Exam 6: Accounting and the Time Value of Money

On January 1, 2007, Nott Co.sold to Day Corp.$400,000 of its 10% bonds for $354,118 to yield 12%.Interest is payable semiannually on January 1 and July 1.What amount should Nott report as interest expense for the six months ended June 30, 2007?

Compound interest, rather than simple interest, must be used to properly evaluate long- term investment proposals.

Present value is

Schmitt Corporation will invest $10,000 every December 31st for the next six years (2006 - 2011).If Schmitt will earn 12% on the investment, what amount will be in the investment fund on December 31, 2011?

In the time diagram below, which concept is being depicted?

Linton Corporation will invest $10,000 every January 1st for the next six years (2006 - 2011).If Linton will earn 12% on the investment, what amount will be in the investment fund on December 31, 2011?

Catt Co.has a machine that cost $200,000.It is to be leased for 20 years with rent received at the beginning of each year.Catt wants a return of 10%.Calculate the amount of the annual rent. Present Value of Period Ordinary Annuity 19 8.36492 20 8.51356 21 8.64869

For which of the following transactions would the use of the present value of an ordinary annuity concept be appropriate in calculating the present value of the asset obtained or the liability owed at the date of incurrence?

The market price of a $200,000, ten-year, 12% (pays interest semiannually) bond issue sold to yield an effective rate of 10% is

If $3,000 is put in a savings account today, what amount will be available three years from today?

Ed Sloan wants to withdraw $20,000 (including principal) from an investment fund at the end of each year for five years.How should he compute his required initial investment at the beginning of the first year if the fund earns 10% compounded annually?

How much must be deposited on January 1, 2007 in a savings account paying 6% annually in order to make annual withdrawals of $20,000 at the end of the years 2007 and 2008? The present value of one at 6% for one period is .9434.

Which table would you use to determine how much you would need to have deposited three years ago at 10% compounded annually in order to have $1,000 today?

On December 1, 2007, Michael Hess Company sold some machinery to Shawn Keling Company.The two companies entered into an installment sales contract at a predetermined interest rate.The contract required four equal annual payments with the first payment due on December 1, 2007, the date of the sale.What present value concept is appropriate for this situation?

What amount should be deposited in a bank today to grow to $3,000 three years from today?

Ann Ruth wants to invest a certain sum of money at the end of each year for five years.The investment will earn 6% compounded annually.At the end of five years, she will need a total of $40,000 accumulated.How should she compute her required annual invest-ment?

In determining present value, a company moves backward in time using a process of accumulation.

If the number of periods is known, the interest rate is determined by

What amount will be in a bank account three years from now if $6,000 is invested each year for four years with the first investment to be made today?

Compound interest uses the accumulated balance at each year end to compute interest in the succeeding year.