On January 1, 2017, Ott Co.sold goods to Flynn Company. Flynn signed a zero-inte
ID: 2340355 • Letter: O
Question
On January 1, 2017, Ott Co.sold goods to Flynn Company. Flynn signed a zero-interest-bearing note requiring payment of $ 200000 annually for seven years. The first payment was made on January 1,2017.The prevailing rate of interest for this type of note at date of issuance was 10%. Information on present value factors is as follows: Period Present Value of 1 at 10% 0.5645 0.5132 Present Value of Ordinary Annuity of 1 at 10% 4.3553 4.8684 Ott should record sales revenue in January 2017 of $ 1071048. $973680 $871060. $ 714000.Explanation / Answer
Present value of annuity due=Present value of annuity*(1+interest rate)
=$200,000*4.8684*1.1
which is equal to
=$1071048.
NOTE:
This is beginning of year payments hence Present value of annuity due is to be used.