Question 1

On January 1, 2007, Carly Company decided to begin accumulating a fund for asset replacement five years later.The company plans to make five annual deposits of $50,000 at 9% each January 1 beginning in 2007.What will be the balance in the fund, within $10, on January 1, 2012 (one year after the last deposit)? The following 9% interest factors may be used. $\begin{array}{lll}
&\text { Present Value of}&\text {Future Value of  }\&\text {Ordinary Annuity }&\text {Ordinary Annuity }\
\hline 4 \text { periods } & 3.2397 & 4.5731 \
5 \text { periods } & 3.8897 & 5.9847 \
6 \text { periods } & 4.4859 & 7.5233
\end{array}$

Accepted Answer

A) $326,166 
B) $299,235 
C) $272,500 
D) $250,000

Question 2

The number of compounding periods will always be one less than the number of rents when computing the future value of an ordinary annuity.

Accepted Answer

A) True 
 B)False

Question 3

Interest is the excess cash received or repaid over and above the amount lent or borrowed.

Accepted Answer

A) True 
 B)False

Question 4

On January 15, 2007, Flynn Corp.adopted a plan to accumulate funds for environmental improvements beginning July 1, 2011, at an estimated cost of $4,000,000.Flynn plans to make four equal annual deposits in a fund that will earn interest at 10% compounded annually.The first deposit was made on July 1, 2007.Future value factors are as follows: $\begin{array}{l}
\text { Future value of } 1 \text { at } 10 \% \text { for } 5 \text { periods } &1.61\
\text { Future value of ordinary annuity of } 1 \text { at } 10 \% \text { for } 4 \text { periods } &4.64\
\text { Future value of annuity due of } 1 \text { at } 10 \% \text { for } 4 \text { periods }&5.11
\end{array}$ Flynn should make four annual deposits of

Accepted Answer

A) $711,618. 
B) $782,779. 
C) $862,069. 
D) $1,000,000.

Question 5

If $4,000 is put in a savings account today, what amount will be available six years from now?

Accepted Answer

A) $4,000 × 1.080 × 6 
B) $4,000 × 1.080 × 1.469 
C) $4,000 × 1.166 × 3 
D) $4,000 × 1.260 × 2

Question 6

Craig Rusch Corporation will receive $10,000 today (January 1, 2006), and also on each January 1st for the next five years (2007 - 2011).What is the present value of the six $10,000 receipts, assuming a 12% interest rate?

Accepted Answer

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

Question 7

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

Question 8

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

Question 9

Which table would show the largest factor for an interest rate of 8% for five periods?

Accepted Answer

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

Question 10

Wagner Corporation will invest $25,000 every January 1st for the next six years (2006 - 2011).If Wagner will earn 12% on the investment, what amount will be in the investment fund on December 31, 2011?

Accepted Answer

A) $102,785. 
B) $115,120. 
C) $202,880. 
D) $227,225.

Question 11

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 12

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.

Question 13

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.

Question 14

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

Question 15

Swanson Company will receive $100,000 in a future year.If the future receipt is discounted at an interest rate of 8%, its present value is $63,017.In how many years is the $100,000 received?

Accepted Answer

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

Question 16

Renfro Corporation will receive $20,000 today (January 1, 2006), and also on each January 1st for the next five years (2007 - 2011).What is the present value of the six $20,000 receipts, assuming a 12% interest rate.?

Accepted Answer

A) $82,228. 
B) $92,096. 
C) $162,304. 
D) $181,780.

Question 17

Foley 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 Foley?

Accepted Answer

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

Question 18

Jensen Company will invest $200,000 today.The investment will earn 6% for 5 years, with no funds withdrawn.In 5 years, the amount in the investment fund is

Accepted Answer

A) $200,000. 
B) $260,000. 
C) $267,646. 
D) $268,058.

Question 19

The present value of an ordinary annuity is the present value of a series of equal rents withdrawn at equal intervals.

Accepted Answer

A) True 
 B)False

Question 20

Quincey Corporation makes an investment today (January 1, 2006).They will receive $10,000 every December 31st for the next six years (2006 - 2011).If Quincey wants to earn 12% on the investment, what is the most they should invest on January 1, 2006?

Accepted Answer

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

Exam 6: Accounting and the Time Value of Money

The number of compounding periods will always be one less than the number of rents when computing the future value of an ordinary annuity.

Interest is the excess cash received or repaid over and above the amount lent or borrowed.

If $4,000 is put in a savings account today, what amount will be available six years from now?

Craig Rusch Corporation will receive $10,000 today (January 1, 2006) , and also on each January 1st for the next five years (2007 - 2011) .What is the present value of the six $10,000 receipts, assuming a 12% interest rate?

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

What amount should be deposited in a bank account today to grow to $10,000 three years from today?

Which table would show the largest factor for an interest rate of 8% for five periods?

Wagner Corporation will invest $25,000 every January 1st for the next six years (2006 - 2011) .If Wagner will earn 12% on the investment, what amount will be in the investment fund on December 31, 2011?

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

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

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

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

Swanson Company will receive $100,000 in a future year.If the future receipt is discounted at an interest rate of 8%, its present value is $63,017.In how many years is the $100,000 received?

Renfro Corporation will receive $20,000 today (January 1, 2006) , and also on each January 1st for the next five years (2007 - 2011) .What is the present value of the six $20,000 receipts, assuming a 12% interest rate.?

Jensen Company will invest $200,000 today.The investment will earn 6% for 5 years, with no funds withdrawn.In 5 years, the amount in the investment fund is

The present value of an ordinary annuity is the present value of a series of equal rents withdrawn at equal intervals.

Quincey Corporation makes an investment today (January 1, 2006) .They will receive $10,000 every December 31st for the next six years (2006 - 2011) .If Quincey wants to earn 12% on the investment, what is the most they should invest on January 1, 2006?