Question

$ Bonita Corporation purchased a special tractor on December 31, 2017. The purchase agreement stipulated that Bonita should pay $19,360 at the time of purchase and $5,450 at the end of each of the next 8 years. The tractor should be recorded on December 31, 2017, at what amount, assuming an appropriate interest rate of 12%? (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)

Answer 1

Amount at which tractor should be recorded will be the sum of following:
Amount paid upfront at the time of purchase	$        19,360
Present Value of amount to be paid in the next 8 years (Refer below workings)	$        14,395
Amount at which tractor should be recorded	$        33,755
Workings:
Year-end	Amount to be paid (A)	Discount factor (B = (1/1.12)n	PV of Amount paid (A x B)
1	$    5,450.00	0.89286	$    4,866.07
2	$    5,450.00	0.79719	$    4,344.71
3	$    5,450.00	0.71178	$    3,879.20
4	$    5,450.00	0.05932	$        323.27
5	$    5,450.00	0.05296	$        288.63
6	$    5,450.00	0.04729	$        257.71
7	$    5,450.00	0.04222	$        230.09
8	$    5,450.00	0.03770	$        205.44
	Total		$ 14,395.12