Which of the following transactions would require the use of the present value of an annuity due concept in order to calculate the present value of an asset acquired or liability assumed?
A)A rental agreement is entered into with the initial payment due immediately.
B)A rental agreement is entered into with the initial payment due one month from the signing of the agreement.
C)A note payable is obtained from a bank requiring monthly payments for six years, beginning at the end of the current month.
D)A machine is acquired by paying $20, 000 cash and agreeing to pay equal annual amounts of $10, 000 each at the end of the next three years.

Question

Quizplus · Accepted Answer

CThe present value of an annuity due concept is used when the series of payments or receipts begins immediately. Choice A involves a rental agreement with the initial payment due immediately, fitting the definition of an annuity due. Choice C involves a note payable with monthly payments starting at the end of the current month, which aligns more with an ordinary annuity where payments start at the end of a period. However, since the question specifically asks for scenarios requiring the present value of an annuity due concept and given the options, A is the most accurate choice for an annuity due scenario. My initial explanation mistakenly included C as a correct choice due to a misinterpretation of the payment timing in relation to the annuity types. The correct interpretation should focus solely on A for the annuity due scenario.

Which of the Following Transactions Would Require the Use of the Present