Question 1

Finley Company will receive $500,000 in 7 years. If the appropriate interest rate is 10%, the present value of the $500,000 receipt is

Accepted Answer

A)  $255,000. 
B)  $256,580. 
C)  $755,000. 
D)  $974,360. 
A)  $255,000. 
B)  $256,580. 
C)  $755,000. 
D)  $974,360.

Question 2

Items 52 through 55 apply to the appropriate use of present value tables. Given below are the present value factors for $1.00 discounted at 10% for one to five periods. Each of the items 52 to 55 is based on 10% interest compounded annually.
  
-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 3

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 4

Items 48 through 51 apply to the appropriate use of interest tables. Given below are the future value factors for 1 at 8% for one to five periods. Each of the items 48 to 51 is based on 8% interest compounded annually.
  
-What amount should be deposited in a bank account today to grow to $10,000 three years from today?

Accepted Answer

A)  $10,000 × 1.260 
B)  $10,000 × 1.260 × 3 
C)  $10,000 ÷ 1.260 
D)  $10,000 ÷ 1.080 × 3 
A)  $10,000 × 1.260 
B)  $10,000 × 1.260 × 3 
C)  $10,000 ÷ 1.260 
D)  $10,000 ÷ 1.080 × 3

Question 5

Which of the following transactions would best use the present value of an annuity due of 1 table?

Accepted Answer

A)  Diamond Bar, Inc. rents a truck for 5 years with annual rental payments of $20,000 to be made at the beginning of each year. 
B)  Michener Co. rents a warehouse for 7 years with annual rental payments of $120,000 to be made at the end of each year. 
C)  Durant, Inc. borrows $20,000 and has agreed to pay back the principal plus interest in three years. 
D)  Babbitt, Inc. wants to deposit a lump sum to accumulate $50,000 for the construction of a new parking lot in 4 years. 
A)  Diamond Bar, Inc. rents a truck for 5 years with annual rental payments of $20,000 to be made at the beginning of each year. 
B)  Michener Co. rents a warehouse for 7 years with annual rental payments of $120,000 to be made at the end of each year. 
C)  Durant, Inc. borrows $20,000 and has agreed to pay back the principal plus interest in three years. 
D)  Babbitt, Inc. wants to deposit a lump sum to accumulate $50,000 for the construction of a new parking lot in 4 years.

Question 6

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

Accepted Answer

A)  dividing the future value by the present value and looking for the quotient in the future value of 1 table. 
B)  dividing the future value by the present value and looking for the quotient in the present value of 1 table. 
C)  dividing the present value by the future value and looking for the quotient in the future value of 1 table. 
D)  multiplying the present value by the future value and looking for the product in the present value of 1 table. 
A)  dividing the future value by the present value and looking for the quotient in the future value of 1 table. 
B)  dividing the future value by the present value and looking for the quotient in the present value of 1 table. 
C)  dividing the present value by the future value and looking for the quotient in the future value of 1 table. 
D)  multiplying the present value by the future value and looking for the product in the present value of 1 table.

Question 7

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?

Accepted Answer

A)  $40,000 times the future value of a 5-year, 6% ordinary annuity of 1. 
B)  $40,000 divided by the future value of a 5-year, 6% ordinary annuity of 1. 
C)  $40,000 times the present value of a 5-year, 6% ordinary annuity of 1. 
D)  $40,000 divided by the present value of a 5-year, 6% ordinary annuity of 1. 
A)  $40,000 times the future value of a 5-year, 6% ordinary annuity of 1. 
B)  $40,000 divided by the future value of a 5-year, 6% ordinary annuity of 1. 
C)  $40,000 times the present value of a 5-year, 6% ordinary annuity of 1. 
D)  $40,000 divided by the present value of a 5-year, 6% ordinary annuity of 1.

Question 8

Which of the following transactions would require the use of the present value of an annuity due concept in order to calculate the present value of the asset obtained or liability owed at the date of incurrence?

Accepted Answer

A)  A capital lease is entered into with the initial lease payment due upon the signing of the lease agreement. 
B)  A capital lease is entered into with the initial lease payment due one month subse-quent to the signing of the lease agreement. 
C)  A ten-year 8% bond is issued on January 2 with interest payable semiannually on July 1 and January 1 yielding 7%. 
D)  A ten-year 8% bond is issued on January 2 with interest payable semiannually on July 1 and January 1 yielding 9%. 
A)  A capital lease is entered into with the initial lease payment due upon the signing of the lease agreement. 
B)  A capital lease is entered into with the initial lease payment due one month subse-quent to the signing of the lease agreement. 
C)  A ten-year 8% bond is issued on January 2 with interest payable semiannually on July 1 and January 1 yielding 7%. 
D)  A ten-year 8% bond is issued on January 2 with interest payable semiannually on July 1 and January 1 yielding 9%.

Question 9

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?

Accepted Answer

A)  A capital lease is entered into with the initial lease payment due one month subsequent to the signing of the lease agreement. 
B)  A capital lease is entered into with the initial lease payment due upon the signing of the lease agreement. 
C)  A ten-year 8% bond is issued on January 2 with interest payable semiannually on January 2 and July 1 yielding 7%. 
D)  A ten-year 8% bond is issued on January 2 with interest payable semiannually on January 2 and July 1 yielding 9%. 
A)  A capital lease is entered into with the initial lease payment due one month subsequent to the signing of the lease agreement. 
B)  A capital lease is entered into with the initial lease payment due upon the signing of the lease agreement. 
C)  A ten-year 8% bond is issued on January 2 with interest payable semiannually on January 2 and July 1 yielding 7%. 
D)  A ten-year 8% bond is issued on January 2 with interest payable semiannually on January 2 and July 1 yielding 9%.

Question 10

Windsor Company will receive $100,000 in 7 years. If the appropriate interest rate is 10%, the present value of the $100,000 receipt is

Accepted Answer

A)  $51,000. 
B)  $51,316. 
C)  $151,000. 
D)  $194,872. 
A)  $51,000. 
B)  $51,316. 
C)  $151,000. 
D)  $194,872.

Question 11

On July 1, 2008, Ed Vance signed an agreement to operate as a franchisee of Kwik Foods, Inc., for an initial franchise fee of $180,000. Of this amount, $60,000 was paid when the agreement was signed and the balance is payable in four equal annual payments of $30,000 beginning July 1, 2009. The agreement provides that the down payment is not refundable and no future services are required of the franchisor. Vance's credit rating indicates that he can borrow money at 14% for a loan of this type. Information on present and future value factors is as follows:
  Vance should record the acquisition cost of the franchise on July 1, 2008 at

Accepted Answer

A)  $130,800. 
B)  $147,300. 
C)  $180,000. 
D)  $202,800. 
A)  $130,800. 
B)  $147,300. 
C)  $180,000. 
D)  $202,800.

Finley Company will receive $500,000 in 7 years. If the appropriate interest rate is 10%, the present value of the $500,000 receipt is

Which statement is false?

Which of the following transactions would best use the present value of an annuity due of 1 table?

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

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?

Which of the following transactions would require the use of the present value of an annuity due concept in order to calculate the present value of the asset obtained or liability owed at the date of incurrence?

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?

Windsor Company will receive $100,000 in 7 years. If the appropriate interest rate is 10%, the present value of the $100,000 receipt is

Financial Accounting and Accounting Standards

Conceptual Framework Underlying Financial Accounting

The Accounting Information System

Balance Sheet

Income Statement and Related Information

Statement of Cash Flows

Revenue Recognition

Cash and Receivables

Accounting for Inventories

Accounting for Property, Plant, and Equipment

Intangible Assets

Accounting for Liabilities

Stockholders Equity

Investments

Accounting for Income Taxes

Accounting for Compensation

Accounting for Leases

Additional Reporting Issues

Appendix B: Reporting Cash Flows

Appendix D: Retail Inventory Method

Appendix E: Accounting for Natural Resources

Appendix G: Accounting for Troubled Debt

Appendix H: Accounting for Derivative Instruments

Appendix I: Error Analysis

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Exam 19: Appendix A: Accounting and the Time Value of Money

Finley Company will receive $500,000 in 7 years. If the appropriate interest rate is 10%, the present value of the $500,000 receipt is

Which statement is false?

Which of the following transactions would best use the present value of an annuity due of 1 table?

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

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?

Which of the following transactions would require the use of the present value of an annuity due concept in order to calculate the present value of the asset obtained or liability owed at the date of incurrence?

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?

Windsor Company will receive $100,000 in 7 years. If the appropriate interest rate is 10%, the present value of the $100,000 receipt is

Financial Accounting and Accounting Standards

Conceptual Framework Underlying Financial Accounting

The Accounting Information System

Balance Sheet

Income Statement and Related Information

Statement of Cash Flows

Revenue Recognition

Cash and Receivables

Accounting for Inventories

Accounting for Property, Plant, and Equipment

Intangible Assets

Accounting for Liabilities

Stockholders Equity

Investments

Accounting for Income Taxes

Accounting for Compensation

Accounting for Leases

Additional Reporting Issues

Appendix B: Reporting Cash Flows

Appendix D: Retail Inventory Method

Appendix E: Accounting for Natural Resources

Appendix G: Accounting for Troubled Debt

Appendix H: Accounting for Derivative Instruments

Appendix I: Error Analysis

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