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shatheid
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| Posted: 22 Oct 2010 at 11:58 | IP Logged
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Becker F4:Fixed Assets - Question 14
Young Corp. purchased equipment making a down payment of
$4,000 and issuing a note payable for $18,000. A payment
of $6,000 is to be made at the end of each year for three
years. The applicable rate of interest is 8%. The present
value of an ordinary annuity factor for three years at 8%
is 2.58, and the present value for the future amount of a
single sum of $1 for three years at 8% is .735. Shipping
charges for the equipment were $2,000, and installation
charges were $3,500.
What is the capitalized cost of the equipment?
A. 19,480
B. 21,480
C. 24,980 ** ANSWER **
D. 27,500
=======================
I read the explanation, but it didn't help me that much,
and I can't find the relevant section in the book.
So, what are the steps to solve this problem?
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1/2 CPA
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| Posted: 22 Oct 2010 at 13:10 | IP Logged
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The PV of the ordinary annnuity of 6000 dollar for 3 periods is 15480,(6000*2.58) add the 4000 dollar down payment, 2000 shipping charges and the 3500 installation charge and you get 24980.
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shatheid
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| Posted: 22 Oct 2010 at 13:24 | IP Logged
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Thanks for the reply.
The part that I messed up on is the PV of repaying the
loan.
I guess what I don't get is why use the present value?
Usually when a purchase is made on a note you just:
Equipment $22,000
Note Payable $22,000
Why the need to PV it for this one? B/c a note was taken
to pay for it instead of it being on credit from the
vendor?
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1/2 CPA
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| Posted: 22 Oct 2010 at 14:02 | IP Logged
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The note is for a period longer then 1 year so you must use PV.
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shatheid
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| Posted: 22 Oct 2010 at 14:09 | IP Logged
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Thanks again.
That's what I was looking for was a general rule to
follow/know when to PV.
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Topic: Help with a Q: Cost of Equipment
Topic Closed)
