Question 1

Jane wants to set aside funds to take an around the world cruise in four years. Assuming that Jane has $12,000 to invest today in an account expected to earn 6% per annum, how much will she have to spend on her vacation?

Accepted Answer

A)  $9,504. 
B)  $15,150. 
C)  $52,495. 
D)  $16,059.

Question 2

Present value is

Accepted Answer

A)  The value now of a future amount. 
B)  The amount that must be invested now to produce a known future value. 
C)  Always smaller than the future value. 
D)  All of these answer choices are correct.

Question 3

On July 1, 2014, Ed Wynne signed an agreement to operate as a franchisee of Kwik Foods, Inc., for an initial franchise fee of $600,000. Of this amount, $200,000 was paid when the agreement was signed and the balance is payable in four equal annual payments of $100,000 beginning July 1, 2015. The agreement provides that the down payment is not refundable and no future services are required of the franchisor. Wynne'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:  Wynne should record the acquisition cost of the franchise on July 1, 2014 at

Accepted Answer

A)  $436,000. 
B)  $491,000. 
C)  $600,000. 
D)  $676,000.

Question 4

Al Darby 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?

Accepted Answer

A)  $20,000 times the future value of a 5-year, 10% ordinary annuity of 1. 
B)  $20,000 divided by the future value of a 5-year, 10% ordinary annuity of 1. 
C)  $20,000 times the present value of a 5-year, 10% ordinary annuity of 1. 
D)  $20,000 divided by the present value of a 5-year, 10% ordinary annuity of 1.

Question 5

Items 69 through 72 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 69 to 72 is based on 10% interest compounded annually.
 
-If an individual deposits $8,000 in a savings account today, what amount of cash would be available two years from today?

Accepted Answer

A)  $8,000 × 0.826 
B)  $8,000 × 0.826 × 2 
C)  $8,000 ÷ 0.826 
D)  $8,000 ÷ 0.909 × 2

Question 6

What best describes the time value of money?

Accepted Answer

A)  The interest rate charged on a loan. 
B)  Accounts receivable that are determined uncollectible. 
C)  An investment in a checking account. 
D)  The relationship between time and money.

Question 7

IFRS does not intend to issue detailed guidance on the selection of a discount rate when the time value of money is required to determine cash flows.

Accepted Answer

A) True 
 B)False

Question 8

Dunston Company will receive $300,000 in a future year. If the future receipt is discounted at an interest rate of 10%, its present value is $153,948. In how many years is the $300,000 received?

Accepted Answer

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

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

What would you pay for an investment that pays you $20,000 at the end of each year for the next twenty years? Assume that the relevant interest rate for this type of investment is 12%.

Accepted Answer

A)  $167,316. 
B)  $1,441,048. 
C)  $20,733. 
D)  $149,389.

Question 11

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%.

Question 12

Under IFRS, the rate implicit in the lease is generally used to discount minimum lease payments.

Accepted Answer

A) True 
 B)False

Question 13

Anna has $15,000 to invest. She requires $25,000 for a down payment for a house. If she is able to invest at 6%, how many years will it be before she will accumulate the desired balance?

Accepted Answer

A)  6 years. 
B)  7 years. 
C)  8 years. 
D)  9 years.

Question 14

Maxim Company leased an office under a five-year contract, which has been accounted for as an operating lease. Faced with the downturn in the economy, the viable company decided to sub-lease the office. However, they have had no luck with this effort and the landlord will not allow the lease to be cancelled. The payments are $8,000 per year and there are four years left on the lease. The company's most recent interest rate for financing from a bank is 6%. The risk-free rate on government bonds is 4%. What is the provision for the lease under IFRS?

Accepted Answer

A)  $29,040 
B)  $30,096 
C)  $32,000 
D)  $27,721

Question 15

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.

Question 16

The unknown present value is always a larger amount than the known future value because dollars received currently are worth more than dollars to be received in the future.

Accepted Answer

A) True 
 B)False

Question 17

Simple interest is computed on principal and on any interest earned that has not been withdrawn.

Accepted Answer

A) True 
 B)False

Question 18

Sue Gray 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.

Question 19

Which table has a factor of 1.00000 for 1 period at every interest rate?

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 20

Jane wants to set aside funds to take an around the world cruise in four years. Jane expects that she will need $12,000 for her dream vacation. If she is able to earn 8% per annum on an investment, how much will she have to set aside today so that she will have sufficient funds available?

Accepted Answer

A)  $2,663. 
B)  $16,325. 
C)  $8,820. 
D)  $8,167.

Exam 6: Accounting and the Time Value of Money

Jane wants to set aside funds to take an around the world cruise in four years. Assuming that Jane has $12,000 to invest today in an account expected to earn 6% per annum, how much will she have to spend on her vacation?

Present value is

Al Darby 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?

What best describes the time value of money?

IFRS does not intend to issue detailed guidance on the selection of a discount rate when the time value of money is required to determine cash flows.

Dunston Company will receive $300,000 in a future year. If the future receipt is discounted at an interest rate of 10%, its present value is $153,948. In how many years is the $300,000 received?

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

What would you pay for an investment that pays you $20,000 at the end of each year for the next twenty years? Assume that the relevant interest rate for this type of investment is 12%.

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?

Under IFRS, the rate implicit in the lease is generally used to discount minimum lease payments.

Anna has $15,000 to invest. She requires $25,000 for a down payment for a house. If she is able to invest at 6%, how many years will it be before she will accumulate the desired balance?

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?

The unknown present value is always a larger amount than the known future value because dollars received currently are worth more than dollars to be received in the future.

Simple interest is computed on principal and on any interest earned that has not been withdrawn.

Sue Gray 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 table has a factor of 1.00000 for 1 period at every interest rate?

Jane wants to set aside funds to take an around the world cruise in four years. Jane expects that she will need $12,000 for her dream vacation. If she is able to earn 8% per annum on an investment, how much will she have to set aside today so that she will have sufficient funds available?