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 $6,000 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 12% properly reflects the time value of money in this situation.

Amount Recorded: __________________

Explanation / Answer

Amount recorded = $19,665.45 i.e. $19,665 Explanation PVA = $6,000 x 4.11141 = $24,668.46 Present value of an ordinary annuity of $1: n= 6, i= 12% (from PVA of $1) PV = $24,668.46 x 0.79719 = $19,665.45 Present value of $1: n= 2, i= 12% (from PV of $1)

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