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On January 1, 2021, The Barrett Company purchased merchandise from a supplier. Payment was a noninterest-bearing note requiring five annual payments of $22,000 on each December 31 beginning on December 31, 2021, and a lump-sum payment of $120,000 on December 31, 2025. A 12% interest rate properly reflects the time value of money in this situation. ((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 Barrett should record the note payable and corresponding merchandise purchased on January 1, 2021. (Round your final answer to nearest whole dollar amount.)
Table values are based on:
n=
Cash Flow Amount Present Value
Payments
Lump Sum
Amount recorded

Respuesta :

abiolataiwo2015

The amount at which Barrett should record the note payable and corresponding merchandise purchased on January 1, 2021 is $147,396.76.

First step is to calculate the present Value of 5 annual payments using this formula

PV of 5 annual payments = Annual payments x Present value annuity factor (i%, n)

Let plug in the formula

PV of 5 annual payments= $22,000 x Present value annuity factor (12%, 5)

PV of 5 annual payments= $22,000 x 3.60478

PV of 5 annual payments= $79,305.16

Second step is to calculate the present value of lump-sum payment  using this formula

PV of lump-sum payment = Lump-sum payment x Present value factor (i%, n)

Let plug in the formula

PV of lump-sum payment = $120,000 x Present value factor (12%, 5)

PV of lump-sum payment =$120,000 x 0.56743

PV of lump-sum payment = $68,091.6

Third step is to calculate the amount that should be recorded as note payable and corresponding merchandise purchased on January 1, 2021:

n= 5 years

i= 12%

Cash flow Amount       Present value

Payment          $22,000       $79,305.16

Lump sum $120,000 $68,091.6

Amount recorded =         $147,396.76

($79,305.16+$68,091.6)

Inconclusion the amount at which Barrett should record the note payable and corresponding merchandise purchased on January 1, 2021 is $147,396.76.

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