VI. Accounting Applications of Present Values Example 1: Company A purchases equipment on January 1,...
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VI. Accounting Applications of Present Values Example 1: Company A purchases equipment on January 1, 2018 for a lump sum contract price of $50,000 due on December 31, 2019. FMV of equipment is not readily determinable. Implicit interest rate (e.R., the interest rate the company normally pays on its debts) is 9% compounded annually. What is the historical cost of the equipment? To solve: Record asset at PV of future cash flows (e.g., cash equivalent price) Note Payable - PV = Interest Expense over 2 years PV of $1 9% 2 periods 0.8417
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