[Anonymous]

12-30 year 1 C sold machine for non interest bearing note that required 10 equal payments of 10,000. First payment was made 12-30 year 1. Mkt 8%. Carrying value at 12-31 year 1 is what?

The answer was calculated by multiplying the 10,000 payments by the PV factor of an ordinary annunity for 9 periods at 8% – 6.25. Why is this considred an ordinary annuity and not an annuity due? First payment was made on day one.

What am I missing?

Thanks!

[Lisa]

CPA_Driven:

The AIPCA seems to like to do this…Since they gave you the PVOA, and you are making the 1st payment immediately (no discounting) so depending on how they asked the question you either add the $10,000 immediate payment to the PVOA of the remaining 9 payments, or you use the PVOA of the 9 payments as the answer. I do not use Becker, so I do not have that exact question, but Wiley has a number of questions like that too.

AUD 8/04/11: 78
BEC 1/9/12: 73, 4/04/12: 80
FAR 10/25/12: 80
REG 02/25/13: 79
Ethics 100%
VA License Issued 3/2013

[Lisa]

Sorry just re-read the question, and they are asking for the CV of the note. So you have to subtract the immediate payment of $10,000 and so this is why you take the PVOA for the 9 remaining payments. If you look at an amortization table for this type of problem it makes it easier to understand.

AUD 8/04/11: 78
BEC 1/9/12: 73, 4/04/12: 80
FAR 10/25/12: 80
REG 02/25/13: 79
Ethics 100%
VA License Issued 3/2013

[Author]

Replies