On July 7, 2010, Luke Company sold some machinery to Jones Construction Company.The sales contract requires Jones to pay five equal annual payments of $70, 000 each, beginning on July 7, 2010.What present value concept is appropriate for this situation?
A)present value of an annuity due of $1 for five periods
B)present value of an ordinary annuity of $1 for five periods
C)future amount of an annuity of $1 for five periods
D)future amount of $1 for five periods

Question

Quizplus · Accepted Answer

Since the payments start immediately on the date of the sale (July 7, 2010), this constitutes an annuity due, where payments are made at the beginning of each period.

On July 7, 2010, Luke Company Sold Some Machinery to Jones