On January 1, Snipes Construction paid for earth-moving equipment by issuing a $
ID: 2575808 • Letter: O
Question
On January 1, Snipes Construction paid for earth-moving equipment by issuing a $320,000, 3-year note that specified 4% interest to be paid on December 31 of each year. The equipment’s retail cash price was unknown, but it was determined that a reasonable interest rate was 7%. (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.)
what amount should Snipes record the equipment and the note?
Table Values are based on
N= ?
I= ?
Loan Payments / Amount / Present Value
Intrest ? ?
Principal ? ?
Price of equipment ?
What journal entry should it record for the transaction? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
what amount should Snipes record the equipment and the note?
Table Values are based on
N= ?
I= ?
Loan Payments / Amount / Present Value
Intrest ? ?
Principal ? ?
Price of equipment ?
Explanation / Answer
Present value of interest paid each year
=(320000*4%)*PVAF(7%,3YEARS)
=12800*2.62432
=33591.296
Present value of principal amount
=320000*PAF(7%,3YEARS)
=320000*0.81630
=261216
Total present value=261216+33591
=294807
Cost of machine = 294807
Machine a/c. Dr 294807
To 4%notes payable a/c. 294807