Lincoln Company purchased merchandise from Grandville Corp. on September 30, 201

Question

Lincoln Company purchased merchandise from Grandville Corp. on September 30, 2016. Payment was made in the form of a noninterest-bearing note requiring Lincoln to make six annual payments of $5,200 on each September 30, beginning on September 30, 2019. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Required: Calculate the amount at which Lincoln should record the note payable and corresponding purchases on September 30, 2016, assuming that an interest rate of 11% properly reflects the time value of money in this situation.

Explanation / Answer

Use the PV formulae in excel.

first step is to calculate present value of six annula payments as on beginning of Sep 30 , 2019

=PV(11%,6,5200,,1)= $24,418.66

Next calculate the present value of above money as on sep 30 , 2016

=PV(11%,3,,24418.66,1)

=$17,854.72

Inventory (db) $17,854.72

Notes payable (cr) $17,854.72

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