Question

The Holdsworth Corporation has purchased an executive jet. The company has agreed to pay $201,100 per year for the next 10 years and an additional $2,011,000 at the end of the 10th year. The seller of the jet is charging 8% annual interest.

Required:
Determine the liability that would be recorded by Jenkins.

Answer 1

Answer:

$2,280,872

Explanation:

The computation of the liability that would be recorded by Jenkins is shown below

= Payment per year × annuity factor at 8% for 10 years + extra amount × discounting factor at 8% and 10 year

= $201,100 × 6.71008 + $2,011,000 × 0.46319

= $1,349,397 + $931,475

= $2,280,872

hence, the liability is $2,280,872