Question 1

The price of money is called

Accepted Answer

A) principal. 
B) interest. 
C) inflation. 
D) the table factor. 
A) principal. 
B) interest. 
C) inflation. 
D) the table factor. B

Question 2

Which of the following statements is false?

Accepted Answer

A) A critical problem is associated with using present value on the financial statements is that it requires that both future cash flows and future interest rates be predicted. 
B) In most cases, predicting the future cash flows associated with a particular asset or liability with a reasonable degree of confidence is almost impossible. 
C) The predictions that management must make to apply present value are not too subjective for financial statements that are to be used by those outside the company. 
D) Auditors are unwilling and unable to verify subjective present value judgments. 
A) A critical problem is associated with using present value on the financial statements is that it requires that both future cash flows and future interest rates be predicted. 
B) In most cases, predicting the future cash flows associated with a particular asset or liability with a reasonable degree of confidence is almost impossible. 
C) The predictions that management must make to apply present value are not too subjective for financial statements that are to be used by those outside the company. 
D) Auditors are unwilling and unable to verify subjective present value judgments. C

Question 3

Ivy Company purchases land with a fair market value of $71,500, paying for it by signing a note payable requiring cash payments of $20,000 at the beginning of each year for four years. What is the interest rate implicit in the note?

Accepted Answer

A) 6%. 
B) 7% 
C) 8% 
D) 9%. 
A) 6%. 
B) 7% 
C) 8% 
D) 9%. C

Question 4

With all other factors equal, the simple interest amount will be

Accepted Answer

A) greater than the compound interest amount. 
B) less than the compound interest amount. 
C) equal to the compound interest amount 
D) either higher or lower than the compound interest amount, depending on other factors. 
A) greater than the compound interest amount. 
B) less than the compound interest amount. 
C) equal to the compound interest amount 
D) either higher or lower than the compound interest amount, depending on other factors.

Question 5

Cora Company will receive $10,000 a year for 5 years, with all receipts at the beginning of each year. What is the present value of this annuity using a 10% discount rate?

Accepted Answer

A) $35,000 
B) $37,908 
C) $40,000 
D) $41,699 
A) $35,000 
B) $37,908 
C) $40,000 
D) $41,699

Question 6

Wyatt Borke purchased an automobile with a list price of $5,580. He signed a contract requiring a $1,000 down payment and $1,000 payments at the beginning of each subsequent year for five years. Compute the annual implicit (effective) rate of interest on this financing loan.

Accepted Answer

A) 2% 
B) 3% 
C) 4% 
D) 5% 
A) 2% 
B) 3% 
C) 4% 
D) 5%

Question 7

Business decision makers use present value concepts to derive the terms of contracts like

Accepted Answer

A) mortgages. 
B) leases. 
C) pensions. 
D) mortgages, leases, and pensions. 
A) mortgages. 
B) leases. 
C) pensions. 
D) mortgages, leases, and pensions.

Question 8

Which of the following accounts relied on the calculation of present value or the implicit rate of interest in the determination of the balance sheet dollar value?

Accepted Answer

A) Treasury Stock 
B) Long-term Notes Receivable 
C) Property, Plant, and Equipment 
D) Accrued Liabilities 
A) Treasury Stock 
B) Long-term Notes Receivable 
C) Property, Plant, and Equipment 
D) Accrued Liabilities

Question 9

Kaeli Company will invest $10,000 a year for 5 years, with all investments at yearend. If the fund earns 10% compound interest, what amount will be in the fund at the end of 5 years?

Accepted Answer

A) $60,000 
B) $61,051 
C) $65,000 
D) $67,156 
A) $60,000 
B) $61,051 
C) $65,000 
D) $67,156

Question 10

A company purchases a piece of property with a fair market value of $100,000, paying for it by signing a note payable requiring cash payments of $20,000 at the beginning of each year for six years. What is the interest rate implicit in the note?

Accepted Answer

A) 6%. 
B) 7% 
C) 8% 
D) 9%. 
A) 6%. 
B) 7% 
C) 8% 
D) 9%.

Question 11

The future value of an annuity due, as compared to the future value of an ordinary annuity of the same length and interest rate, will

Accepted Answer

A) sometimes be greater and sometimes be smaller. 
B) always be the same. 
C) always be smaller. 
D) always be greater. 
A) sometimes be greater and sometimes be smaller. 
B) always be the same. 
C) always be smaller. 
D) always be greater.

Question 12

Luke Galen purchased an automobile with a list price of $4,387. He signed a contract requiring a $1,000 down payment and $1,000 payments at the beginning of each subsequent year for four years. Compute the annual implicit (effective) rate of interest on this financing loan.

Accepted Answer

A) 5% 
B) 6% 
C) 7% 
D) 8% 
A) 5% 
B) 6% 
C) 7% 
D) 8%

Question 13

Cora Company will receive $10,000 a year for 5 years, with all receipts at yearend. What is the present value of this annuity using a 10% discount rate?

Accepted Answer

A) $35,000 
B) $37,908 
C) $40,000 
D) $41,699 
A) $35,000 
B) $37,908 
C) $40,000 
D) $41,699

Question 14

Understanding the concepts of valuation is

Accepted Answer

A) More important now as IFRS and GAAP move more towards a fair market value framework. 
B) Less important now as IFRS and GAAP move more towards a fair market value framework. 
C) More important as determining valuations becomes easier. 
D) Less important as determining valuations becomes easier. 
A) More important now as IFRS and GAAP move more towards a fair market value framework. 
B) Less important now as IFRS and GAAP move more towards a fair market value framework. 
C) More important as determining valuations becomes easier. 
D) Less important as determining valuations becomes easier.

Question 15

A dollar today is worth

Accepted Answer

A) more than a dollar in the future. 
B) less than a dollar in the future. 
C) the same as a dollar in the future. 
D) either more or less than a dollar in the future, 
A) more than a dollar in the future. 
B) less than a dollar in the future. 
C) the same as a dollar in the future. 
D) either more or less than a dollar in the future,

Question 16

Inflation would cause someone to

Accepted Answer

A) have no preference as to a dollar today or a dollar in the future. 
B) prefer a dollar in the future to a dollar today. 
C) prefer a dollar today to a dollar in the future. 
D) prefer either a dollar today or a dollar in the future, depending on other factors. 
A) have no preference as to a dollar today or a dollar in the future. 
B) prefer a dollar in the future to a dollar today. 
C) prefer a dollar today to a dollar in the future. 
D) prefer either a dollar today or a dollar in the future, depending on other factors.

Question 17

Which of the following statements is false?

Accepted Answer

A) Virtually any transaction that can be broken down into periodic cash flows utilizes the time value of money concept and can be reduced to present value, future value, and other equivalent values 
B) The uses of present value in business decision making are limited. 
C) Financial accounting information is useful because it helps investors, creditors, and other interested parties evaluate and control the business decisions of management. 
D) Because present value is the economic form of valuation, financial accounting information must reflect present value if it is to be useful. 
A) Virtually any transaction that can be broken down into periodic cash flows utilizes the time value of money concept and can be reduced to present value, future value, and other equivalent values 
B) The uses of present value in business decision making are limited. 
C) Financial accounting information is useful because it helps investors, creditors, and other interested parties evaluate and control the business decisions of management. 
D) Because present value is the economic form of valuation, financial accounting information must reflect present value if it is to be useful.

Question 18

The size of the time value of money gets

Accepted Answer

A) bigger as interest rates increase and as the time period gets longer. 
B) bigger as interest rates decrease and as the time period gets longer. 
C) bigger as interest rates increase and as the time period gets shorter. 
D) bigger as interest rates decrease and as the time period gets shorter. 
A) bigger as interest rates increase and as the time period gets longer. 
B) bigger as interest rates decrease and as the time period gets longer. 
C) bigger as interest rates increase and as the time period gets shorter. 
D) bigger as interest rates decrease and as the time period gets shorter.

Question 19

Lilly Company purchases land with a fair market value of $49,175, paying for it by signing a note payable requiring cash payments of $10,000 at the end of each year for six years. What is the interest rate implicit in the note?

Accepted Answer

A) 5%. 
B) 6% 
C) 7% 
D) 8%. 
A) 5%. 
B) 6% 
C) 7% 
D) 8%.

Question 20

The present value of an annuity due, as compared to the present value of an ordinary annuity of the same length and interest rate, will

Accepted Answer

A) sometimes be greater and sometimes be smaller. 
B) always be the same. 
C) always be smaller. 
D) always be greater. 
A) sometimes be greater and sometimes be smaller. 
B) always be the same. 
C) always be smaller. 
D) always be greater.

The price of money is called

Which of the following statements is false?

Ivy Company purchases land with a fair market value of $71,500, paying for it by signing a note payable requiring cash payments of $20,000 at the beginning of each year for four years. What is the interest rate implicit in the note?

With all other factors equal, the simple interest amount will be

Cora Company will receive $10,000 a year for 5 years, with all receipts at the beginning of each year. What is the present value of this annuity using a 10% discount rate?

Wyatt Borke purchased an automobile with a list price of $5,580. He signed a contract requiring a $1,000 down payment and $1,000 payments at the beginning of each subsequent year for five years. Compute the annual implicit (effective) rate of interest on this financing loan.

Business decision makers use present value concepts to derive the terms of contracts like

Which of the following accounts relied on the calculation of present value or the implicit rate of interest in the determination of the balance sheet dollar value?

Kaeli Company will invest $10,000 a year for 5 years, with all investments at yearend. If the fund earns 10% compound interest, what amount will be in the fund at the end of 5 years?

A company purchases a piece of property with a fair market value of $100,000, paying for it by signing a note payable requiring cash payments of $20,000 at the beginning of each year for six years. What is the interest rate implicit in the note?

The future value of an annuity due, as compared to the future value of an ordinary annuity of the same length and interest rate, will

Luke Galen purchased an automobile with a list price of $4,387. He signed a contract requiring a $1,000 down payment and $1,000 payments at the beginning of each subsequent year for four years. Compute the annual implicit (effective) rate of interest on this financing loan.

Cora Company will receive $10,000 a year for 5 years, with all receipts at yearend. What is the present value of this annuity using a 10% discount rate?

Understanding the concepts of valuation is

A dollar today is worth

Inflation would cause someone to

Which of the following statements is false?

The size of the time value of money gets

Lilly Company purchases land with a fair market value of $49,175, paying for it by signing a note payable requiring cash payments of $10,000 at the end of each year for six years. What is the interest rate implicit in the note?

The present value of an annuity due, as compared to the present value of an ordinary annuity of the same length and interest rate, will

Financial Accounting and Its Economic Context

A Closer Look at the Financial Statements

The Measurement Fundamentals of Financial Accounting

The Mechanics of Financial Accounting

Using Financial Statement Information

The Current Asset Classification, Cash, and Accounts Receivable

Merchandise Inventory

Investments in Equity Securities

Long-Lived Assets

Introduction to Liabilities: Economic Consequences, Current Liabilities, and Contingencies

Long-Term Liabilities: Notes, Bonds, and Leases

Stockholders Equity

The Complete Income Statement

The Statement of Cash Flows

Filters

Exam 15: The Time Value of Money

The price of money is called

Which of the following statements is false?

Ivy Company purchases land with a fair market value of $71,500, paying for it by signing a note payable requiring cash payments of $20,000 at the beginning of each year for four years. What is the interest rate implicit in the note?

With all other factors equal, the simple interest amount will be

Cora Company will receive $10,000 a year for 5 years, with all receipts at the beginning of each year. What is the present value of this annuity using a 10% discount rate?

Wyatt Borke purchased an automobile with a list price of $5,580. He signed a contract requiring a $1,000 down payment and $1,000 payments at the beginning of each subsequent year for five years. Compute the annual implicit (effective) rate of interest on this financing loan.

Business decision makers use present value concepts to derive the terms of contracts like

Which of the following accounts relied on the calculation of present value or the implicit rate of interest in the determination of the balance sheet dollar value?

Kaeli Company will invest $10,000 a year for 5 years, with all investments at yearend. If the fund earns 10% compound interest, what amount will be in the fund at the end of 5 years?

A company purchases a piece of property with a fair market value of $100,000, paying for it by signing a note payable requiring cash payments of $20,000 at the beginning of each year for six years. What is the interest rate implicit in the note?

The future value of an annuity due, as compared to the future value of an ordinary annuity of the same length and interest rate, will

Luke Galen purchased an automobile with a list price of $4,387. He signed a contract requiring a $1,000 down payment and $1,000 payments at the beginning of each subsequent year for four years. Compute the annual implicit (effective) rate of interest on this financing loan.

Cora Company will receive $10,000 a year for 5 years, with all receipts at yearend. What is the present value of this annuity using a 10% discount rate?

Understanding the concepts of valuation is

A dollar today is worth

Inflation would cause someone to

Which of the following statements is false?

The size of the time value of money gets

Lilly Company purchases land with a fair market value of $49,175, paying for it by signing a note payable requiring cash payments of $10,000 at the end of each year for six years. What is the interest rate implicit in the note?

The present value of an annuity due, as compared to the present value of an ordinary annuity of the same length and interest rate, will

Financial Accounting and Its Economic Context

A Closer Look at the Financial Statements

The Measurement Fundamentals of Financial Accounting

The Mechanics of Financial Accounting

Using Financial Statement Information

The Current Asset Classification, Cash, and Accounts Receivable

Merchandise Inventory

Investments in Equity Securities

Long-Lived Assets

Introduction to Liabilities: Economic Consequences, Current Liabilities, and Contingencies

Long-Term Liabilities: Notes, Bonds, and Leases

Stockholders Equity

The Complete Income Statement

The Statement of Cash Flows

Filters