Intermediate accounting ch 6

Which of the following describes the use of present value concepts applied to environmental liabilities?

Determining the fair value of future obligations for asset retirements.

In solving single-sum problems, which of the following values can be calculated?

Future value, present value, number of periods and interest rate.

Which of the following investments will result in the smallest future amount?

One that offers annual compounding.

On December 1, 2017, Doreen Company sold land to McKnight Company. The two companies entered into an installment sales contract at a predetermined interest rate. The contract required five equal annual payments with the first payment due on December 1, 2017, the date of the sale. What present value concept is appropriate for this situation?

Present value of an annuity due of 1 for five periods.

Which of the following is a correct definition for one of the variables fundamental to all compound interest problems?

The present value is the value now (present time) for a future sum or sums discounted assuming compound interest

Which of the following statements is incorrect regarding the variables that are fundamental to all compound interest problems? a. A time period may be equal to or less than a year. b. The rate of interest is a semi-annual rate that must be adjusted, if necessary, to the length of the compounding period. c. The future value is the value at a future date of a given sum or sums invested assuming compound interest. d. The present value is the value now (present time) for a future sum or sums discounted assuming compound interest.

The rate of interest is a semi-annual rate that must be adjusted, if necessary, to the length of the compounding period

A deferred annuity is one in which the rents begin:

after a specified number of periods.

When the future value of an annuity due is computed, the number of compounding periods will always be

equal to the number of rents.

When the present value of an ordinary annuity is computed, the number of discount periods will always be:

equal to the number of rents.

A deferred annuity does not begin to produce rents until three or more periods have expired.

false

In order to determine how much $100,000 deposited now will grow to 6 years from now, one would use the:

future value of 1 table, present value of 1 table, formula FV = PV (FVFn,i).

Simple interest is expressed in which of the following formulas?

p x i x n.

The ___________ of interest is the amount a lender would charge if there were no possibilities of default and no expectation of inflation.

pure rate

The rate used to discount expected cash flows should consider only the

pure rate of interest and the inflation rate.

An annuity due must have

same-length intervals between each payment, periodic payments or receipts of the same amount, compounding of interest once each interval.

Compound interest uses the accumulated balance (principal plus interest to date) at each year-end to compute interest in the succeeding year.

true

Other factors being equal, the lower the credit risk, the lower the interest rate.

true

Simple interest is computed on the principal only.

true