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On December 30, 2020, Coronado Industries purchased a machine from Wildhorse Co
On December 30, 2020, Coronado Industries purchased a machine from Wildhorse Co. in exchange for a zero-interest-bearing note requiring eight payments of $200000. The first payment was made on December 30, 2020, and the others are due annually on December 30. At date of issuance, the prevailing rate of interest for this type of note was 11%. Present value factors are as follows:
Period
Present Value of Ordinary
Annuity of 1 at 11%
Present Value of
Annuity Due of 1 at 11%
7
4.712
5.231
8
5.146
5.712
On Coronado's December 31, 2020 balance sheet, the net note payable to Wildhorse is
$1142400.
$1029200.
$942400.
$1047101.
Expert Solution
Computation of Present Value of Notes Payable:
Present Value = Annual Payments * Present Value of Annuity Due of 1 at 11% - First Payment
= ($200,000*5.712) - $200,000
= $1,142,400-$200,000
Present Value = $942,400
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