Question 1

Balance sheet values are calculated using compound interest (present value) calculations for all of the following except

Accepted Answer

A)  bonds payable 
B)  long-term notes receivable 
C)  long-term lease liabilities 
D)  deferred income taxes 
A)  bonds payable 
B)  long-term notes receivable 
C)  long-term lease liabilities 
D)  deferred income taxes

Question 2

Compound interest factors are provided below: $\begin{array}{c}
\begin{array}{c}
\underline{ 10 \%, n=20}\
6.728\
57.275\
0.149\
8.514\
9365
 
\end{array}
\begin{array}{c}
\underline{10 \%, n=10}\
2.594 \
15.937 \
0.386 \
6.145 \
6.759 
\end{array}
\begin{array}{c}
\underline{5 \%, n=20}\
2.653\
33.067 \
0.377 \
12.462 \
13.089
\end{array}
\begin{array}{c}
\underline{3 \%, n=10}\
1.629 \
12.578 \
0.614 \
7.722 \
8.108 
\end{array}

\begin{array}{lll}
\
  \text {Future value of a single sum}\
   \text {Future value of an ordinaty annuity}\  
 \text {Present value of a single sum }\
  \text {Present value of an ordinary annuity }\
 \text {Present value of an annuity due}
\end{array}
\end{array}$

Required:
Using the above factors, answer each of the following questions. 
a.How much will you have in 10 years if you invest $30,000 in an investment that earns 10% semiannually?
b.How much do you have to invest today to have $30,000 in 10 years if the investment earns 10% annually?
c.How much will you have in 10 years if you invest $15,000 at the end of each year in an investment earning 10% annually?
d.How much do you have to invest at the end of each year if you want to accumulate a total of $400,000 at the end of 10 years in an investment paying 10% semiannually?

Accepted Answer

a.Future value, 5%, 20 periods: $30,000

Question 3

Compounding is the conversion of future cash flow amounts to their present value.

Accepted Answer

A) True 
 B)False

Question 4

Table factors for present values

Accepted Answer

A)  decrease as the interest rate decreases 
B)  decrease as the number of periods increases 
C)  increase as the interest rate increases 
D)  increase as the number of periods increases 
A)  decrease as the interest rate decreases 
B)  decrease as the number of periods increases 
C)  increase as the interest rate increases 
D)  increase as the number of periods increases

Question 5

Simple interest on a $1,250,000, 9%, 15-month note is

Accepted Answer

A)  $112,500 
B)  $ 9,375 
C)  $140,625 
D)  none of these 
A)  $112,500 
B)  $ 9,375 
C)  $140,625 
D)  none of these

Question 6

On January 2, 2014, Christopher inherited a trust fund that he could use for college tuition. Christopher hopes to make five equal withdrawals of $40,000 from the fund that will earn 10% compounded annually. The first withdrawal will be made on January 2, 2015. How much does he need to have invested in the fund on January 2, 2014, to be able to withdraw the needed amounts each year?

Accepted Answer

A)  $151,631 
B)  $200,000 
C)  $244,204 
D)  $268,624 
A)  $151,631 
B)  $200,000 
C)  $244,204 
D)  $268,624

Question 7

On July 7, 2014, Lawrence Company sold some machinery to Johnson Construction Company. The sales contract requires Johnson to pay five equal annual payments of $75,000 each, beginning on July 7, 2014. What present value concept is appropriate for this situation?

Accepted Answer

A)  present value of an annuity due of $1 for five periods 
B)  present value of an ordinary annuity of $1 for five periods 
C)  future value of an annuity of $1 for five periods 
D)  future value of $1 for five periods 
A)  present value of an annuity due of $1 for five periods 
B)  present value of an ordinary annuity of $1 for five periods 
C)  future value of an annuity of $1 for five periods 
D)  future value of $1 for five periods

Question 8

All of the following are conditions for an annuity except

Accepted Answer

A)  periodic cash flows must be equal in amount 
B)  the time periods between the cash flows are the same length 
C)  the interest rate is constant for each time period 
D)  the interest rate is compounded in the middle of each time period 
A)  periodic cash flows must be equal in amount 
B)  the time periods between the cash flows are the same length 
C)  the interest rate is constant for each time period 
D)  the interest rate is compounded in the middle of each time period

Question 9

The present value of a deferred annuity is determined on today's date, because the annuity payments begin some period after today's date.

Accepted Answer

A) True 
 B)False

Question 10

The formula for the future value of an ordinary annuity is

Accepted Answer

A)    
B)  $\frac { C \times \left\{ 1 - \left[ 1 / ( 1 - i ) ^ { n } \right] \right\} } { i }$ 
C)    
D)    
A)    
B)  $\frac { C \times \left\{ 1 - \left[ 1 / ( 1 - i ) ^ { n } \right] \right\} } { i }$ 
C)    
D)

Question 11

A beginning accounting student has just been introduced to present and future values analysis and has been told that it is based on compound interest, not simple interest. The student is confused about the differences between the two interest methods.
Required:
Explain the difference between the two methods using a single deposit of $1,000 for two years at 10% interest.

Accepted Answer

Simple interest is only calculated on th

Question 12

On August 1, 2014, Jason purchased machinery from Morgan for expanding its production operation. Morgan has given Jason three options for payment: a. $300,000 in cash now
b. $150,000 down payment now and $50,000 per year for the next ten years beginning August 1, 2015
c. $100,000 now and $100,000 per year for five years beginning August 1, 2015.
Determine which of the above payment plans has the lowest present value. Clearly label all of your work. The effective annual interest rate is expected to be 12% during this period.

Accepted Answer

a. Present value $300,000
b.Present valu

Question 13

The future value of a single sum is the original principal amount plus the compound interest stated as of a specific future date.

Accepted Answer

A) True 
 B)False

Question 14

To calculate the present value of an annuity due the formula is: $$P V _ { D } = C \times \left[ \frac { 1 - \frac { 1 } { ( 1 + i ) ^ { n + 1 } } } { i } + 1 \right]$$

Accepted Answer

A) True 
 B)False

Question 15

The present values of ordinary annuities, annuities due, and deferred annuities were discussed in the textbook. Discuss the ways these three annuities are similar and dissimilar.

Accepted Answer

These annuities are similar in that all

Question 16

Using an appropriate compound interest table, answer the following question.
Required:
What is the future amount on December 31, 2024, of eleven deposits of $12,000 each with the first deposit being made on December 31, 2014, and interest at 12% compounded annually?

Accepted Answer

The answer of Using an appropriate compound interest table, answer...

Question 17

At the beginning of 2014, Lisa Co. issued bonds with a face value of $700,000 due on December 31, 2020. The company desires to accumulate a fund to retire these bonds at maturity by making equal annual deposits beginning on December 31, 2014.
Required:
Compute the amount that the company must deposit at the end of each year, assuming that the fund will earn 10% interest a year compounded annually and seven deposits are made.

Accepted Answer

The answer of At the beginning of 2014, Lisa Co....

Question 18

Jeff desires to accumulate $13,603.83 by December 1, 2016. To accumulate that sum, he will make six equal semiannual deposits of $2,000, beginning on June 1, 2014, into a fund that earns interest compounded semiannually. What annual rate of interest must the fund provide to yield the desired sum?

Accepted Answer

A)  5% 
B)  6% 
C)  10% 
D)  12% 
A)  5% 
B)  6% 
C)  10% 
D)  12%

Question 19

FASB's Statement of Financial Accounting Concepts No. 7 does not address recognition issues and therefore does not address when fair value should be based on present value, but it does provide general principles governing the use of present value and the objectives of present value accounting measurements.

Accepted Answer

A) True 
 B)False

Question 20

The future value of an ordinary annuity is determined immediately after the last cash flow in the series occurs.

Accepted Answer

A) True 
 B)False

Balance sheet values are calculated using compound interest (present value) calculations for all of the following except

Compounding is the conversion of future cash flow amounts to their present value.

Table factors for present values

Simple interest on a $1,250,000, 9%, 15-month note is

On July 7, 2014, Lawrence Company sold some machinery to Johnson Construction Company. The sales contract requires Johnson to pay five equal annual payments of $75,000 each, beginning on July 7, 2014. What present value concept is appropriate for this situation?

All of the following are conditions for an annuity except

The present value of a deferred annuity is determined on today's date, because the annuity payments begin some period after today's date.

The formula for the future value of an ordinary annuity is

The future value of a single sum is the original principal amount plus the compound interest stated as of a specific future date.

To calculate the present value of an annuity due the formula is: $P V _ { D } = C \times \left[ \frac { 1 - \frac { 1 } { ( 1 + i ) ^ { n + 1 } } } { i } + 1 \right]$

The present values of ordinary annuities, annuities due, and deferred annuities were discussed in the textbook. Discuss the ways these three annuities are similar and dissimilar.

Using an appropriate compound interest table, answer the following question. Required: What is the future amount on December 31, 2024, of eleven deposits of $12,000 each with the first deposit being made on December 31, 2014, and interest at 12% compounded annually?

Jeff desires to accumulate $13,603.83 by December 1, 2016. To accumulate that sum, he will make six equal semiannual deposits of $2,000, beginning on June 1, 2014, into a fund that earns interest compounded semiannually. What annual rate of interest must the fund provide to yield the desired sum?

The future value of an ordinary annuity is determined immediately after the last cash flow in the series occurs.

The Demand for and Supply of Financial Accounting Information

Financial Reporting: Its Conceptual Framework

Review of a Companys Accounting System

The Balance Sheet and the Statement of Shareholders Equity

The Income Statement and the Statement of Cash Flows

Cash and Receivables

Inventories: Cost Measurement and Flow Assumptions

Inventories: Special Valuation Issues

Current Liabilities and Contingencies

Property, Plant, and Equipment: Acquisition and Subsequent Investments

Depreciation, Depletion, Impairment, and Disposal

Intangibles

Investments and Long-Term Receivables

Financing Liabilities: Bonds and Notes Payable

Contributed Capital

Retained Earnings and Earnings Per Share

Advanced Issues in Revenue Recognition

Accounting for Income Taxes

Accounting for Postretirement Benefits

Accounting for Leases

The Statement of Cash Flows

Accounting for Changes and Errors

Filters

Exam 23: Time Value of Money Module

Balance sheet values are calculated using compound interest (present value) calculations for all of the following except

Compounding is the conversion of future cash flow amounts to their present value.

Table factors for present values

Simple interest on a $1,250,000, 9%, 15-month note is

On July 7, 2014, Lawrence Company sold some machinery to Johnson Construction Company. The sales contract requires Johnson to pay five equal annual payments of $75,000 each, beginning on July 7, 2014. What present value concept is appropriate for this situation?

All of the following are conditions for an annuity except

The present value of a deferred annuity is determined on today's date, because the annuity payments begin some period after today's date.

The formula for the future value of an ordinary annuity is

The future value of a single sum is the original principal amount plus the compound interest stated as of a specific future date.

To calculate the present value of an annuity due the formula is: PVD=C×[1−1(1+i)n+1i+1]P V _ { D } = C \times \left[ \frac { 1 - \frac { 1 } { ( 1 + i ) ^ { n + 1 } } } { i } + 1 \right]PVD​=C×[i1−(1+i)n+11​​+1]

The present values of ordinary annuities, annuities due, and deferred annuities were discussed in the textbook. Discuss the ways these three annuities are similar and dissimilar.

Using an appropriate compound interest table, answer the following question. Required: What is the future amount on December 31, 2024, of eleven deposits of $12,000 each with the first deposit being made on December 31, 2014, and interest at 12% compounded annually?

Jeff desires to accumulate $13,603.83 by December 1, 2016. To accumulate that sum, he will make six equal semiannual deposits of $2,000, beginning on June 1, 2014, into a fund that earns interest compounded semiannually. What annual rate of interest must the fund provide to yield the desired sum?

The future value of an ordinary annuity is determined immediately after the last cash flow in the series occurs.

The Demand for and Supply of Financial Accounting Information

Financial Reporting: Its Conceptual Framework

Review of a Companys Accounting System

The Balance Sheet and the Statement of Shareholders Equity

The Income Statement and the Statement of Cash Flows

Cash and Receivables

Inventories: Cost Measurement and Flow Assumptions

Inventories: Special Valuation Issues

Current Liabilities and Contingencies

Property, Plant, and Equipment: Acquisition and Subsequent Investments

Depreciation, Depletion, Impairment, and Disposal

Intangibles

Investments and Long-Term Receivables

Financing Liabilities: Bonds and Notes Payable

Contributed Capital

Retained Earnings and Earnings Per Share

Advanced Issues in Revenue Recognition

Accounting for Income Taxes

Accounting for Postretirement Benefits

Accounting for Leases

The Statement of Cash Flows

Accounting for Changes and Errors

Filters

To calculate the present value of an annuity due the formula is: $P V _ { D } = C \times \left[ \frac { 1 - \frac { 1 } { ( 1 + i ) ^ { n + 1 } } } { i } + 1 \right]$