Question

On January 1, 2021, The Barrett Company purchased merchandise from a supplier. Payment was a noninterest-bearing note requiring five annual payments of $32,000 on each December 31 beginning on December 31, 2021, and a lump-sum payment of $220,000 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 = i = Amount Present Value Cash Flow Payments Lump Sum Amount recorded

Answer 1

amount to be recorded = present value of annuity $32000 + present value of $220000

= ($32000 x 3.605) + ($220000 x 0.567)

= $115360 + $124740

= $240100

where,

PVAF(12%, 5) = 3.605

PVF(12%, 5) = 0.567