Lincoln Company purchased merchandise from Grandville Corp. on September 30, 2021. Payment was made in the form of a noninterest-bearing note requiring Lincoln to make six annual payments of $4,400 on each September 30, beginning on September 30, 2024. (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. Round your final answer to nearest whole dollar amount.) Required: Calculate the amount at which Lincoln should record the note payable and corresponding purchases on September 30, 2021, assuming that an interest rate of 9% properly reflects the time value of money in this situation.

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orippin · Accepted Answer

Answer: $16,613Explanation:As the noninterest-bearing note required Lincoln to make six annual payments of $4,400, this is an annuity because it is a constant figure. The amount that should be recorded is the present value of this amount. Present value of annuity = Annuity * ( 1 - ( 1 + rate) ^ -no. of periods) / rate= 4,400 * ( 1 - ( 1 + 9%)) / 9%= $19,738This present value is for September 30, 2023. It needs to be discounted further to September 30, 2021.= 19,738 / (1 + 9%)= $16,613

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