Intermediate Exam 2

Canliss Mining Company borrowed money from a local bank. The note the company signed requires five annual installment payments of $10,000 beginning one year from today. The interest rate on the note is 7%. What amount did Canliss borrow?

41,002 (use PVOA=R*PVFOA(i,n)) PVOA=10,000*PVFPA(7%,5) 10,000*4.10020=41,002

If the payments are made at the beginning of each period it is ?

Annuity Due

Under the indirect method of preparing the statement of cash flows, which of the following is deducted from net income in the operating activities section? a) Gain on sale of land b) Amortization expense c) Decrease in inventory d) Increase in wages payable

a) Gain on sale of land

Which of the following would be classified as an operating activity?a) Payment of a cash dividend b) Sale of equipment c) Making a loan to another entity d) Payment of interest

d) Payment of interest

The Richards Company purchased a machine for $5,000 down and $300 a month payable at the end of each of the next 36 months. How would the cash price of the machine be calculated, assuming the annual interest rate is given? a. $5,000 plus the present value of $10,800 ($300 x 36). b. $5,000 plus the present value of an annuity due of $300 for 36 periods. c. $15,800. d. $5,000 plus the present value of an ordinary annuity of $300 for 36 periods.

d. $5,000 plus the present value of an ordinary annuity of $300 for 36 periods.

A series of equal periodic payments that starts more than one period after the agreement is called: a. An annuity due. b. An ordinary annuity. c. A future annuity. d. A deferred annuity

d. A deferred annuity

John has an investment opportunity that promises to pay him $16,000 in four years. He could earn a 6% annual return investing his money elsewhere. What is the maximum amount he would be willing to invest in this opportunity?

$12,673 Use PV=FV*PvF(i,n) PV=16,000*PvF(6%,4) 16,000*.79206=12,673

Bill O'Brien would like to take his wife, Mary, on a trip three years from now to Europe to celebrate their 40th anniversary. He has just received a $20,000 inheritance from an uncle and intends to invest it for the trip. Bill estimates the trip will cost $23,500 and he believes he can earn 5% interest, compounded annually, on his investment. Complete the following table to calculate the future value. Will he be able to pay for the trip with the accumulated investment amount?

$23,152.60 (use FV=PV*FVF(i,n)) FV=20,000*FVF(5%,3) 20,000*1.15763= $23,152.50 He does not have enough money to go on the trip.

Hailey wants to cash in her winning lottery ticket. She can either receive eight $200,000 semiannual payments starting today, based on a 6% annual interest rate, or she can receive a single-amount payment today. What is the single-amount payment she can receive today that would be equivalent to the eight-payment option except that she would not have to wait for years to collect her prize money?

1,446,056 (Use the pvad=R*pvfa(i,n)) pvad=$200,000*pvfa(3%,8) 200,000/7.23028= 1,446,056

The Strug Company purchased office furniture and equipment for $8,600 and agreed to pay for the purchase by making five annual installment payments beginning one year from today. The installment payments include interest at 8%. What is the required annual installment payment?

2,153.93 (use pvoa=R*pvfoa(i,n) 8,600=r*pvfoa(8%,5) 8,600/ 3.99271= 2,153.93

Laura won $5,000,000 in the state lottery, which she has elected to receive at the end of each month over the next 30 years. She will receive 7% interest on unpaid amounts. To determine the amount of her monthly check, she should use a table for the: a. Present value of an annuity due of $1. b. Future value of an annuity due of $1. c. Present value of an ordinary annuity of $1. d. Future value of an ordinary annuity of $1.

c. Present value of an ordinary annuity of $1. (In an ordinary annuity, cash flows occur at the end of each period. In an annuity due, cash flows occur at the beginning of each period.)

Land costing $78,000 was sold for $100,000 cash. The gain on the sale was reported on the income statement as other income. On the statement of cashflows, what amount should be reported as an investing activity from the sale of the land? a) $22,000 b) $78,000 c) $100,000 d) $178,000

c. $100,000 (Because other indicates that it is peripheral and not operating)

Wellman Company is considering investing in a two-year project. Wellman's required rate of return is 10%. The present value of $1 for one period at 10% is 0.909 and for two periods at 10% is 0.826. The project is expected to create cash flows, net of taxes, of $80,000 in the first year, and $100,000 in the second year. Wellman should invest in the project if the project's cost is less than or equal to: a. $180,000 b. $163,620 c. $155,320 d. $148,680

c. $155,320 ($80,000 x 0.909)+($100,000 x 0.826)

If a loss of $15,000 is incurred in selling (for cash) office equipment having a book value of $50,000 the total amount reported in the cash flows from investing activities section of the statement of cash flows is: a) $22,000 b) $78,000 c) $35,000 d) $15,000

c. $35,000 $50,000-$15,000 = $35,000

A series of equal periodic payments in which the first payment is made on the date of the contract is: a.A deferred annuity. b.An ordinary annuity. c.An annuity due. d.A delayed annuity.

c.An annuity due. (In an ordinary annuity, cash flows occur at the end of each period. In an annuity due, cash flows occur at the beginning of each period.)

Which of the following items would not be included as a cash flow from operating activities in a statement of cash flows? a.Collections from customers. b.Interest on note payable. c.Purchase of equipment. d. Purchase of inventory.

c.Purchase of equipment. (Purchase of equipment is reported as an investing activity in the statement of cash flows.)

A business issues 20-year bonds payable in exchange for preferred stock. This transaction would be reported on the statement of cash flows in :a) The cash flows from investing activities section b) The cash flows from operating activities section c) The cash flows from financing activities section d) A separate schedule

d) A separate schedule

Under the indirect method of preparing the statement of cash flows, an increase in accounts receivable is: a) Added to net sales b) Deducted from net sales c) Added to net income d) Deducted from net income

d) Deducted from net income

The change in accumulated depreciation on factory equipment would bereported in the statement of cash flows prepared by the indirect method in: a) The cash flows from financing activities section b) The cash flows from investing activities section c) The cash flows from operating activities section d) Not reported as it is not a cash flow

d) Not reported as it is not a cash flow

Bill O'Brien would like to take his wife, Mary, on a trip three years from now to Europe to celebrate their 40th anniversary. He has just received a $20,000 inheritance from an uncle and intends to invest it for the trip. Bill estimates the trip will cost $26,600. What interest rate, compounded annually, must Bill earn to accumulate enough to pay for the trip?

i=10% (use FV=PV*FVF(i,n) 26,000=20,000*FV(i,3) 26,000/20,000 =1.3 look at the correct chart go to three then find where you see 1.3 and it falls under 10%.

If the payments are made at the end of each period it is

Ordinary Annuity

The adjusted trial balance of Pacific Scientific Corporation on December 31, 2021, the end of the company's fiscal year, contained the following income statement items ($ in millions): sales revenue, $2,106; cost of goods sold, $1,240; selling expense, $126; general and administrative expense, $105; interest expense, $40; and gain on sale of investments, $45. Income tax expense has not yet been recorded. The income tax rate is 25%. Prepare a multiple-step income statement for 2021.

Sales Revenue $2,106 COGS ($1240) Gross profit 866 Operating expenses: Selling expense $126 General and administrative expenses $105 Total operating expenses: 231 Operating income: (866-231) 635 Other income (expense): Gain on sale of investments $45 Interest expense ($40) Total other income, net ( 45-40) 5 Income before income taxes (635+5) 640 Income tax expense ( 640x.25) (160) Net income (640-160) 480

Which of the following describes the modified retrospective approach to implementing a change in accounting principle? A. The new standard is applied only to the current period and all future periods, and the cumulative effects of prior periods is shown as an adjustment to retained earnings B. The new standard is applied to all periods presented in the financial statements C. The new standard is applied only to current period and all future periods D. The new standard is applied only to all future periods and not the current or previous periods

a. The new standard is applied only to the current period and all future periods, and the cumulative effects of prior periods is shown as an adjustment to retained earnings.

Loan A has the same original principal, interest rate, and payment amount as Loan B. However, Loan A is structured as an annuity due, while Loan B is structured as an ordinary annuity. The present value of Loan A will be: a. higher than Loan B. b. lower than Loan B. c. the same as Loan B. d. Indeterminate with respect to Loan B.

a. higher than Loan B. (Since payments from an annuity due are received sooner, its value is higher than if the payments are received later.)

A piece of equipment was sold for $3,000. The original cost was $15,000 and the accumulated depreciation was $10,000. Using the indirect method, what amount, if any, would appear in the operating activities section? a) $0 b) $2,000 c) $3,000 d) $15,000

b) $2,000 $15,000-$10,000-$3,000= 2,000

Under the indirect method of preparing the statement of cash flows, which of the following is added to net income in the operating activities section? a) Gain on sale of equipment b) Depreciation expense c) Increase in accounts receivable d) Decrease in accounts payable

b) Depreciation expense

Given a set of present value tables, an annual interest rate, the dollar amount of equal payments made, and the number of semiannual payments, what other information is necessary to calculate the present value of the series of payments? a. The future value of the annuity. b. The timing of the payments (whether they are at the beginning or end of the period). c. The rate of inflation. d. No other information is required.

b. The timing of the payments (whether they are at the beginning or end of the period).

The Sanchez Company purchased a delivery truck on February 1, 2021. The purchase agreement required Sanchez to pay the total amount due of $15,000 on February 1, 2022. Assuming an 8% rate of interest, the calculation of the price of the truck would involve multiplying $15,000 by the: a.Future value of an ordinary annuity of $1. b,Present value of $1. c.Present value of an ordinary annuity of $1. d.Future value of $1.

b.Present value of $1.

The in direct method of preparing the statement of cash flows begins with a) Collections from customers b) Cash sales c) Net income d) Beginning Cash Balance

c) Net income

Which of the following is not an operating activity? a) Payment of taxes b) Dividends received c) Payment of a cash dividend d) Payment to suppliers

c) Payment of a cash dividend

Depreciation on factory equipment would be reported in the statement of cashflows prepared by the indirect method in: a) The cash flows from financing activities section b) The cash flows from investing activities section c) The cash flows from operating activities section d) A separate schedule

c) The cash flows from operating activities section

On March 31, 2021, the Freeman Company leased a machine. The lease agreement requires Freeman to pay 10 annual payments of $6,000 on each March 31, with the first payment due on March 31, 2021. Assuming an interest rate of 10% and that this lease is treated as an installment sale, Freeman will initially value the machine by multiplying $6,000 by which of the following factors? a. Present value of $1 at 10% for 10 periods. b. Present value of an ordinary annuity of $1 at 10% for 10 periods. c. Present value of an annuity due of $1 at 10% for 10 periods. d. Future value of an annuity due of $1 at 10% for 10 periods.

c. Present value of an annuity due of $1 at 10% for 10 periods. (it is present value of an annuity due because the payment is made at the beginning. )

Sandra wants to calculate how much money she needs to deposit today into a savings account which earns 5% in order to be able to withdraw $3,000 at the end of each of the next 6 years. She should use which present value concept? a.Present value of $1 for 6 periods. b.Present value of an annuity due of $1 for 6 periods. c.Present value of an ordinary annuity of $1 for 6 periods. d.Future value of $1 for 6 periods.

c. Present value of an ordinary annuity of $1 for 6 periods.

The semiconductor business of the California Microtech Corporation qualifies as a component of the entity according to GAAP. The book value of the assets of the segment was $8 million. The loss from operations of the segment during 2021 was $3.6 million. Pretax income from continuing operations for the year totaled $5.8 million. The income tax rate is 25%. The estimated fair value of the segment's assets, less costs to sell, on December 31 was $7 million. Prepare the lower portion of the 2021 income statement beginning with income from continuing operations before income taxes. Ignore EPS disclosures

Income from continuing operations before income taxes $5,800,000 Income tax expense ( $5,800,000 x .25) ($1,450,000) Income from continuing operations ($5,800,000-$1,450,000) $4,350,000 Discontinued operations: Loss from operations of discontinued component $4,600,000 Income tax benefit ($4,600,000 x .25) 1,150,000 Income (loss) on discontinued operations $3,450,000 Net income (loss) ($4,600,000-$3,450,000) $900,000 loss from operations ( $3,600,000 + The difference from 8mill - 7mill $4,600,000)

Net income of Mansfield Company was $45,000. The accounting records reveal depreciation expense of $80,000 as well as increases in prepaid rent, salaries payable, and income taxes payable of $60,000, $15,000, and $12,000, respectively. Prepare the cash flows from operating activities section of Mansfield's statement of cash flows using the indirect method.

Net income $45,000 Adjustments for noncash effects: Depreciation expense $80.,000 Changes in operating assets and liabilities Increase in prepaid rent ($60,000) Increase in income taxes payable $12,000 Increase in salaries payable $15,000 Net cash inflows from operating activities $92,000

The Stibbe Construction Company switched from the completed contract method to the percentage-of-completion method of accounting for its long-term construction contracts. This is an example of a. A change in accounting principle. b. A change in accounting estimate. c. An unusual item. d. A discontinued operation.

a. A change in accounting principle. (The company is changing the method it uses to account for long-term construction projects. This is a change in accounting principle.)

Danielle wants to know how much she should invest now at 5% interest in order to accumulate a sum of $45,000 in four years. She should use a table for the: a. Present value of $1. b. Future value of $1. c. Present value of an ordinary annuity of $1. d. Future value of an annuity due of $1.

a. Present value of $1. ( There is no R so it would be SS. $45,000 is future)

On the statement of cash flows, the cash flows from operating activities section would include: a) Receipts from interest on short-term notes receivable b) Receipts from the issuance of capital stock c) Payments for the acquisition of investments d) Payments for cash dividends

a. Receipts from interest on short-term notes receivable

A series of equal periodic payments in which the first payment is made one compounding period after the date of the contract is: a. A deferred annuity. b. An ordinary annuity. c. An annuity due. d. A delayed annuity.

b. An ordinary annuity. (In an ordinary annuity, cash flows occur at the end of each period. In an annuity due, cash flows occur at the beginning of each period.)

For a manufacturing company, each of the following items would be considered nonoperating income for income statement purposes except: a. income statement investment b. Cost of goods sold c. Interest expense d. Gain on sale of investments

b. Cost of goods sold (Cost of goods sold will usually be the largest operating expense reported by a manufacturing company. Income from investments, interest expense, and gain on sale of investments would be considered nonoperating items.)

The Jamison Corporation agrees to pay an employee $10,000 a year for five years beginning three years from today and decides to fund the payments by depositing one lump sum in a savings account today. The company should use which present value concept to determine the required deposit? a. Future value of $1. b. Present value of a deferred annuity. c. Future value of a deferred annuity. d. None of the choices are correct.

b. Present value of a deferred annuity.