Accounting pre-test

annuity

A(n) __________ is a series of equal cash flows occurring at regular intervals with interest compounded at a specific date.

monetary item

A(n) __________ is cash or a claim to cash flows that is not affected by changes in the prices of specific goods or services.

Interest for the first 12 months is $13,500 ($150,000 × 9% × 1). Interest for the next 6 months is $7,358 [($150,000 + $13,500) × 9% × 6 ÷ 12]. $13,500 + $7,358 = $20,858.

ABC Company loans $150,000 for 18 months at an interest rate of 9%. How much interest will ABC Company collect on this loan assuming interest is compounded annually? (Round to the nearest dollar.)

This problem can be worked using the combination of the present value of an ordinary annuity and the present value of a single sum due in the future. PVdeferred = C × Po,n,I × Pk,I. PVdeferred = $50,000 × 3.5460 × 0.8638 = $153,151.74, or $153,152 rounded.

ABC Company purchases a building on January 1, 2019. The seller requires four payments of $50,000 each, with the first payment due on January 1, 2023. The interest is compounded at 5% annually. What is the cost of the building on January 1, 2019? (Round to the nearest dollar.) (Note: Use the present value of an ordinary annuity and the present value of a lump Sum tables to complete this question.)

Deferred ordinary annuity

ABC Company wants to invest $15,000 on January 1, 2019, so it may withdraw 10 annual cash flows of equal amounts beginning January 1, 2025. If the fund earns 10% annual interest over its life, what kind of annuity does ABC use to calculate the 10 equal payments?

impairment of noncurrent assets.

Accounting principles have not been extended to use present value for nonmonetary items, except for

ordinary annuity

An annuity is referred to as an __________ if the cash flows occur on the last day of the accounting period.

present value of an annuity

The __________ is the present value of a series of equal cash flows that occur in the future.

annual stated rate divided by the number of time periods in the year.

The formula to compute present value of a single sum is PV = FV × {1 ÷ [(1 + i)^n]}. The i stands for

annual stated rate divided by the number of time periods in the year.

The formula to compute the future value of a single sum is FV = PV × (1 + i)^n. The i stands for

number of time periods in the year multiplied by the number of years.

The formula to compute the future value of a single sum is FV = PV × (1 + i)^n. The n stands for

calculating the number of cash flows when the interest rate and future value are known.

The formula to compute the future value of an ordinary annuity can be used for many applications. It can be used in all of the following situations except

amount of each cash flow in the annuity.

The formula to compute the present value of an annuity due of any cash flow amount is: PVd = C × [{1 - [1 ÷ (1 + i)^n - 1]} ÷ i] + 1. The C in this formula stands for

number of cash flows.

The formula to compute the present value of an ordinary annuity of any amount is: PVo = C × {1 - [1 ÷ (1 + i)^n]} ÷ i. The n in this formula stands for

immediately after the last cash flow in the series occurs.

The future value of an ordinary annuity is determined

on the date of the first cash flow in the series.

The present value of an annuity due is determined

the factors needed are 10% and 9 time periods. Using these two numbers, the table factor is 6.3349. $9,000 × 6.3349 = $57,014.10, or $57,014 rounded.

Using the table approach, the present value of an annuity due of nine cash flows of $9,000 at 10% compounded annually would be which of the following? (Round to the nearest dollar.) (Note: Use the present value of an annuity due table to complete this question.)

2% (8% ÷ 4) and 12 (3 × 4) time periods. Using these two numbers, the table factor is 1.2682. $50,000 × 1.2682 = $63,410.

Using the table approach, what is the future value of $50,000 for 3 years at 8% interest compounded quarterly? (Round to the nearest dollar.) (Note: Use the future value of a single payment table to complete this question.)

$1,000 × 51.1601 = $51,160.10, or $51,160 rounded.

Using the table approach, what is the future value of an ordinary annuity for 20 cash flows of $1,000 each at 9% compounded annually? (Round to the nearest dollar.) (Note: Use the future value of an ordinary annuity table to complete this question.)

$12,500 × 0.6302 = $7,877.50, or $7,878 rounded.

Using the table approach, what is the present value of $12,500 to be received at the end of 6 years discounted at 8%? (Round to the nearest dollar.) (Note: Use the present value of a single payment table to complete this question.)

the factors needed are 9% and 20 time periods. Using these two numbers, the table factor is 9.1285. $1,000 × 9.1285 = $9,128.50, or $9,129 rounded.

Using the table approach, what is the present value of an ordinary annuity for 20 cash flows of $1,000 discounted at 9% compounded annually? (Round to the nearest dollar.) (Note: Use the present value of an ordinary annuity table to complete this question.)

A combination of the present value of an ordinary annuity and the present value of a single sum due in the future

Which of the following is one of the two ways to compute the present value of a deferred annuity?

The future value of an annuity due is determined one period before the last cash flow in the series.

Which of the following statements is not true?

The future value of an annuity due is the same as the future value of an ordinary annuity given the same scenario.

Which of the following statements is not true? - The future value of an annuity due is the same as the future value of an ordinary annuity given the same scenario. - When only future value of an ordinary annuity table is available, the general rule is to use the value of an ordinary annuity factor for n + 1 and subtract 1 from the factor. - You can determine the future value of an annuity due by looking up the relevant factor in the future value of an ordinary annuity table and adjusting the factor. - You can determine the future value of an annuity due by looking up the relevant factor in the future value of an annuity due table.

When only the future value of an ordinary annuity table is available, the general rule is to use the value of an ordinary annuity factor for n + 1 and subtract 1 from the factor. So, use 13 (12 + 1) and 8% to get the factor 21.4953. Then subtract 1 to get 20.4953.

You deposit 12 equal payments into your checking account on January 1, the beginning of each year which will be compounded at 8% annually. Using the table approach, what factor will you multiply by your payment amount to determine the future value? (Note: Use the future value of an ordinary annuity table to complete this question.)

Compounding

is the conversion of current-period cash flows to future value.

The present value of a single sum

is the value in today's dollars of a cash flow to occur at a future date.

Interest

represents the cost of the borrower for the use of money for a period of time, and it is the return to the lender for lending money for a period of time