Question 1

Present value is the value now of a future sum or sums discounted assuming compound interest.

Accepted Answer

A) True 
 B)False

Question 2

Tipson Corporation will invest $10,000 every January 1st for the next six years (2012 - 2017).If Linton will earn 12% on the investment, what amount will be in the investment fund on December 31, 2017?

Accepted Answer

A) $41,114 
B) $46,048. 
C) $81,152. 
D) $90,890. 
A) $41,114 
B) $46,048. 
C) $81,152. 
D) $90,890.

Question 3

If two annuities have the same number of rents with the same dollar amount, but one is an annuity due and one is an ordinary annuity, the future value of the annuity due will be greater than the future value of the ordinary annuity.

Accepted Answer

A) True 
 B)False

Question 4

Which statement is false?

Accepted Answer

A) The factor for the future value of an annuity due is found by multiplying the ordinary annuity table value by one plus the interest rate. 
B) The factor for the present value of an annuity due is found by multiplying the ordinary annuity table value by one minus the interest rate. 
C) The factor for the future value of an annuity due is found by subtracting 1.00000 from the ordinary annuity table value for one more period. 
D) The factor for the present value of an annuity due is found by adding 1.00000 to the ordinary annuity table value for one less period. 
A) The factor for the future value of an annuity due is found by multiplying the ordinary annuity table value by one plus the interest rate. 
B) The factor for the present value of an annuity due is found by multiplying the ordinary annuity table value by one minus the interest rate. 
C) The factor for the future value of an annuity due is found by subtracting 1.00000 from the ordinary annuity table value for one more period. 
D) The factor for the present value of an annuity due is found by adding 1.00000 to the ordinary annuity table value for one less period.

Question 5

If two annuities have the same number of rents with the same dollar amount, but one is an annuity due and one is an ordinary annuity, the present value of the annuity due will be greater than the present value of the ordinary annuity.

Accepted Answer

A) True 
 B)False

Question 6

If an individual put $4,000 in a savings account today, what amount of cash would be available two years from today?

Accepted Answer

A) $4,000 × 0.826 
B) $4,000 × 0.826 × 2 
C) $4,000 ÷ 0.826 
D) $4,000 ÷ 0.909 × 2 
A) $4,000 × 0.826 
B) $4,000 × 0.826 × 2 
C) $4,000 ÷ 0.826 
D) $4,000 ÷ 0.909 × 2

Question 7

Peter invests $100,000 in a 3-year certificate of deposit earning 3.5% at his local bank.Which time value concept would be used to determine the maturity value of the certificate?

Accepted Answer

A) Present value of one. 
B) Future value of one. 
C) Present value of an annuity due. 
D) Future value of an ordinary annuity. 
A) Present value of one. 
B) Future value of one. 
C) Present value of an annuity due. 
D) Future value of an ordinary annuity.

Question 8

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

Accepted Answer

A) $3,000 ÷ 0.751 
B) $3,000 × 0.909 × 3 
C) ($3,000 × 0.909) + ($3,000 × 0.826) + ($3,000 × 0.751) 
D) $3,000 × 0.751 
A) $3,000 ÷ 0.751 
B) $3,000 × 0.909 × 3 
C) ($3,000 × 0.909) + ($3,000 × 0.826) + ($3,000 × 0.751) 
D) $3,000 × 0.751

Question 9

Jenks Company financed the purchase of a machine by making payments of $18,000 at the end of each of five years.The appropriate rate of interest was 8%.The future value of one for five periods at 8% is 1.46933.The future value of an ordinary annuity for five periods at 8% is 5.8666.The present value of an ordinary annuity for five periods at 8% is 3.99271.What was the cost of the machine to Jenks?

Accepted Answer

A) $26,448 
B) $71,869 
C) $90,000 
D) $105,600 
A) $26,448 
B) $71,869 
C) $90,000 
D) $105,600

Question 10

Which of the following is false?

Accepted Answer

A) The future value of a deferred annuity is the same as the future value of an annuity not deferred. 
B) A deferred annuity is an annuity in which the rents begin after a specified number of periods. 
C) To compute the present value of a deferred annuity, we compute the present value of an ordinary annuity of 1 for the entire period and subtract the present value of the rents which were not received during the deferral period. 
D) If the first rent is received at the end of the sixth period, it means the ordinary annuity is deferred for six periods. 
A) The future value of a deferred annuity is the same as the future value of an annuity not deferred. 
B) A deferred annuity is an annuity in which the rents begin after a specified number of periods. 
C) To compute the present value of a deferred annuity, we compute the present value of an ordinary annuity of 1 for the entire period and subtract the present value of the rents which were not received during the deferral period. 
D) If the first rent is received at the end of the sixth period, it means the ordinary annuity is deferred for six periods.

Question 11

Charlie Corp.is purchasing new equipment with a cash cost of $100,000 for an assembly line.The manufacturer has offered to accept $22,960 payment at the end of each of the next six years.How much interest will Charlie Corp.pay over the term of the loan?

Accepted Answer

A) $22,960. 
B) $100,000. 
C) $122,960. 
D) $37,760. 
A) $22,960. 
B) $100,000. 
C) $122,960. 
D) $37,760.

Question 12

Paula purchased a house for $300,000.After providing a 20% down payment, she borrowed the balance from the local savings and loan under a 30-year 6% mortgage loan requiring equal monthly installments at the end of each month.Which time value concept would be used to determine the monthly payment?

Accepted Answer

A) Present value of one. 
B) Future value of one. 
C) Present value of an ordinary annuity. 
D) Future value of an ordinary annuity. 
A) Present value of one. 
B) Future value of one. 
C) Present value of an ordinary annuity. 
D) Future value of an ordinary annuity.

Question 13

Dunston Company will receive $100,000 in a future year.If the future receipt is discounted at an interest rate of 10%, its present value is $51,316.In how many years is the $100,000 received?

Accepted Answer

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

Question 14

Use the following 8% interest factors for questions .  
-Korman Company wishes to accumulate $300,000 by May 1, 2019 by making 8 equal annual deposits beginning May 1, 2011 to a fund paying 8% interest compounded annually.What is the required amount of each deposit?

Accepted Answer

A) $52,205 
B) $28,204 
C) $26,115 
D) $30,234 
A) $52,205 
B) $28,204 
C) $26,115 
D) $30,234

Question 15

Which of the following tables would show the smallest value for an interest rate of 5% for six periods?

Accepted Answer

A) Future value of 1 
B) Present value of 1 
C) Future value of an ordinary annuity of 1 
D) Present value of an ordinary annuity of 1 
A) Future value of 1 
B) Present value of 1 
C) Future value of an ordinary annuity of 1 
D) Present value of an ordinary annuity of 1

Question 16

The rents that comprise an annuity due earn no interest during the period in which they are originally deposited.

Accepted Answer

A) True 
 B)False

Question 17

Jeremy is in the process of purchasing a car.The list price of the car is $32,000.If Jeremy pays cash for the car, the dealer will reduce the price by 10%.Otherwise, the dealer will provide financing where Jeremy must pay $6,850 at the end of each of the next five years.Compute the effective interest rate to the nearest percent that Jeremy would pay if he chooses to make the five annual payments?

Accepted Answer

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

Question 18

The future value of a single sum is determined by multiplying the future value factor by its present value.

Accepted Answer

A) True 
 B)False

Question 19

On January 1, 2012, Ott Co.sold goods to Flynn Company.Flynn signed a zero-interest-bearing note requiring payment of $80,000 annually for seven years.The first payment was made on January 1, 2012.The prevailing rate of interest for this type of note at date of issuance was 10%.Information on present value factors is as follows:   Ott should record sales revenue in January 2012 of

Accepted Answer

A) $428,424. 
B) $389,472. 
C) $348,424. 
D) $285,600. 
A) $428,424. 
B) $389,472. 
C) $348,424. 
D) $285,600.

Question 20

Which of the following is true?

Accepted Answer

A) Rents occur at the beginning of each period of an ordinary annuity. 
B) Rents occur at the end of each period of an annuity due. 
C) Rents occur at the beginning of each period of an annuity due. 
D) None of these. 
A) Rents occur at the beginning of each period of an ordinary annuity. 
B) Rents occur at the end of each period of an annuity due. 
C) Rents occur at the beginning of each period of an annuity due. 
D) None of these.

Exam 6: Accounting and the Time Value of Money

Present value is the value now of a future sum or sums discounted assuming compound interest.

Tipson Corporation will invest $10,000 every January 1st for the next six years (2012 - 2017).If Linton will earn 12% on the investment, what amount will be in the investment fund on December 31, 2017?

If two annuities have the same number of rents with the same dollar amount, but one is an annuity due and one is an ordinary annuity, the future value of the annuity due will be greater than the future value of the ordinary annuity.

Which statement is false?

If two annuities have the same number of rents with the same dollar amount, but one is an annuity due and one is an ordinary annuity, the present value of the annuity due will be greater than the present value of the ordinary annuity.

If an individual put $4,000 in a savings account today, what amount of cash would be available two years from today?

Peter invests $100,000 in a 3-year certificate of deposit earning 3.5% at his local bank.Which time value concept would be used to determine the maturity value of the certificate?

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

Which of the following is false?

Charlie Corp.is purchasing new equipment with a cash cost of $100,000 for an assembly line.The manufacturer has offered to accept $22,960 payment at the end of each of the next six years.How much interest will Charlie Corp.pay over the term of the loan?

Paula purchased a house for $300,000.After providing a 20% down payment, she borrowed the balance from the local savings and loan under a 30-year 6% mortgage loan requiring equal monthly installments at the end of each month.Which time value concept would be used to determine the monthly payment?

Dunston Company will receive $100,000 in a future year.If the future receipt is discounted at an interest rate of 10%, its present value is $51,316.In how many years is the $100,000 received?

Use the following 8% interest factors for questions . -Korman Company wishes to accumulate $300,000 by May 1, 2019 by making 8 equal annual deposits beginning May 1, 2011 to a fund paying 8% interest compounded annually.What is the required amount of each deposit?

Which of the following tables would show the smallest value for an interest rate of 5% for six periods?

The rents that comprise an annuity due earn no interest during the period in which they are originally deposited.

The future value of a single sum is determined by multiplying the future value factor by its present value.

Which of the following is true?

Financial Accounting and Accounting Standards

Conceptual Framework Underlying Financial Accounting

The Accounting Information System

Income Statement and Related Information

Statement of Financial Position and Statement of Cash Flows

Cash and Receivables

Valuation of Inventories: a Cost-Basis Approach

Inventories: Additional Valuation Issues

Acquisition and Disposition of Property, Plant, and Equipment

Depreciation, Impairments, and Depletion

Intangible Assets

Current Liabilities, Provisions, and Contingencies

Non-Current Liabilities

Equity

Dilutive Securities and Earnings Per Share

Investments

Revenue

Accounting for Income Taxes

Accounting for Pensions and Postretirement Benefits

Accounting for Leases

Accounting Changes and Error Analysis

Statement of Cash Flows

Presentation and Disclosure in Financial Reporting

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