Intermediate Ch 6 LS
Beth will deposit $1,000 at the end of each year for 4 years. Assuming an 8% rate of interest, how much will Berth have in the bank at the end of year 4? Round your answer to the nearest dollar. -$4,320 -$1,320 -$4,800 -$4,506
$4506 1,000 time the future value factor of 8% for 4 periods = $1,000(4.5061)=$4,506
Turp and Tyne Distillery is considering investing in a two-year project. The company's required rate of return is 10%. The present value of $1 for one period at 10% is .909 and .826 for two periods at 10%. The project is expected to create cash flows, net of taxes, of $240,000 in the first year, and $300,000 in the second year. The distillery should invest in the project if the project's cost is less than or equal to:
$465,960 =$218,160 ($240,000x0.909) + @247,800 ($300,00x0.826)
I. R. Wright plans to make quarterly deposits of $200 for 5 years into a savings account. The first deposit will be made immediately. The savings account pays interest at an annual rate of 8%, compounded quarterly. How much will Wong have accumulated in the savings account at the end of the five-year period? Future value of an ordinary annuity of $1 at 8% for 5 periods 6.3359 Future value of an annuity due of $1 at 8% for 5 periods 5.8666 Future value of an ordinary annuity of $1 at 2% for 20 periods 26.1833 Future value of an annuity due of $1 at 2% for 20 periods 24.2974
$4860 ($200x24.2974)
U. B. Wong plans to make quarterly deposits of $200 for 5 years into a savings account. The deposits will be made at the end of each quarter. The savings account pays interest at an annual rate of 8%, compounded quarterly. How much will Wong have accumulated in the savings account at the end of the five-year period? Future value of an ordinary annuity of $1 at 8% for 5 periods 6.3359 Future value of an annuity due of $1 at 8% for 5 periods 5.8666 Future value of an ordinary annuity of $1 at 2% for 20 periods 26.1833 Future value of an annuity due of $1 at 2% for 20 periods 24.2974
$5,237 ($200x26.1833)
On January 1, year 1, Dennis borrows $20,000 at 6% interest compounded semi-annually. What is the amount of interest Dennis will pay at the end of year 4?
$5,335 ($20,000x(1.03^8))-$20,000 = $5,335
On January 1, year 1, Dennis borrows $20,000 at 6% interest compounded semi-annually. What is the amount of interest Dennis will pay at the end of the year 4? -$4,800 -$2,510 -$5,335 -$5,250
$5,335 [20,000 x (1.03^8)]-20,000 = 5335
Roland Corp. is involved in litigation that may require the company to pay cash compensations for damages. The loss amounts and probability are indicated in the following table.
$57,000
The Omagosh Company purchased office furniture for $25,800 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%. The present value of an ordinary annuity for 5 periods at 8% is 3.99271. The present value of an annuity due for 5 periods at 8% is 4.31213. What is the required annual installment payment?
$6,462 ($25,800/3.99271)
James would like to deposit enough money into a savings account to have $8,000 at the end of year 3. Assuming the investment will earn 5% compounded annually, what amount should James deposit in the savings account today?
$6,911 $8,000/(1+.05)^3 = $6,911
Lakeland Corp. calculated that in the current year its employees earned an additional annuity of $10,000 for 20 years commencing with their retirement 12 years from today. Lakeland assumes a future interest rate of 6%. If the value of the annuity is $121,581 on the date the employees retire, what amount should be contributed today to fully fund the pension plan?
$60,422 The present value of $121,581 represents the amount needed in the pension fund at the end of year 12. Therefore, the present value is calculated as $121,581 x .49697 = $60,422 Table 2: Present Value
James would like to deposit enough money in a savings account to have $8000 at the end of year 3. Assuming the investment will earn 5% compounded annually, what amount should James deposit int he savings account today?
$6911
Ilsa will deposit $1,000 at the end of each year for 6 years. Assuming a 10% rate of interest, how much will Ilsa have in the bank at the end of year 6? Round your answer to the nearest dollar. -$6,600 -$7,772 -$1,772 -$7,716
$7,716
Ilsa will deposit $1,000 at the end of each year for 6 years. Assuming a 10% rate of interest, how much will Ilsa have in the bank at the end of year 6?
$7,716 $1,000 x (7.7156) = $7,716 Table 3: FV of an Ordinary Annuity
On January 1, year 1, Mary borrows $30,000 at 8% interest compounded semi-annually. What is the amount of interest Mary will pay at the end of year 3? Round your answer to the nearest dollar.
$7,960 ($30,000 x (1.04^6)) - $30,000 = $7,960
On January 1, year 1, Mary borrows $30,000 at 8% interest compounded semi-annually. What is the amount of interest Mary will pay at the end of year 3?
$7,960 ($30,000x(1.04^6))-$30,000 = $7,960
Smith loans $750 to an employee for one year at a 10% annual interest rate with the principal and interest due at the end of the year. __ is the amount of interest Smith will earn at the end of the year.
$750x10%=$75
Suppose a software vendor sold a software package to a customer for $95,000. As part of the contract the vendor promises "free" upgrades over the next 2 years. However, the vendor sells the same software without the upgrades for $80,000 and sells the upgrades separately for $20,000. Based on that "vendor-specific objective evidence," how much revenue does the software vendor recognize when the initial software is delivered? -$75,000 -$76,000 -$80,000 -$95,000
$76,000, the fair value of the upgrades is 20% of the total fair value of the elements. The software sales are 80% of the total fair value of the elements. Therefore, 80% x $95,000 may be recognized as revenue when the initial software is delivered
On January 1, year 1, Mary borrows $30,000 at 8% interest compounded semi-annually. What is the amount of interest Mary will pay at the end of year 3?
$7960
First County Bank loans $100,000 to a customer. At the end of the year, the customer is required to repay the $100,000 loan with 8% interest. What is the amount of interest First County Bank earns on this loan?
$8,000
Second National Bank loans $10,000 to a customer. At the end of the year, the customer is required to repay the $10,000 with 10% interest. What is the amount of interest Second National Bank earns on this loan? -$9,000 -$11,000 -$10,000 -$1,000
$1,000
On January 1, Biggs Corp. borrowed $20,000 with 4% simple interest. What is the amount of interest that must be paid at year-end -$80 -$400 -$20,800 -$800
$800
On January 1, Biggs Corp. borrowed $20,000 with 4% simple interest. What is the amount of interest that must be repaid at year-end? -$20,800 -$800 -$400 _$80
$800
Carter Co. signs a $150,000 noninterest-bearing 5-year note payable for goods purchased from Maury Industries. The appropriate rate of interest for this type of note is 8%. At the time the note is signed, what is the present value of the note on Carter's records?
$102,087 $150,000/(1.08)^5 = $102,087
Donau Company sells a video streaming devices for $100. A one-year subscription for unlimited video streaming costs $120. Alternatively, customers can rent videos on demand or subscribe to a competing service. On February 1, Robert purchases both the steaming device and sign-up for one year of service. How much revenue should Donau recognize for the month of February? -$0 -$10 -$220 -$110
$110 $100 for device and $10 for one month of service
ABC Company, a real estate developer, sold a tract of land for $1,000,000. The sale agreement requires the buyer to make five equal annual payments of $200,000. The land cost $400,000 to develop. ABC uses the installment method to recognize revenue. What amount of gross profit is recognized when the first payment is made? -$0 -$120,000 -$200,000 -$240,000
$120,000 Gross profit%=$6000,000/1,000,000=60%*200,000
Karel sells goods to customers in exchange for a $100,000 noninterest-bearing note due in two years. The interest rate on this type of loan is 8%. What is the present value of the note?
$85,734 $100,000/(1.08)^2 = $85,734
On January 1, year 1, Klondike issued 10-year bonds with a stated rate of 10% and a face amount of $100,000. The bonds pay interest annually. The market rate of interest was 12%. Calculate the issue price of the bonds.
$88,699
Alex invested $10,000 in a savings account for 4 years at 10% compounded annually. What is the future value of Alex's investment?
$14,641 $10,000(1.10^4) = $14,641
The Knotworth Gedding Consulting Company purchased a machine for $15,000 down and $500 a month payable at the end of each of the next 36 months. How would the company calculate the cash price of the machine, assuming the annual interest rate is known?
$15,000 plus the present value of an ordinary annuity of $500 for 36 periods.
Ronald signs a lease agreement that requires him to pay $4,000 at the end of each year for 7 years. The interest rate on this type of lease is 8%. Calculate the present value of the lease payments.
$20,825 Table 4: Present Value of an Ordinary Annuity
Sperry Corp. signs a 2-year note payable for $100,000. The principal of the note and the interest are due in 2 years, and the note bears interest at 10% compounded annually. What is the amount of interest that must be repaid at the end of year 2?
$21,000 Amount paid at the end of year 2 is calculated as $100,000(1.10^2)=121,000. The repayment amount of $121,000 - $100,000 borrowed = $21,000 interest paid.
Sperry Corp. signs a 2-year note payable for $100,000. The note bears interest at 10% compounded annually. What is the amount of interest that must be repaid at the end of year 2?
$21,000 = Aount paid at end of year 2 is calulated as $100,000(1.10^2)=121,000. The repayment amount of $121,000-100000=21000
Jennifer invested $20,000 in a savings account for 3 years at 6% compounded annually. What is the future value of Jennifer's investment? -$21,200 -$23,831 -$23,830 -$23,600
$23,820 Future value=20,000 x (1.06)^3 = 23820
Carol expects to receive $1,000 at the end of each year for 5 years. The annuity has an interest rate of 10%. The PV of this annuity at Time Zero, the inception of the annuity is -$3,791 -$5,000 -$4,500 -$6,105
$3,791
Carol expects to receive $1,000 at the end of each year for 5 years. The annuity has an interest rate of 10%. The present value of this annuity at Time Zero, the inception of the annuity (rounded to the nearest dollar) is -$3,791 -$4,500 -$5,000 -$6,105
$3,791
Rhonda expects to receive an annuity that pays $500 at the beginning of each year for 10 years. Assuming the interest rate is 6%, what is the present value of this annuity? Round your answer to the nearest dollar -$3,901 -$6,591 -$3,680 -$5,300
$3,901 Using the PVAD factor of 6% for 10 periods, multiply 7.80169 x $500=$3,901
Rhonda expects to receive an annuity that pays $500 at the beginning of each year for 10 years. Assuming the interest rate is 6%, what is the present value of this annuity? Round your answer to the nearest dollar -$3,680 -$6,591 -$5,300 -$3,901
$3,901 using the PVAD factor of 6% for 10 periods, multiply 7.80169 x $500 = $3,901
Jones sign a three-year contract to construct a new office building for Smith. The contract price is $3 million and estimated cost $2 million. For year one, Jones recognizes $1 million of revenue and $800,000 of cost. During year 2, Jones incurs $1.2 million in cost and estimates that during year 3 an additional $1.1 million will be necessary to complete the project. For year 2, Jones will recognize a loss of: -$300,000 -$100,000 -$0 -$200,000
$300,000 $100,000 total loss + $200,000 gross profit recognized during year 1
Carel, a software vendor, sold software to a customer for $50,000. As part of the contract, the vendor agrees to provide free updates for 2 years. The software sells alone with no upgrades for $40,000, and the upgrade are valued at $5,000 per year. Based on vendor-specific objective evidence, how much revenue should Carel recognize when the initial software is -$10,000 -$40,000 -$50,000 -$45,000
$40,000
Kate expects to receive an annuity that pays $5,000 at the beginning of each year for 10 years. Assuming the interest rate is 5%, what is the present value of this annuity? Round your answer to the nearest dollar. -$38,609 -$62,890 -$40,539 -$66,034
$40,539 using the PVAD factor of 5% for 10 periods, 8.10782 x $5,000 = $40,539
On January 1, McLeacn Crop. borrowed $50,000 with 8% simple interest. What is the amount of interest that must be repaid at year-end? -$2000 -$400 -$54,000 -$4000
$4000
On January 1, McLean Corp. borrowed $50,000 with 8% simple interest that must be repaid at year-end?
$4000
If Company A physically transfers goods to another company to sell on its behalf, but Company A retains title to the goods, this is referred to as a_____
consignment
Prior period adjustments:
correction of a material error of a prior period.
The _____ _____ method defers all gross profit until cash equal to the cost of the item sold has been received, and is more conservative than the installment sales method
cost recovery
The interest rate used in the expected cash flow approach to estimating the value of assets or liabilities is the:
credit-adjusted risk-free rate.
Financial statement users can learn the amount of revenue reported by a company by reviewing its income statement and learn additional detailed revenue-related information by reviewing the company's -disclosure notes -charter -balance sheet -ledger
disclosure notes
Interest that is compounded more frequently has the effect of increasing the actual rate. This is referred to as the __ rate at which money grows per year.
effective
The _____ interest rate is the amount at which money will actually grow per year with compounding interest
effective
The rate at which money actually grows during a year is called the __________ rate.
effective
The rate at which money will actually grow during a year:
effective rate or yield.
The rate at which money will actually grow during a full year is referred to as the
effective rate.
The terms used to describe the rate at which money will grow during a full year are the __ and the __.
effective yield, annual yield
For the purpose of allocating the transaction price to multiple performance obligations, if a stand-alone selling price cannot be directly observed, the seller should -not allocate any portion of the contract price to the performance obligation -use a residual value approach -estimate it
estimate it
A warranty that is normally sold separate and covers either a longer period of time and or additional risks is a(n) -extended warranty -product warranty -quality-assurance warranty
extended warranty
True or false: When the installment sales method is used, the amount of gross profit recognized in a period is equal to the gross profit percentage multiplied by the sales price
false
Cash borrowed or paid to a creditor is an example of a(n)___________ activity.
financing
Fuller contracted with the owners of "Healthy Bakeries" to open a bakery, sells its signature products and use its name and logo. This aggreement refers to a -franchise -consignment -principle-agent agreement -trademark
franchise
In a franchise arrangement, the ______ grants to the _____ the right to sell products and use its name
franchisor, franchisee
$1,000 invested today at 10% compounded annually will grow to $1,210 at the end of two years. What is the $1,210 value referred to as? -market value -future value -present value -annuity value
future value
Joshua would like to deposit $12,000 in a savings account today. He is interested in knowing what that investment will be worth when he retires at age 62. Joshua is interested in calculating what amount? -market value -present value -future value
future value
The calculation of __________ value requires the addition of interest, while the calculation of ___________ value requires the removal of interest.
future, present
Estimated losses on the entire long-term project are recognized immediately because otherwise the CIP account would be value at an amount_____the amount the company expects to realize on the contract -equal to -greater than -less than
greater than
A bond will be issued at a discount when the market rate of interest is:
greater than the stated rate.
What would cause the annual interest rate to be different from the annual effective rate or yield?
if the interest is compounded more frequently than once a year, the effective rate or yield will be higher than the annual stated rate
Which of the following are monetary liabilities?
if you borrow money from a bank and sign a note payable, the amount of cash to be repaid to the bank is fixed. bond payable at 4% interest due in 20 years note payable at 6% interest due in 6 months accounts payable
If you invest $5,000 in a savings account with quarterly compounding at 16%, what is the interest rate per compounding period?
4%
The value of investment B at the end of year 6 is $50,000. Assuming tht interest is compounded semi-annually, and the interest rate is 8%, the present value of investment B can be calculated by multiplying $50,000 times the present value factor of
4% for 12 periods
The value of Investment C at the end of year 5 is $60,000. Assuming that interest is compounded semi-annually, and the interest rate is 10%, the PV of investment C can be calculated by multiplying $60,000 times the PV factor of -10% for 5 periods -5% for 10 periods -2% for 5 periods -5% for 5 periods
5% for 10 periods
On January 1, Susan signs a 1-year note payable for $1,000 with 5% simple interest. The simple interest paid on this loan at year-end is $______________.
50 (1,000 x .05 = 50)
If you invest $1,000 in a savings account with semiannual compounding at 12%, what is the interest rate per compounding period?
6%
If you invest $1,000 in a savings account with semiannual compounding at 12%, what is the interest rate per compounding period? -4% -3% -12% -6% -1%
6% 12%/2 compounding periods = 6%
FASB Concept Statement No. ____________ provides framework for using future cash flows as the basis for accounting measurement.
7
Ilsa will deposit $1,000 at the end of each year for 6 years. Assuming a 10% rate of interest, how much will Ilsa have in the bank at the end of year 6. -7,716 -7,772 -6,600 -1,772
7,716
Pre-ASU guidance specifies that although the preferred method of revenue recognition is upon delivery, the _____ sales method can be used when there is uncertainty regarding collectibility of the receivable
installment
Jim borrows $1,000 and has to repay $1,100 at the end of the year. The $100 payments is referred to as _____
interest
__ is the amount paid for the use of money for some period of time.
interest
Amount of money paid/received in excess of amount borrowed/lent:
interest.
Simple interest is computed by multiplying which of the following?
intial investment both the applicable interest rate and the period of time for which money is used.
The price of a bond includes
is the PV of the face amount plus the PV of the periodic interest payments.
The farther into the future money is to be received, the ____________ valuable it is now.
less
Over a 5-year period, simple interest is __________ compound interest on the same note.
less than
A bond will be issued at a premium when the market rate of interest is:
less than the stated rate.
Time value of money concepts are useful in valuing
liabilities and assets
Time value of money calculations are required for which topics?
long-term notes payable, leases, and pensions.
An approach under which cash flows will be classified based on how related assets and liabilities are used is referred to as a _________ approach .
management
The _______ rate of interest is the interest rate on that date the bonds are issued.
market
Claim to receive a fixed amount of money:
monetary asset.
What include money and claims to receive money, the amount of which is fixed or determinable
monetary asset.
Money and claims to receive money in amounts that are fixed or determinable are called
monetary assets
Obligation to pay a sum of cash, the amount of which is fixed:
monetary liability .
Which of the following are monetary assets?
money and claims to receive money, the amount of which is fixed or determinable. cash, note receivable, accounts receivable
No fixed dollar amount attached:
non monetary asset.
Which of the following topics requires knowledge of time value of money concepts? -accounts receivable -notes receivable -utilities payable -accounts payable
notes receivable
Which of the following topics requires knowledge of time value of money concepts?
notes receivables
A monetary liability is a(n) __ to pay a fied or determinable amount of cash.
obligation
With an ordinary annuity, the final cash flow takes place -on the final day of the agreement -one period before the end of the agreement
on the final day of the agreement
For an ordinary annuity, the first payment is made
one compounding period after the date of which the agreement begins. At the end of the first period.
The inflows and outflows of cash that result from activities reported in the income statement are classified as cash flows from ______ activities.
operating activities
Cash flows occur at the end of each period
ordinary annuity
In a(n) _________ __________ the series of equal payments are made at the end of each period.
ordinary annuity
The first cash flow in an __ __ occurs one compounding period after the date the agreement begins.
ordinary annuity
First cash flow occurs one period after agreement begins:
ordinary annuity.
If the seller provides a product or service that is customized by the customer and for which the seller has no alternative use, the seller should probably recognize revenue -when the project begins -over time -when the project is complete
over time
When should ongoing franchise fees be recognized by the franchisor? -over time in the periods the services are performed by the franchisor -at the end of the franchise contract when all terms are completed -in the period the contract is signed
over time in the periods the services are performed by the franchisor
Time value of money calculations are required for what topics >
pensions, leases , and long-term notes payable
Revenue is recognized when the _____ obligation is satisfied
performance
Pedro invests $1,000 in a savings account earning 3%interest. At the end of the first year, Pedro has $1,030 in the account. Then $1,000 Pedro initially put in the savings account is the _____ value -future -absolute -present
present
Pedro invests $1000 in a savings account earning 3% interest. At the end of the first year, Pedro has $1030 in the account. The $1000 Pedro initially put in the savings account is the _________ value.
present
The formula "future value divided by the quantity (1+i)nm is the formula for
present
To calculate future value, the interest rate, number of periods, and the __ value must be known.
present
$1,000 invested today at 10% compounded annually will grow to $1,100 at the end of one year or $1,210 at the end of two years. What is the initial $1,000 referred to as? -future value -market value -annuity value -present value
present value
Karr Company borrowed $100,000 by signing a 5-year not payable at 8% interest. At the end of year 5, Karr will repay the bank $146,933. At the time the not is signed, the $100,000 is referred to as the _____ of the note payable -market value -present value -future value
present value
Karr Company borrowed $100,000 by signing a 5-year not payable at 8% interest. At the end of year 5, Karr will repay the bank $146,933. At the time the note is signed, the $100,000 is referred to as the ___________ of the note payable.
present value
Most accounting applications of the time value of money use:
present value of annuity computations.
The price of a bond includes:
present value of the face amount plus the present value of the periodic interest paymentexa
The price of a bond includes:
present value of the face amount plus the present value of the periodic interest payments
We value most receivable and payables at the __ value of __ cash flows, reflecting an appropriate time value of money.
present, future
We value most receivables and payables at the __________ value of __________ cash flows, reflecting an appropriate time value of money.
present, future
Brenda places $1,000 in a savings account that earns 3% interest. At the end of the year, Brenda has $1030. The $1000 is the __ value, whereas the $1030 is the __ value.
present, value
To determine the price of bonds, we add the __ value of the interest payments and the __ value of the lump-sum payment paid at maturity.
present; present
FASB Concept Statement No. 7
provides a framework for using future cash flows as the basis for accounting measurement
Investing activities:
related to acquisition and disposition of long-term assets.
Financing activities:
related to the external financing of the company.
Options for additional goods or services that are treated as separate performance obligations -do not require allocation of the contract price -are combined with the original contract -require allocation of the contract price
require allocation of the contract price
Earning per share:
required disclosure for publicly traded corporation.
_____accounting standards help ensure that the appropriate amount of revenue appears in each period's income statement -historical costing -revenue recognition -conservatism
revenue recognition
The initial investment multiplied by the applicable interest rate an multiplied again by the period of time for which the money is used is referred to as __ interest.
simple
The initial investment multiplied by the applicable interest rate and multiplied again by the period of time for which money is used is referred to as ____________ interest.
simple
The initial investment multiplied by the applicable interest rate and multiplied again by the period of time for which the money is used is referred to as _____ interest
simple
Computed by multiplying an invested amount by the interest rate:
simple interest.
__ interest is calculated by multiplying an initial investment times the applicable interest rate and the period of time the money is used, where as __ interest involves earning interest on the interest.
simple, compound
_____ interest is calculated by multiplying an initial investment times the applicable interest rate and the period of time the money is used, whereas _____ interest involves earning interest on the interest
simple, compound
The __ rate of interest is used to pay periodic interest on the bonds, whereas the market rate of interest is used to calculate interest expense.
stated
The ___ rate of interest is used to compute the cash interest paid to bond holders
stated
The _____________ rate of interest is used to pay periodic interest on the bonds, whereas the market rate of interest is used to calculate interest expense.
stated
The rate of interest printed on the face of a bond is referred to as the __ interest rate.
stated
The rate of interest printed on the face of a bond is referred to as the _________ interest rate.
stated
The financial statement that provides information about cash receipts and cash disbursements for the period is the_____.
statement of cash flows
Define the present value of a single amount
that amount of money today that is equivalent to a given amount to be received or paid in the future
Monetary payables and receivables are valued based on
the amount of cash to be received or paid in the future with proper reflection of the time value of money. a proper adjustment for the time value of money the fixed amount of cash to be paid or received in the future.
Monetary payable s and receivables are valued based on:
the fixed amount of cash to be paid or received in the future and a proper adjustment for the time value of money
The __ __ of money concept means that money invested today will grow to a larger amount in the future.
time value
The difference between $100 invested now and $105 at the end of year 1 represents the -time value of money -future value -compound interest rate -interest rate
time value of money
Comprehensive income:
total no owner change in equity.
The _____ price is the amount the seller expects to be entitled to recieve from the customer in exchange for providing goods and services
transaction
True or false: An estimated overall loss on a long-term contract is fully recognized in the first period the loss becomes evident, regardless of the revenue recognition method used
true
True or false: Recognized losses on long-term contracts reduce the construction in progress acount
true
The installment sales method of revenue recognition is used only when there is a high amount of _____ concerning collection of cash
uncertainty
Which of the following is not a monetary liability?
unearned revenue
Unrealized holdings gain on investment:
unusual, infrequent, and material gains and losses.
The future value of an ordinary annuity table is used when calculating:
The future value of a series of payments
In situations when the compounding period is less than a year, the interest rate per compounding period is determined by diving the annual rate by what?
The number of periods
In situations when the compounding period is less than a year, the interest rate per compounding period is determined by dividing the annual rate by what?
The number of periods.
Essex Corporation is evaluating a lease that takes effect on March 1. The company must make eight equal payments, with the first payment due on March 1. The concept most relevant to the evaluation of the lease is:
The present value of an annuity due.
The _________ ___________ of money concept means that money invested today will grow to a larger amount in the future.
Time Value
The difference between $100 invested now and $105 at the end of year 1 represents the -Future value -Time value of money -Interest rate -Compound interest rate
Time value of money
Which concept means that money can be invested today to earn interest and grow to a larger amount in the future?
Time value of money concept
Money can be invested today and grow to a larger amount:
Time value of money.
T/F: A lease is an annuity when it requires equal payments at the same interval.
True
T/F: When pricing a bond, the PV of the annuity of the coupon payments is added to the PV of the maturity value of the bond.
True
True or False: Present value calculations are used in calculating pension contributions for defined benefit plans.
True Pension contributions require the calculation of the present value of the pension annuity.
True or False: A lease is an annuity when it requires equal payments at the same interval.
True.
How much will accumulate ?
Use FV tables
Deferred Annuity
Use PV of $1
The methods for computing present value of a single amount include which of the following?
Using a financial calculator calculating present value with a formula using a present value table
What is a deferred annuity?
a deferred annuity exists when the first cash flow occurs more than one period after the date the agreement begins
An obligation to pay amounts of cash which is fixed or determinable is called:
a monetary liability.
What is an annuity?
a series of equal sized cash flows occurring over equal intervals of time
Which of the following are classified as cash inflows from financing activities ? a)issuance of bonds b)dividends received from investment c)sale of common stock d)treasury stock purchase
a)issuance of bonds & c)sale of common stock
Which of the following are cash outflows from financing activities ? a)payment of dividends b)issuance of common stock c)payment of income taxes d)purchase of equipment e)repayment of notes payable
a)payment of dividends d)purchase of equipment e)repayment of note payable
The objectives for determining the PV of future cash flows associated with an asset or liability requires that the uncertainty concerning the ________ and timing of the cash flows be taken into consideration
amounts
What is an ordinary annuity?
an ordinary annuity exists when the cash flows occur at the end of each period
Which of the following likely would be treated as a separate performance obligation related to the purchase of a pair of prescription eye glasses? -a mirco-fiber cleaning cloth that is included with the glasses -a eye glass case needed to protect the lenses -an unlimited time coupon for 50% off an additional pair of eye glasses
an unlimited time coupon for 50% off an additional pair of eye glasses
Interest is typically states as a(n) _____ rate regardless of the compounding period involved.
annual
Unless otherwise specified in a problem, interest rates are always stated as what type of rate?
annual
A series of payments in the same amount is referred to as
annuity
A(n) __________ is a series of equal payments received or paid at equal intervals.
annuity
A series of equal sized cash flows:
annuity .
In an __ __ cash flows occur at the beginning of each period.
annuity due
Tom signs a contract to rent a car for 3 years. The first payment is due the day the agreement is signed. This type of annuity is an -ordinary annuity -annuity due -up front annuity
annuity due
Tom signs on a contract to rent a car for three years. The first payment is due the day the annuity is signed. This type of annuity is an
annuity due
In a(n) __ __, the payment is received or made at the beginning of the period, whereas in a(n) __ ___, the payment is received at the end of each period.
annuity due, ordinary annuity
First cash flow occurs on the first day of the agreement:
annuity due.
Time value of money concepts are useful in valuing __ and __.
assets and liabilities
intraperiod tax allocation:
associates tax with income statement item.
An annuity due has the first payment due at the
beginning of the first period
On January 5, Merkel Inc. purchases office equipment for its new branch office from Norbert Company. Merkel requests that the equipment be delivered after the renovation of the branch location is completed. This agreement is referred as a: -long-term purchase contract -franchise agreement -consignment contract -bill-and-hold arrangement
bill-and-hold arrangement
Which of the following items require time value of money concepts?
bonds payable, capital leases, pensions
Which of the following are common annuity examples?
bonds, loans, leases
The initial franchise fee can only be recognized as revenue once substantial performance is achieved. How is substantial performance measured? -by fulfilling 90% of the contract -by applying professional judgement -by applying cost recovery rules -by using the percentage-of-completion method
by applying professional judgement
Karel sells goods to customers in exchange for $100,000 noninterest-bearing note due in 2 yrs. The interest rate on this type of loan is 8%. What is the PV of the note? -92,593 -100,000 -84,000 -85,734
85,734
A discontinued operation:
A component of entity.
Which of the following should not be reported in a statement of cash flows - direct method ? a)interest b)amortization c)depreciation d)wages and salaries
Amortization & Depreciation
When determining the fair value of an asset or liability, which of the following two issues should be considered regarding the cash flows?
Amount & Timing
When determining the fair value of an asset or liability, which of the following two issues should be considered regarding the cash flows?
Amount and timing
Required annual installment payment =
Amount/PV #
Interest is typically stated as an ____ rate regardless of the compounding period involved
Annual
Interest is typically stated as an ____________ rate regardless of the compounding period involved.
Annual
A series of payments in the same amount is referred to as -FV -PV -Maturity value -Annuity
Annuity
A series of payments in the same amount is referred to as ___
Annuity
A(n) _______ is a series of equal payments received or paid at equal intervals.
Annuity
An _ is a series of equal payment received or paid at equal intervals.
Annuity
Jenson rents equipment by signing a contract to pay $1,00 per month at the beginning of each month. The first payment is due upon signing the contract. The lease is a(n) -Ordinary annuity -Simple interest payment -Annuity due
Annuity due
Susan signs a lease to rent a building for 3 years and the first payment is due at lease signing. This is an example of which type of annuity? -Annuity due -Ordinary annuity
Annuity due
Susan signs a lease to rent a building for three years and the first payment is due at lease signing. This is an example of which type of annuity?
Annuity due
The first payment of an ______ occurs on the first day of the agreement
Annuity due
Tom signs a contract to rent a car for 3 years. The first payment is due the day the agreement is signed. This type of annuity is an -Ordinary annuity -Up front annuity -Annuity due
Annuity due
In a(n) _______ _________, the payment is received or made at the beginning of the period, whereas in a(n) ______ _____, the payment is received at the end of each period
Annuity due Ordinary annuity
An annuity in which the first payment is due at the beginning of the contract___.
Annuity in advance and annuity due
What is the journal entry to recognize gross profit when revenue is recognized upon completion of a long-term construction project? -Debit Billings from Long-Term Contracts; Credit Construction in Progress -Debit Construction in Progress; Credit Accounts Receivable and Cost of Construction -Debit Cost of Construction; Credit Revenue from Long-Term Contracts -Debit Construction in Progress and Debit Cost of Construction; Credit Revenue from Long-Term Contracts
-Debit Construction in Progress and Debit Cost of Construction; Credit Revenue from Long-Term Contracts
The terms used to describe the rate at which money will grow during a full year are the ____ and the __________ -Simple interest rate -Effective yield -Annual yield
-Effective yield -Annual yield
3 Short-Term Investments ?
-Held to maturity -Trading securities -Securities available for sale
What is required to compute the present value of a known future amount
-Interest rate -number of compounding periods -future amount
Which of the following are common annuity examples? -Loans -Bonds -Leases -Common Stock -Dividends
-Loans -Bonds -Leases
Time value of money calculations are required for which topics?
-Long term notes payable -Leases -Pensions
Investing activities involve the acquisition and sale of ?
-Long-lived assets used in business operations -nonoperating investment assets
Time value of money calculations are required for which topics? -inventory -Long-term notes payable -Leases -Pensions
-Long-term notes payable -Leases -Pensions
Which of the following are monetary liabilities? -Advance from customers -NP at 6% interest due in 6 months -AP -Bond payable at 4% interest due in 20 yrs
-NP at 6% interest due in 6 months -AP -Bond payable at 4% interest due in 20 yrs
Which of the following are monetary assets? -Note receivable -Inventory -AR -Cash
-Note receivable -AR -Cash
What are each of the abbreviations mean on a financial calculator N &I PV FV PMT CPT
-Number of periods -interest rate -present value -future value -annuity payment -compute
Which of the following items require time value of money concepts? -Pensions -Bonds payable -Inventory -Capital leases
-Pensions -Bonds Payable -Capital leases
Which of the following items require time value of money concepts?
-Pensions -Capital Leases -Bonds payable
In situations when the compounding period is less than a year, the interest rate per compounding is determined by dividing the annual rate by what? -The # of periods -The # of yrs -The # of quarters -The # of months
-The # of periods
The FV of an ordinary annuity table is used when calculating -The FV of a series of payments -The PV of a single amount -The PV of a series of payments
-The FV of a series of payments
What are the four variables in present value annuity problems?
-The interest rate -The payment amount -The present value -The number of period
Prepayments for future goods or services should be -recognized as a separate performance obligation -allocated to the various performance obligations in the contract -included in the transaction price
-allocated to the various performance obligations in the contract -included in the transaction price
Which revenue recognition methods were previously required by GAAP when there was a high degree of uncertainty regarding cash collections? -completed contract method -cost recovery method -installment sales method -percentage-of-completion method
-cost recovery method -installment sales method
Which of the following are included in the journal entry required to record construction costs for a long-term construction contract? -debit cash -credit billings on construction contract -debit construction in progress -credit raw materials
-debit construction in progress -credit raw materials
TVM concepts are useful in valuing ___ and ___
Assets; Liabilities
Joe has an annuity due wherein he receives a payment of $8,000 per year for 10 years. The last payment will be received -At the end of year 10 -At the beginning of year 10 -At the beginning of year 11
At the beginning of year 10
Joe has an annuity due wherein he receives a payment of $8,000 per year for 10 years. The last payment will be received.....
At the beginning of year 10
For an ordinary annuity, the first payment is made -At the end of the first period -At the beginning of the first period
At the end of the first period
Thi has a year ordinary annuity with an annual payment. When will the final payment occur?
At the end of year 10
How are most monetary assets and liabilities valued?
At the present value of future cash flows
How are most monetary assets and liabilities valued?
At the present value of future cash flows.
The new expected cash flow approach requires that the probability adjustment for uncertainty is applied to what amount when calculating expected cash flows?
Cash flow
Michal Corp.'s land account decrease by $250,000.No specific information regarding this decrease is available. In its statement of cash flows. Michael should report____
Cash inflows from investing activities of $250,000.
Cash inflow or outflow ? -Payment on account -Payment of salaries
Cash outflow
Sandra borrows $1,000 at an interest rate of 12% If she pays $133 interest at year-end, the interest rate is ___ interest
Compound
____________ Interest includes interest on the original investment plus interest on the accumulated interest from previous periods.
Compound
__________ interest results in more interest earned on a loan with the same dollar amount and time period than __________ interest.
Compound Simple
_____________ Interest is greater than __________ interest because it earns interest on interest
Compound Simple
Which of the following results in increasingly larger amounts of interest for each period of the investment?
Compound interest
Which of the following results in increasingly larger amounts of interest for each period of the investment? -Simple interest -Compound interest -Effective interest
Compound interest
______includes interest not only on the initial investment but also the accumulated interest in previous periods
Compound interest
The interest rate used in the expected cash flow approach to estimating the value of assets or liabilities is the:
Credit-adjusted risk-free rate
The interest used in the expected cash flow approach to estimating the value of assets or liabilities is the:
Credit-adjusted risk-free rate.
Current ratio =
Current assets/Current Liabilities
A _ annuity exist when the first cash flow occurs more than one period after the date the agreements begins
Deferred
A ___ annuity extists when the first cash flow occurs more than one period after the date the agreement begins
Deferred
A(n) __________ annuity exists when the first cash flow occurs more than one period after the date the agreement begins
Deferred
A(n) ______________ annuity exists when the first cash flow occurs more than one period after the date the agreement begins.
Deferred
An annuity due and an ordinary annuity have payments that begin in the first period after the date of the agreement, wheres a(n) ____________ annuity has cash flows that begin more than one period after the date of the agreement
Deferred
Which of the following conditions or situations make the timing of revenue recognition for long-term contracts especially critical? -delayed recognition doesn't provide information to financial statement users in a timely manner -in most cases, the project is a little value until completed -there tends to be a considerable difference between recognition over time and when the performance obligation is completed
-delayed recognition doesn't provide information to financial statement users in a timely manner -there tends to be considerable difference between recognition over time and when the performance obligation is completed
Time value of money calculations are required for which topics? -inventory -long-term notes payable -pensions -leases
-long-term notes payable -pensions -leases
The installment sales method assumes that each payment is composed of what two components? -partial recovery of the cost of the item -a gross profit component -a liability component -an allowance for uncollectible accounts component
-partial recovery of the cost of the item -a gross profit component
Common types of cash inflows from investing activities include:
-sale of investment securities -sale of property,plant,and equipment -collection of nontrade receivables
Jones Company receives a prepayment from a customer consistent with a promise to deliver 20 new office printers to Smith Inc. The prepayment -represents a separate performance obligation -should be recorded as deferred revenue -should be recognized as revenue when received -does not create a separate performance obligation
-should be recorded as deferred revenue -does not create a separate performance obligation
Which of the following are the 4 variables in PV annuity problems? -the payment amount -The total of all payments -The number of periods -The FV -The interest rate -The PV
-the payment amount -The number of periods -the interest rate -PV
The methods for computing PV of a single amount include which of the following? -using a financial calc. -calculating pv with a formula -using a future value annuity table -using a present value table
-using a financial calc. -calculating pv with a formula -using a present value table
Which of the following items is not considered an operating cash flow in the statement of cash flows:
Dividends paid to stockholders
Tortoise Corp. would like to invest enough cash to have $100,000 at the end of year 5. Assume the interest on the investment is compounded annually at 10%. To calculate the present value of this investment, you would multiply $100,000 times what value from the present value table shown?
0.62092
Calculate the PV factor of 7% interest for 2 periods
0.87344
Kelsey Corporation expects to receive 3 payments of $5,000 each at the beginning of the year for 3 years. The annuity has an interest rate of 4%. Using a PV of a single amount, Kelsey should multiply $5,000 times the sum of 1+0.96154 +0.92456 2+0.96154 2+0.88900 0.96154+0.92456+0.88900
1+0.96154 +0.92456
Jerry Corp, wishes to deposit $10,000 in the bank at the end of each year, and would like to know how much money it will have at the end of year 10. Which table should jerry use? -FV of an ordinary annuity -FV of an annuity due -FV of a single amount -PV of an ordinary annuity
FV of an ordinary annuity
The amount of money that a dollar will grow to:
FV of single amount.
Which of the following is the correct formula to calculate future value?
FV=I(1+i)n
Future Value Formula
FV=PV(1+r)^n
Notes Receivable is reported at
Face amount
True or False: A quality-assurance warranty is a separate performance obligation
False
True or False: An annuity due is the same as an ordinary annuity.
False, (In an annuity due , the payment occurs at the beginning of the period. In an ordinary annuity ,the payment occurs at the end of the period.
True or false: Companies that sell goods on installments are required to use the installment method to recognize revenues
False, companies that sells goods on installments can usually estimate uncollectible accounts and, therefore, do not qualify to use the installment method
True or False: At the date of issue, the stated rate of interest on the bond is always equal to the market rate of interest on the bond.
False.
Alex would like to deposit $1,000 in the bank today and would like to know what that will grow to in 5 years. Alex needs to compute the ___________ value of money.
Future
Clara invests $1,000 in a savings account earning 3% interest. At the end of the first year, Clara has $1,030 in the account. The $1,030 Clara has at the end of year 1 is the _________ value.
Future
The calculation of __________ value requires the addition of interest, while the calculation of _________ values requires the removal of interest.
Future Present
The amount of money that a dollar will grow to at some point in the future is known as:
Future value
The amount of money that a dollar will grow to at some point in the future is the:
Future value of a single amount
The future value of a series of equal-sized cash flows with the first payment taking place at the end of the first period is a __
Future value of an ordinary annuity
The calculation of _______ value requires the addition of interest, while the calculation of _______ value requires the removal of interest.
Future, Present
A bond will be issued at a discount when the market rate of interest is:
Greater than the standard rate
A bond will be issued at a discount when the market rate of interest is Greater than the stated rate The same as the stated rate Less than the stated rate
Greater than the stated rate
A bond will be issued at a discount when the market rate of interest is:
Greater than the stated rate
Which of the following is the correct formula to calculate FV? I (1 + i)^2 I (1-i)^n I (1+i)^n
I (1+i)^n
What is an annuity due?
In an annuity due the cash flows occur at the beginning of each each period
Method of preparing the statement of cash flows begins with net income .
Indirect
Jim borrows $1,000 and has to repay $1,100 at the end of the year. The $100 payment is referred to as _________
Interest
Jim borrows $1,000 and has to repay $1,100 at the end of the year. The $100 payment is referred to as _____________.
Interest
___ is the amount paid for the use of money for some period of time
Interest
______ is the "rent" paid for the use of money for some period of . In dollar terms , it is the amount of money paid or received in excess amount of money borrowed or lent.
Interest
Munchen Company prepays $89,000 for inventory to be delivered in two years. The applicable interest rate is 6%. One year after the prepayment, Munchen should recognize:
Interest revenue of $5,340 $89,000 x .06 = $5,340
Cash flows from ________ activities are related to the purchase and sale of long-term assets used in business operations.
Investing
Cash from the sale of land is reported on the statement of cash flows as a(n)_______ activity.
Investing
Purchase of land and purchase of available-for-sale securities . Which activity ?
Investing
Investment A requires depositing $1,000 cash in the savings account at the end of each year for 5 years, which will earn 6% interest and will grow to some future amount. Investment B requires that an account must have $50,000 at the end of 6 years, and a single deposit must be made at the end of year 1, which will grow to accumulate the desired amount. Which investment will use a future value annuity table to determine the unknown amount? -Investment a -Investment b
Investment A
Which of the following items is not considered an investing cash flow in the statement of cash flows?
Issuing common stock for cash.
Time value of money calculations are required for which topics?
Leases, bonds, pension obligations, and certain notes receivable of net values, long term notes payable
A bond will be issued at a premium when the market rate of interest is _________ the stated rate
Less than
Over a 5-year period, simple interest is _______ compound interest on the same note.
Less than
Which account uses TVM concepts to value the account?
Long-term bonds
Which of the following accounts uses time value of money concepts to value the account? Inventory Long-term bonds Accounts Payable Treasury stock
Long-term bonds
The __ rate of interest is the current rate of interest being paid on investment with similar characteristics.
Market
An obligation to pay amounts of cash which is fixed or determinable is called a(n) ___ liability
Monetary
__ assets include money and claims to receive money, the amount is fixed or determinable
Monetary
__ assets include money and claims to receive money, the amount of which is fixed or determinable.
Monetary
An obligation to pay amounts of cash, the amount which is fixed or determinable , is called _____
Monetary Liability
Money and claims to receive money are called ___________ ______________
Monetary assets
An obligation to pay amounts of cash, the amount which is fixed or determinable, is called a:
Monetary liability
The purchase and sale of cash equivalents typically are______ on a statement of cash flows
NOT REPORTED !
The purchase and sale of cash equivalents typically are ________on statement of cash flows.
Not reported
The first cash flow in an ____________ ___________ occurs one compounding period after the agreement begins
Ordinary annuity
Which of the following is the present value formula?
PV = FV/(1+i)^n
The formula PV-$1/(1+i)^n is the formula used to calculate the -PV of $1 -FV of an annuity due of $1 -FV of an annuity of $1 -PB of an ordinary annuity of $1
PV of $1
Harry Byrd's Chicken Shack agrees to pay an employee $50,000 a year for six years beginning two 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?
PV of a deferred annuity
Today, the value of a series of equal-sized cash flows with the first payment taking place at the end of the first compounding period is the -PV of an annuity due -PV of a single amount -FV of an ordinary annuity -PV of an ordinary annuity
PV of an ordinary annuity
Which of the following are the four variables in present value annuity problems?
PVA or PVAD the amount of each annuity payment the number of periods, n the interest rate, i
Shareholders' equity is composed of which of the following accounts ?
Paid-in capital and Retained earnings
Most accounting applications of the time value of money use _________ value of annuity computations.
Present
Pedro $1,000 in a savings account earning 3% interest. At the end of the first year, Pedro has $1,020 in the account. The $1,000 Pedro initially put in the savings account is the __ value.
Present
The formula "future value divided by quantity (1+i)^nm is the formula for the _______ value
Present
The formula 1/(1+i)^n is used to calcuate _________ value factors.
Present
To calculate future value, the interest rate, number of period and the _________ value must be known.
Present
Most monetary assets are valued at the ______ value of_____ cash flows.
Present , future
Amount of money required today that is equivalent to a given future amount:
Present Value of a single amount.
$1,000 invested today at 10% compounded annually will grow to $1,100 at the end of one year or $1,210 at the end of two years. What is the initial $1,000 referred to as? -Future value -Present value
Present value
$1,000 invested today at 10% compounded annually will grow to $1100 at the end of one year or $1210 at the end of two years . What is the initial $1000 referred to as?
Present value
Karr Company borrowed $100,000 by signing a 5-year note payable at 8% interest. At the end of year 5, Karr will repay the bank $146,933. At the time the note is signed, the $100,000 is referred to as the _________ of the note payable.
Present value
Most monetary assets are valued at the __________ value of ____________ cash flows.
Present value Future cash flows
Most monetary liabilities are valued at the __________ value of ____________ cash flows.
Present value Future cash flows
The __________ value is the amount an item is worth today, whereas the ______ value is the amount it is worth at some later date.
Present value Future value
Operating activities (SCF):
Related to transactions entering into the determination of net income.
Direct method:
Reports the cash effects of each operating activity directly on the statement.
Assuming an interest rate of 12% with quarterly compounding, what is the interest rate per compounding period?
3%
Inflows or other enhancements of assets or settlements of an entity's liabilities from delivering or producing goods, renduring services, or other activities that constitute its ongoing major or central operations are_____ -gains -losses -revenues -expenses
Revenues
On January 1, Gino signs a note payable for $10,000. The note has an interest rate of 3%. If Gino repays $10,300 at the end of year 1, the interest is _________ interest.
Simple
_____is computed by multiplying an initial investment times both the applicable interest rate and the period of time for which the money is used.
Simple interest
As the number of periods increases, present value factors become....
Smaller
Indirect method:
Starts with net income and works backwards to convert to cash.
The rate of interest printed on the face of a bond is referred to as the _________ interest rate.
Stated
The rate of interest printed on the face of the bond is referred to as the __ interest rate..
Stated
Interest Payment =
Stated rate X face amount
Operating, investing, and financing activities are found on which financial statement?
Statement of cash flows
The direct method and the indirect method are the two acceptable forms of preparing which financial statement ?
Statement of cash flows
In a(n) __________ __________ the payment is made at the end of each period.
Ordinary annuity
The Stinch Fertilizer Corporation wants to accumulate $8,000,000 for plant expansion. The funds are needed on January 1, 2021. Stinch intends to make five equal annual deposits in a fund that will earn interest at 7% compounded annually. The first deposit is to be made on January 1, 2016. Present value and future value facts are as follows: Future value of an ordinary annuity of $1 at 7% for 5 periods 5.75 Future value of an annuity due of $1 at 7% for 5 periods 6.15 Present value of $1 at 7% for 5 periods .713 Present value of an ordinary annuity of $1 at 7% for 5 periods 4.10 What is the amount of the required annual deposit?
$1,300,813 ($8 million/6.15)
Tortoise Corp. would like to know how much $1,000 invested today will grow to in four years. Assume the interest on the investment is compounded annually at 10%. Using the future value table, what is the future value of this investment in four years?
$1,464 $1,000 x 1.46410 = $1,464
Larry signs a note payable for $40,000. The principal of the note and interest are due in 2 years, and the note bears interest at 12% compounded annually. What is the total interest that must be repaid at the end of year 2?
$10,176 Amount paid at end of year 2 is calculated as $40,000(1.12^2)=$50,176. The repayment amount of $50,176-$40,000 borrowed = $10,176 interest paid.
Claire uses the Installment sales method for recognizing revenues. Claire sold goods on a four-year installment plan for $500,000. The cost of the goods sold was $400,000. The amount that should be recognized as deferred gross profit at the date of the sale is -$400,000 -$0 -$100,000 -$500,000
$100,000
Smithson sells goods to customers in exchange for a note requiring payment of $100,000 in one year plus interest at 10%. At what amount is the note payable reflected on the customer's balance sheet?
$100,000 The note payable is shown at the face amount and the interest is reported in a separate account once accrued.
Munchen Company prepays $89,000 for inventory to be delivered in two years. The applicable effective interest rate is 6%. Upon delivery, Munchen should recognize the purchase of inventory at:
$100,000 The prepayment of $89,000 reflects the present value of $100,000 at 6% (the factor is .89). The difference between the prepayment and the inventory cost is interest revenue.
An annuity in which the first payment is due at the beginning of the contract is called an
* Annuity due *Annuity in advance
Simple interest is computed by multiplying which of the following?
* Applicable interest rate *Period of time *Initial investment
TVM calculations are required for which topics?
* Long-term notes payable *Leases *Pensions
Monetary payables and receivables are valued based on
* a proper adjustment for the TVM *the fixed amount of cash to be paid or received in the future
Monetary liabilities
* bond payable at 4% interest due in 20 years *Note payable at 6% due in 6 months *Accounts payable
Which of the following are common annuity examples?
*Bonds *Leases *Loans
In a(n) _________ __________, the payment is received or made at the beginning of the period, whereas in a(n) __________ __________, the payment is received at the end of each period.
- Annuity Due - Ordinary Annuity
Time value of money concepts are useful in valuing:
- Assets - Liabilities
Which of the following are required to compute the present value of a known future amount? - Interest rate - Future value - Market value - Date - Number of corresponding periods
- Interest rate - Future value - Number of corresponding periods
Which of the following are common annuity examples? - Common Stock - Loans - Leases - Dividends - Bonds
- Loans - Leases - Bonds
Which of the following items require time value of money concepts? - Pensions - Bonds Payable - Inventory - Capital Leases
- Pensions - Bonds Payable - Capital Leases
Which of the following are the four variables in present value annuity problems? - Present value - Interest rate - Number of periods - Payment amount - Total of all payments - Future value
- The present value - The interest rate - Number of periods - Payment amount
Carter Co. signs a $150,000 noninterest-bearing 5-yr NP for goods purchased from Maury Industries. The appropriate rate of interest for this type of note is 8%. A the time the note is signed, what is the PV of the note on Carter's records? -$102,087 -$142,000 -$112,089 -$150,000
-$102,087 150,000/ (1.08)^5 = 102,087
Karen signs a note payable for $100,000. The principle of the note and interest are due in 2 years, and the note bears interest at 10% compounded annually. What is the total interest that must be repaid at the end of year 2? -$20,000 -$2,000 -$21,000 -$10,000
-$21,000 100,000(1.10^2)= 121,000 121,000-100,000 = 21,000
Tortoise Corp. would like to invest enough cash to have $100,000 at the end of year 5. Assume the interest on the investment is compounded annually to 10%. To calculate the PV of this investment, you would multiply $100,000 times what value from the PV table? -0.64993 -0.90909 -0.62092 -0.68301
-0.62092
On Jan. 1, year 1, Coral deposits $10,000 into a savings account earning 9% interest. Using the future value table, what FV factor would Coral multiply by 10,000 to determine the future value at the end of year 5? -1.33100 -1.67710 -1.41158 -1.53862
-1.53862
Sammy invested $100,00 in a savings account for 3 years at 8% compounded annually. What is the future of Sammy's investment? -$100,000 -$124,000 -$108,000 -$125,971
-125,971 100,000*(1.25971)=125,971
Assuming an interest rate of 12% with quarterly compounding, what is the interest rate per compounding period? -4% -3% -6% -12%
-3%
Rhonda expects to receive an annuity that pays $500 at the beginning of each year for 10 years. Assuming the interest rate is 6%, what is the PV of this annuity? -6,591 -3,680 -5,300 -3,901
-3,901
Kate expects to receive an annuity that pays $5,000 at the beginning of each year for 10 years. Assuming the interest rate is 5%, what is the present value of this annuity? -$62,890 -$38,609 -$66,034 -$40,539
-40,539
Smith Corp. borrows $20,000 from First National Bank. Smith repays $21,000 at the year-end. What is the annual interest rate changed on this loan? -20% -10% -1% -5%
-5%
On Jan. 1, year 1, Dennis borrows $20,000 at 6% interest compounded semi-annually. what is the amount of interest dennis will pay at the end of year 4? -4,800 -5,335 -5,250 -2,510
-5,335
James would like to deposit enough money in a savings account to have $8,000 at the end of year 3. Assuming the investment will earn 5% compounded annually, what amount should james deposit in the savings account today? -6,911 -6,268 -7,600 -7,619
-6,911
Monetary payables are receivables are valued based on -The PV of the payable or receivable with no adjustment for time value of money -A proper adjustment for time value of money -The fixed amount of cash to be paid or received in the future.
-A proper adjustment for time value of money -The fixed amount of cash to be paid or received in the future.
Which of the following are monetary liabilities ?
-Accounts payable -Note Payable at 6% interest due in 6 months -Bond payable at 6% interest due in 6 months -Bond payable at 4% interest due in 20 years
Which of the following are monetary assets ? a)accounts receivable b)inventory c)note receivable d)cash
-Accounts receivable -Note Receivable -Cash
An annuity in which of the first payment is due at the beginning of the contract is called an (Select all that apply) -Ordinary annuity -Annuity in advance -Annuity due
-Annuity in advance -Annuity due
Simple Interest is computed by multiplying which of the following? -Applicable interest rate -Initial investment -Period of time -Accumulated interest
-Applicable interest rate -Initial investment -Period of time
3 Long-Term Investments?
-Bonds -Stock -Long-term notes
The interest rate multiplied by the total outstanding balance of the principle plus the interest to date is the formula to calculate -Total interest -Compound interest -Simple interest
-Compound interest
The order of CURRENT ASSETS on the balance sheet:
1.Cash and Cash equivalents 2.Accounts Receivable 3.Inventory 4.Ppd Assets
What are 3 cash equivalents ?
1.Commercial paper 2.Money Market Funds 3.U.S. treasury bills
Clearly Corp. borrows $10,000 from the Third National Bank. Cleary $11,000 at year-end. What is the annual interest rate charged on this loan?
10%
Willie Winn Track Shoes used the expected cash flow approach to determine the present of a future obligation to be paid to Betty Will Company in four years. Estimated future payment possibilities were as follows: Possible payment Probability $100 million 20% 140 million 40% 180 million 40% The risk-free interest rate is 5%. The present value of $1 in 4 periods at 5% is 0.82270. What is the estimated present value of the future obligation?
122 million (100 million x0.20=$20 million 140 million x0.40=$56 million 180 million x0.40=$72 million $148 million x .82270 =$121.76 million
In a __________ ___________ the series of equal payments are made at the end of each period.
Ordinary Annuity
International Financial Reporting Standards are tested on the CPA exam along with U.S. GAAP. The following questions deal with the application of IFRS. In a statement of cash flows prepared under IFRS, interest paid
Can be classified as either an operating cash flow or a financing cash flow.
Which of the following accounts uses TVM concepts to value the account?
Capital Leases
Which of the following accounts uses time value of money concepts to value this account? - Capital leases - Inventory - Common stock - Cash
Capital leases
Monetary assets
Cash and most receivables
On April 1, 20X1, Healthy Food Corp, entered into a franchise agreement with Mr. John Smith. In exchange for an initial franchise fee of $100,000, Healthy Food will provide initial services to include the start-up of the business. $20,000 is payable on April 1, 20X1, with the remaining $80,000 payable in installments. In addition, the franchisee pays $12,000 at the end of each year for advertisement done by Healthy Food. What is the journal entry by Healthy Food for the continuing franchise fees received from the franchisee on March 31, 20X2? -Dr:Deferred Franchise Revenue $12,000 and Cr: Unearned Revenue $12,000 -Dr:Cash $12,000 and Cr: Service Revenue $12,000 -Dr:Service Revenue $12,000 and Cr:Cash $12,000
Dr:Cash $12,000 and Cr:Service Revenue $12,000
The ___ interest rate is the amount at which money will actually grow per year with compounding interest
Effective
The ___________ interest rate is the amount at which money will actually grow per year with compounding interest.
Effective
The term used to describe the rate at which money will grow during a full year are the __ and the __
Effective Yield; Annual yield
The interest rate at which money will actually grow during a full year is called what?
Effective interest rate.
Sharon receives $100 at the end of each month for 5 years. The type of annuity she is receiving is called an
Ordinary Annuity
The first cash flow of an ordinary annuity occurs when?
One compounding period after the agreement begins
Interest paid on bonds,purchase of supplies , and payment on account . Which activity ?
Operating activities
The formula 1/(1+i)^n is the formula to calculate a:
Present value factor This formula provides only the present value factor, which must been be multiplied by the future value to arrive at the PV of a certain man
Harry Byrd's Chicken Shack agrees to pay an employee $50,000 a year for six years beginning two 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?
Present value of a deferred annuity
The amount of money today that is equivalent to a given amount to be received or paid in the future is the__
Present value of a single amount.
On March 31, 2016, the Gusto Beer Company leased a machine from B. A. Lush, Inc. The lease agreement requires Gusto to pay 8 annual payments of $16,000 on each May 31, with the first payment due on May 31, 2016. Assuming an interest rate of 6% and that this lease is treated as an installment sale (capital lease), Gusto will initially value the machine by multiplying $16,000 by which of the following?
Present value of an anuuity due of $1 at 10% for 6 periods
Today, the value of a series of equal-sized cash flows with the first payment taking place at the end of the first compounding period is the :
Present value of an ordinary annuity
Justin Investor wants to calculate how much money he needs to deposit today into a savings account that earns 4% in order to be able to withdraw $6,000 at the end of each of the next 5 years. He should use which present value concept?
Present value of an ordinary annuity of $1 for 5 periods.
Most monetary assets are valued at the __________ value of __________ cash flows.
Present, Future
Interest Expense=
Price of bonds X market Rate
Definition of Principal and Agent
Principal-has primary responsibility for delivering goods or services Agent-acts as a facilitator for helping seller transact with buyers
Acid-test ratio(or quick ratio)=
Quick Assets/Current Liabilities
The formula FV=$1(1+i)^n is used to calculate -the PV of an annuity of $1 -the FV of an annuity due of $1 -the FV of $1 -the FV of an annuity of $1
The FV of $1
The price of a bond includes -The PV of the face amount -The PV of the face amount plus the PV of the periodic interest payments -The PV of the face amount minus the pv of the periodic interest payments -The PV of the periodic interest payments
The PV of the face amount plus the PV of the periodic interest payments
If you have a set of PV tables, an annual interest rate, the dollar amount of equal payments made, and the number of semiannual payment, what other information do you need to calculate the PV of the series of payments?
The timing of the payments
If you have 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 do you need to calculate the present value of the series of payments?
The timing of the payments (whether they are at the beginning or end of the period).
Effective Annual Rate (EAR)=
Total interest/ amount invested
Bonds, Loans, and Leases are common annuity examples ? True or False
True
Cash inflow or outflow ? -Collection on account -Sale of services for cash
cash inflow
Interest on the initial investment plus interest calculated on the the previously earned interest is called _____ interest
compound
The type of interest that includes interest on the initial invest plus interest on the accumulated interest in previous periods is referred to as _________ interest.
compound
Which of the following results in increasingly larger amounts of interest for each period of the investment?
compound interest
Lenny borrowed $10,000 on a 5-year interest bearing not with an interest rate of 10%. At the end of 5 years, Lenny must repay the bank $16,105. Based on the amount that must be repaid, interest was calculated with what type of interest rate? -simple interest -compound interest -complex interest
compound interest simple interest would have yielded total interest of $10,000x10%=$1,000 x 5 years = $5,000
What is compound interest?
compound interest includes interest not only on the initial investment but also on the accumulated interest in previous periods
Interest calculated on invested amount plus accumulated interest:
compound interest.
Which of the following are included in the journal entry required to record the collection of cash from a customer related to a long-term construction contract -credit billings on construction contract -debit cash -debit construction in progress -credit accounts receivable
debit cash credit accounts receivable
An annuity due and an ordinary annuity have payments that begin in the first period after the date of the agreement, whereas a(n) _____ annuity has cash flows that begin more than one period after the date of the agrement
deferred
_____ franchise fee revenue is classified as a liability
deferred
Cash received from the sale of gift cards is recognized as -sales revenue -expense -deferred revenue
deferred revenue
What annuity has cash flows that begin more than one period after the date of the agreement?
deferred.
Operating income:
directly related to principle revenue generating activities.