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

Question

Lincoln Company purchased merchandise from Grandville Corp. on September 30, 2013. Payment was made in the form of a noninterest-bearing note requiring Lincoln to make six annual payments of $6,600 on each September 30, beginning on September 30, 2016.

Required:

Calculate the amount at which Lincoln should record the note payable and corresponding purchases on September 30, 2013, assuming that an interest rate of 10% properly reflects the time value of money in this situation. (Use PV of $1 and PVA of $1) (Round "PV Factors" to 5 decimal places, intermediate and final answer to the nearest dollar amount.)

Explanation / Answer

Answer Value of notes on 30 September, 2016 = 6600 (PVIFA 10%, 6) = 6600*4.35526 = $ 28744.72 Value of $ 28744.72 on 30 September, 2013 = 28744.72 (PVIF10%,3) = 28744.72*0.75131 = $ 21596.19 Account debit credit Purchase a/c 21596.19 Notes Payable 21596.19

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