The Jenkins Corporation has purchased an executive jet. The company has agreed to pay $320,000...

Question:

The Jenkins Corporation has purchased an executive jet. The company has agreed to pay $320,000 per year for the next 10 years and an additional $1,110,000 at the end of the 10th year.

The seller of the jet is charging 4 percent interest.

Determine the liability that would be recorded by Jenkins.

(FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided.)

What is the Present VALUE ?

Recording the Present Value of Prospective Liabilities:

The total liability corresponding to all the prospective equal annual payments (annuity) to be paid by a company for the settlement of a lease is determined by calculating the total present value of all the payments. If the annual payments are paid at the end of every year, it is called as ordinary annuity and if they are paid at the beginning of every year, it is called as annuity due.

Answer and Explanation: 1

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The liability to be recorded by Jenkins (or the calculated present value) is $3,345,363.

The total present value of the liability can be calculated...

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How to Calculate the Present Value of an Annuity

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Chapter 8 / Lesson 3
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Learn how to find present value of annuity using the formula and see its derivation. Study its examples and see a difference between Ordinary Annuity and Annuity Due.


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