a. Bought a delivery truck and agreed to pay $60,000 at the end of three years. b. Rented an office building and was given the option of paying $10,000 at the end of each of the next three years or paying $28,000 immediately. c Ectabliche

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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On January 1 of this year, Shannon Company completed the following transactions (assume a 10% annual interest
rate): (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided.)
a. Bought a delivery truck and agreed to pay $60,000 at the end of three years.
b. Rented an office building and was given the option of paying $10,000 at the end of each of the next three years
or paying $28,000 immediately.
c. Established a savings account by depositing a single amount that will increase to $90,000 at the end of seven
years.
d. Decided to deposit a single sum in the bank that will provide 10 equal annual year-end payments of $40,000 to
a retired employee (payments starting December 31 of this year).
Required:
a. What is the cost of the truck that should be recorded at the time of purchase? (Round your answer to nearest
whole dollar.)
Cost of the truck
b. Which option for the office building results in the lowest present value?
O Pay in single installment
O Pay in three installments
c. What single amount must be deposited in this account on January 1 of this year? (Round your answer to nearest
whole dollar.)
Amount to deposit
38,259
d. What single sum must be deposited in the bank on January 1 of this year? (Round your answer to nearest whole
dollar.)
Transcribed Image Text:On January 1 of this year, Shannon Company completed the following transactions (assume a 10% annual interest rate): (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided.) a. Bought a delivery truck and agreed to pay $60,000 at the end of three years. b. Rented an office building and was given the option of paying $10,000 at the end of each of the next three years or paying $28,000 immediately. c. Established a savings account by depositing a single amount that will increase to $90,000 at the end of seven years. d. Decided to deposit a single sum in the bank that will provide 10 equal annual year-end payments of $40,000 to a retired employee (payments starting December 31 of this year). Required: a. What is the cost of the truck that should be recorded at the time of purchase? (Round your answer to nearest whole dollar.) Cost of the truck b. Which option for the office building results in the lowest present value? O Pay in single installment O Pay in three installments c. What single amount must be deposited in this account on January 1 of this year? (Round your answer to nearest whole dollar.) Amount to deposit 38,259 d. What single sum must be deposited in the bank on January 1 of this year? (Round your answer to nearest whole dollar.)
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