Question 1

Abby wants to have $20, 000 available in August 2015 to make a college tuition payment.To be able to have this amount available, Abby will have to make equal annual deposits in an investment earning 12% annually in August 2011, 2012, 2013, 2014, and 2015 in the amount of

Accepted Answer

A)  $5, 548
B)  $4, 954
C)  $4, 000
D)  $3, 148 D

Question 2

To determine the converted table factor for the present value of an annuity due, one must find the factor for the present value of an ordinary annuity for

Accepted Answer

A)  n + 1 rents and then subtract 1
B)  n - 1 rents and then subtract 1
C)  n + 1 rents and then add 1
D)  n - 1 rents and then add 1 D

Question 3

Molly will receive an insurance settlement of $2, 000, 000 in six years.Randal is willing to give her a lump sum today in return for the payment in six years.If current interest rates are 12% per year, how much will Molly receive today?

Accepted Answer

A)  $ 960, 637
B)  $1, 013, 262
C)  $1, 116, 790
D)  $1, 186, 903 B

Question 4

An accounting student has just been introduced to present value analysis and comes to you with the following question, "How is present value used in the financial statements?"
Required:
Give the student examples of financial statement accounts that are stated at present value and explain the advantages of using present value for certain financial statement items.

Accepted Answer

The answer of An accounting student has just been introduced...

Question 5

Each of the following compound interest factors has the same number of time periods and/or rents (n)at the same interest rate (i).Which one is the table factor for the present value of a single sum?

Accepted Answer

A)  1.500730
B)  7.153291
C)  0.666342
D)  4.766540

Question 6

On January 1, 2010, Betty's Produce Market leased some equipment from another company.The lease contract calls for $22, 000 payments for eight years, beginning on December 31, 2010.
Required:
Calculate the present value of the lease payments on January 1, 2010.Assume a 6% interest rate.

Accepted Answer

The answer of On January 1, 2010, Betty's Produce Market...

Question 7

Rose Carter wants to determine how much she must deposit today at 14% interest to provide four withdrawals of $6, 000 at the end of each year, beginning five years from now.This is an example of the present value of a(n)

Accepted Answer

A)  ordinary annuity
B)  annuity due
C)  single sum
D)  deferred ordinary annuity

Question 8

Although most accountants believe that the use of present value creates relevant accounting measurements, there are some reliability questions.Discuss the reasons why present value computations create less reliable measurements.

Accepted Answer

The answer of Although most accountants believe that the use...

Question 9

Maggie Company estimated that it has a 20% probability of receiving $240, 000 one year from now, a 30% probability of receiving $240, 000 two years from now, and a 50% probability of receiving $240, 000 three years from now.
Required:
Using the FASB's concept of "expected cash flows, " calculate the present value of the cash flows assuming a 10% interest rate compounded annually.

Accepted Answer

The answer of Maggie Company estimated that it has a...

Question 10

Using the compound interest tables, solve each of the following questions.
Required:

Accepted Answer

The answer of Using the compound interest tables, solve each...

Question 11

Simple interest on a $20, 000, 8%, 15-month note payable would total

Accepted Answer

A)  $22, 000
B)  $21, 600
C)  $ 2, 000
D)  $ 1, 600

Question 12

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 or rents increases

Question 13

Rose deposited $18, 000 in a savings account that provides for interest at the rate of 16% compounded quarterly.
Required:
Compute the balance in the account at the end of seven years.

Accepted Answer

The answer of Rose deposited $18, 000 in a savings...

Question 14

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 an asset acquired or liability assumed?

Accepted Answer

A)  A rental agreement is entered into with the initial payment due immediately.
B)  A rental agreement is entered into with the initial payment due one month from the signing of the agreement.
C)  A note payable is obtained from a bank requiring monthly payments for six years, beginning at the end of the current month.
D)  A machine is acquired by paying $20, 000 cash and agreeing to pay equal annual amounts of $10, 000 each at the end of the next three years.

Question 15

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

The answer of A beginning accounting student has just been...

Question 16

The Rogers Leasing Company signed an agreement to lease an asset that has a fair value of $800, 000 on December 31, 2010.The lease will be paid in seven equal annual payments of $138, 730, beginning on December 31, 2010.The interest rate included in the lease agreement is

Accepted Answer

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

Question 17

Using the table approach, the future amount of an annuity due may be calculated by finding the table factor for the future amount of an ordinary annuity of

Accepted Answer

A)  n + 1 rents and then subtract 1
B)  n + 1 rents and then add 1
C)  n - 1 rents and then add 1
D)  n - 1 rents and then subtract 1

Question 18

FASB financial accounting concepts on using estimated future cash flow information in accounting measurements identified each of the following four principles except

Accepted Answer

A)  the cash flows should consider all relevant future events and uncertainties
B)  the assumptions used to select interest rates should be consistent with the assumptions inherent in the estimated cash flow amounts
C)  the estimated cash flows and interest rates should be free from bias and unrelated factors
D)  the estimated cash flows should reflect a single most likely minimum or maximum possible amount, rather than a range of possible cash flows

Question 19

A beginning accounting student comes to you with the following question, "What is the time value of money and does it relate to interest?"
Required:
Explain the two concepts and how they are related.

Accepted Answer

The answer of A beginning accounting student comes to you...

Question 20

Sammy has just inherited an annuity.He will receive six equal annual amounts of $8, 000, beginning today.Assuming a 12% interest rate compounded annually, the present value today of all receipts is

Accepted Answer

A)  $30, 535
B)  $32, 891
C)  $36, 838
D)  $48, 000

Exam 24: Time Value of Money Module