[nalratoss]

On December 30, 20X1, Chang Co. sold a machine to Door Co. in exchange for a non-interest-bearing note requiring 10 annual payments of $10,000. Door made the first payment on December 30, 20X1. The market interest rate for similar notes on the date of issuance was 8%. Information on present value factors is as follows:

Period 9, Present value of $ 1 at 8%: 0.5002
Period 9, Present value of ordinary annuity of $1 at 8%: 6.2469
Period 10, Present value of $ 1 at 8%: 0.4632
Period 10, Present value of ordinary annuity of $1 at 8%: 6.7101

On its December 31, 20X1, balance sheet, what amount should Chang report as note receivable? the answer is $62,500

Why isn’t this an annuity due for 9 periods? If it is ordinary annuity, the first down payment is made at the beginning of first period, then for the remaining 9 periods, each payment is made at the end of each period (ordinary annuity)

What part of the question hints that this is an ordinary annuity? I know none of the answers points to annuity due, but just curious.

[Anonymous]

The fact that the first payment was made the day the contract was executed. An annuity due has oayments at the beginning of a period.

[Anonymous]

And also, the first payment's present value factor is one, so you add that to the present value of the other 9 cash flows. Draw it out on a timeline. It will help to visualize it.

[Author]

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