| Course | ACC 421 Intermediate Financial Accounting I (ACC/421) |
|---|---|
| Week | 3 |
| Paper type | Time value of money application paper |
| Length | about 1,042 words, 4 double-spaced pages plus title page and references |
| Format | APA 7 student paper |
| School | University of Phoenix |
| Program | BS in Accounting |
| Updated | September 2026 |
Free sample paper for ACC 421 Week 3
Four Questions an Equipment Dealer Answers With Present and Future Value: A Noninterest-Bearing Note, Two Payment Plans, a Roof Fund and the Interest Schedule Behind the Note
[Student Name]
University of Phoenix
ACC/421: Intermediate Financial Accounting I
Week 3 Assignment
[Instructor Name]
[Date]
The dealer, its customers and all figures are composites written for a model paper; measurement rules and research findings come from the sources listed.
A composite dealer in a rural county buys and sells used excavators, loaders and skid steers and runs a repair shop. Contractors often want to take a machine now and pay later, and the owner has learned that a dollar promised in three years is not worth a dollar today. Accounting agrees. Whenever cash arrives on a different date from the transaction that earns it, the accounting has to put a price on the waiting. This paper works through four problems the dealer met this year and shows how each affects its financial statements.
Problem One: A Noninterest-Bearing Note
In January, the dealer sold a used excavator to a small contractor. Instead of cash, it accepted a note promising to pay $250,000 in three years with no stated interest. The dealer's cost for the machine was $172,000.
No lender would wait three years for free, so the $250,000 includes interest. The market rate for a loan of this risk is 8%. The present value of $250,000 due in three years at 8% uses a factor of 0.79383, giving about $198,458. That is the real sale price. The accounting rules for notes with no stated rate require this treatment, recording the note at present value and recognizing the difference as interest over time (Accounting Principles Board, 1971).
The dealer records a note receivable of $250,000, a discount on the note of $51,542 and sales revenue of $198,458, and it records cost of goods sold of $172,000. Gross profit on the sale is about $26,500. If the note had been recorded at face value, the dealer would have reported $78,000 of profit on a machine whose real price was about $198,500, and none of the interest it will earn over the next three years.
Problem Two: Two Payment Plans
In April, a paving company wanted a large wheel loader and proposed five annual payments of $100,000. The dealer wanted to know what each payment plan was worth, again at 8%.
If the first payment comes one year from now, the payments are an ordinary annuity. The present value factor for five periods at 8% is 3.99271, giving about $399,271. If the first payment comes today, the payments are an annuity due. Each payment is received one period sooner, so the factor is 3.99271 times 1.08, or 4.31213, giving about $431,213.
The difference, nearly $32,000, comes entirely from timing. The dealer's cash price for the loader is $415,000, so it accepted payments in advance, which are worth more than cash today, and declined the end-of-year plan, worth less.
Problem Three: Funding the Shop Roof
The repair shop's roof will need replacement in four years, at an estimated $600,000. The owner wants to set aside equal amounts at the end of each year in an account paying 5%. The future value of an ordinary annuity of four payments at 5% has a factor of 4.31013. Dividing $600,000 by 4.31013 gives an annual deposit of about $139,207. Over four years, the dealer will deposit about $556,800, and interest will supply the remaining $43,200.
This problem runs the calculation in reverse, starting from a future amount and solving for the payment. The deposits are not an expense; they move cash into a restricted fund reported as a long-term asset. Graham and Harvey (2001) found that companies commonly use a single company-wide discount rate for decisions, but for a savings fund the relevant rate is simply what the account pays.
Problem Four: The Note's Interest Schedule
The excavator note must now be carried to maturity. Under the effective-interest method, interest income each year equals the note's carrying value times the market rate.
In year one, interest is $198,458 times 8%, about $15,877, and the carrying value rises to $214,335. In year two, interest is about $17,147, and the carrying value rises to $231,482. In year three, interest is about $18,518, and the carrying value reaches exactly $250,000 when the contractor pays. Total interest income is $51,542, equal to the original discount.
Each year the dealer debits the discount on the note and credits interest income. The receivable's carrying value on the balance sheet is always the present value of the remaining payment at 8%.
Choosing the Rate
Every answer above depends on the rate, and the rate is a judgment. For the excavator note, the dealer used 8% because its bank would lend to a contractor of similar size and credit history at about that rate. Had the contractor been a weaker borrower, a 10% rate would have been more faithful. At 10%, the present value factor for three years is 0.75131, and the note would be worth about $187,800. Revenue would fall by about $10,600, and interest income over the three years would rise by the same amount. Total income over the life of the note is the same either way, $78,000, but its split between the year of sale and later years changes. That is why auditors ask how the rate was chosen, and why the dealer keeps the bank's rate quote in the file with the note. The standards point to the rate the buyer would pay to borrow on similar terms, not to the rate the seller would like to earn.
Why Accounting Uses Present Value
The standard setter's concepts statement on present value explains that measurements based on future cash flows should reflect both the amount and the timing of those flows, since two assets with the same future cash but different timing are not equally valuable (Financial Accounting Standards Board, 2000). The dealer's four problems show that principle in small form. Bonds, leases, pensions, asset retirement obligations and impairment tests all rely on the same calculations at larger scale (Weygandt et al., 2021).
Conclusion
Discounting turned a $250,000 note into a $198,458 sale plus three years of interest, showed that a payment plan starting today was worth $32,000 more than one starting next year, set the annual deposit needed for a roof and produced a schedule that brings a note to its face value. In every case, the result changed what the dealer recorded or decided.
References
Accounting Principles Board. (1971). Interest on receivables and payables (APB Opinion No. 21). American Institute of Certified Public Accountants.
Financial Accounting Standards Board. (2000). Using cash flow information and present value in accounting measurements (Statement of Financial Accounting Concepts No. 7).
Graham, J. R., & Harvey, C. R. (2001). The theory and practice of corporate finance: Evidence from the field. Journal of Financial Economics, 60(2-3), 187-243. https://doi.org/10.1016/S0304-405X(01)00044-7
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2021). Accounting principles (14th ed.). Wiley.
What the ACC 421 Week 3 instructions ask
ACC 421 Week 3 generally asks students to apply time value of money concepts to accounting problems. Typical tasks include finding the present value of a single sum and of an ordinary annuity or annuity due, finding the future value of deposits, solving for a payment or interest rate and explaining where these calculations appear in financial reporting, such as notes, bonds, leases and pensions. Many sections supply a set of problems, while some want the same tools used on a business decision. The written paper should show each formula or factor, the inputs and the result, then explain what the result means for the company's statements. APA citations of the textbook and standards are expected throughout.
How this ACC 421 Week 3 example is built
An equipment dealer faces time value problems every week because customers often buy large machines on deferred terms. The paper states each problem as the dealer met it, identifies whether it involves a single sum or an annuity and whether payments come at the beginning or end of each period, then gives the factor and result. The note receivable is valued at present value and recorded net of its discount, and a three-year schedule shows the discount becoming interest income. The payment plan comparison shows why timing changes value by more than $30,000. The roof fund works in the opposite direction, from a future amount back to the deposits. A closing section links each problem to the standards that require discounting.
ACC 421 Week 3 grading rubric: where the points go
Faculty generally assign marks for choosing the right model, applying it correctly and explaining its accounting use. Each problem should identify single sum versus annuity and ordinary annuity versus annuity due, use a rate and number of periods that match the payment timing and produce the right result. Papers that connect results to journal entries, such as recording a note at present value, earn more than those that stop at the number. An amortization schedule, where required, must end exactly at face value. Explanations of why GAAP uses present value add depth. Legible presentation of every factor, consistent rounding and APA references finish the grade.
ACC 421 Week 3 help: mistakes to avoid
The most frequent ACC 421 Week 3 mistake is using an ordinary annuity factor when payments come at the start of each period. Ask when the first payment occurs; if it is today, it is an annuity due. Another is mismatching the rate and periods, for example using an annual rate with monthly payments. Divide the rate and multiply the periods together. Students also record a noninterest-bearing note at face value, which overstates both the sale and the receivable. Record it at present value and recognize the discount as interest over time. Round factors to at least four places. Finally, explain in words what each answer means, since a figure without context earns little.
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ACC 421 Week 3 questions, answered
What does ACC/421 Week 3 usually cover?
It usually covers the time value of money: present and future values of single sums and annuities, ordinary annuities versus annuities due and their use in measuring notes, bonds, leases and other items.
Where can I find a free ACC 421 Week 3 sample paper?
The equipment dealer example on this page solves four time value problems with every factor shown and the entries explained in margin notes. You can also have us write the first version of your own paper at no cost.
What is the difference between an ordinary annuity and an annuity due?
In an ordinary annuity, payments occur at the end of each period; in an annuity due, they occur at the beginning, so each payment earns or is discounted for one more period.
Why is a noninterest-bearing note recorded at present value?
Its face value includes interest the buyer is implicitly paying for waiting, so recording it at present value separates the sale price from interest income earned over the note's life.
Where does present value appear in financial statements?
In the measurement of notes, bonds, leases, pension obligations, asset retirement obligations and some fair values and impairments.
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