Rusty Corporation purchased a rust-inhibiting machine by paying $50,000 cash on the purchase date and agreeing to pay $10,000 every three months during the next two years.The first payment is due three months after the purchase date.Rusty's incremental borrowing rate is 8%.(FV of $1,PV of $1,FVA of $1,and PVA of $1)(Use the appropriate factor(s)from the tables provided. )
-The liability reported on the balance sheet as of the purchase date,after the initial $50,000 payment was made,is closest to:
A)$123,255.
B)$130,000.
C)$80,000.
D)$73,255.

Question

Rusty Corporation purchased a rust-inhibiting machine by paying $50,000 cash on the purchase date and agreeing to pay $10,000 every three months during the next two years.The first payment is due three months after the purchase date.Rusty's incremental borrowing rate is 8%.(FV of $1,PV of $1,FVA of $1,and PVA of $1)(Use the appropriate factor(s)from the tables provided. ) 
-The liability reported on the balance sheet as of the purchase date,after the initial $50,000 payment was made,is closest to:
A)$123,255.
B)$130,000.
C)$80,000.
D)$73,255.

Quizplus · Accepted Answer

To calculate the liability reported on the balance sheet as of the purchase date, we need to find the present value of the future payments, using the incremental borrowing rate of 8%.

Step 1: Calculate the present value of the four $10,000 payments using the PV of annuity due table. The payments are due every three months for two years, so there are a total of eight payments:

PV = $10,000 x (PV annuity due, 8%, 8)

PV = $10,000 x 6.5728

PV = $65,728

Step 2: Add the present value of the future payments to the initial payment of $50,000:

PV of liability = $50,000 + $65,728

PV of liability = $115,728

Therefore, the liability reported on the balance sheet as of the purchase date, after the initial $50,000 payment was made, is closest to $73,255 (Option D).

Rusty Corporation Purchased a Rust-Inhibiting Machine by Paying $50,000 Cash