods.
In this case, PMT = $10,000, r = 10%, and n = 10. Plugging in the values, we get:
PV = $10,000 x (1 - 1 / (1+0.1)^10) / 0.1
PV = $65,534.60
Therefore, the total cost of the land is:
$10,000 + $65,534.60 = $75,534.60
So the closest answer choice is D: $71,446. Since the question asks for the cost of the land reported on the balance sheet, we would round the answer to the nearest dollar: $71,447.
Learning Objectives
- Digest the concept of present value and how it integrates into the accounting for long-term financial commitments and capital assets.
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