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**ACCOUNTING AND THE TIME VALUE OF MONEY
**

TRUE-FALSE—Conceptual

Answer

F T F T T F F T T T F F F T T T F T F T

No.

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20.

Description

Time value of money. Definition of interest expense. Simple interest. Compound interest. Compound interest. Future value of an ordinary annuity. Present value of an annuity due. Compounding period interest rate. Definition of present value. Future value of a single sum. Determining present value. Present value of a single sum. Annuity due and interest. Annuity due and ordinary annuity. Annuity due and ordinary annuity. Number of compounding periods. Future value of an annuity due factor. Present value of an ordinary annuity. Future value of a deferred annuity. Determining present value of bonds.

MULTIPLE CHOICE—Conceptual

Answer

a b a d c c b c c a a c a d d

No.

21. 22. 23. 24. 25. 26. 27. 28. S 29. S 30. S 31. P 32. P 33. P 34. 35.

Description

Appropriate use of an annuity due table. Understanding compound interest tables. Identification of correct compound interest table. Identification of correct compound interest table. Identification of correct compound interest table. Identification of correct compound interest table. Identification of correct compound interest table. Identification of present value of 1 table. Identification of correct compound interest table. Identification of correct compound interest table. Present value of an annuity due table. Definition of an annuity due. Identification of compound interest concept. Identification of compound interest concept. Identification of number of compounding periods.

6-2 a

Test Bank for Intermediate Accounting, Twelfth Edition 36. Adjust the interest rate for time periods.

**MULTIPLE CHOICE—Conceptual (cont.)
**

Answer

d c c c b c b b b d

P S

No.

37. P 38. P 39. 40. 41. 42. 43. 44. 45. 46.

Description

Definition of present value. Compound interest concepts. Future value of an annuity due factor. Determine the timing of rents of an annuity due. Factors of an ordinary annuity and an annuity due. Determine present value of an ordinary annuity. Identification of a future value of an ordinary annuity of 1. Present value of an ordinary annuity and an annuity due. Difference between an ordinary annuity and an annuity due. Definition of deferred annuities.

These questions also appear in the Problem-Solving Survival Guide. These questions also appear in the Study Guide.

MULTIPLE CHOICE—Computational

Answer

d c b a b c c d a d b c c b b c a b c d a b c d a a d c

No.

47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74.

Description

Interest compounded quarterly. Calculate present value of a future amount. Calculate a future value. Calculate a future value of an annuity due. Calculate a future value. Calculate a future value. Calculate present value of a future amount. Calculate present value of a future amount. Calculate present value of an annuity due. Calculate the future value of 1. Present value of a single sum. Present value of a single sum, unknown number of periods. Future value of a single sum. Present value of a single sum. Present value of a single sum, unknown number of periods. Future value of a single sum. Present value of an ordinary annuity. Present value of an annuity due. Future value of an ordinary annuity. Future value of a annuity due. Present value of an ordinary annuity. Present value of an annuity due. Future value of an ordinary annuity. Future value of an annuity due. Calculate future value of an annuity due. Calculate future value of an ordinary annuity. Calculate future value of an annuity due. Calculate annual deposit for annuity due.

Finding the implied interest rate. Identification of correct compound interest table. 75. 84. Calculate annual deposit of annuity due. Calculate cost of machine purchased on installment. Determine the acquisition cost of a franchise. 76. Present value of ordinary annuity and annuity due. 85. 79. Appropriate use of an ordinary annuity table. 86. MULTIPLE CHOICE—CPA Adapted Answer c d c a b a a d b No. 92. Determine the issue price of a bond. Calculate the annual rents of leased equipment. Calculate the present value of a note. Future value of an annuity due. 83. 82. Calculate proceeds from issuance of bonds. Calculate proceeds from issuance of bonds. 80. Calculate the present value of a note. Present value of an investment in equipment.) Answer d a b b c a b b b No. Calculate interest revenue of a noninterest-bearing note. Calculation of unknown rent and interest. Annuity with change in interest rate. 91.Accounting and the Time Value of Money 6-3 MULTIPLE CHOICE—Computational (cont. 88. Calculate the market price of a bond. 78. Compute estimated goodwill. Description Calculate cost of machine purchased on installment. Description Calculate interest expense of bonds. PROBLEMS Item P6-101 P6-102 P6-103 P6-104 P6-105 P6-106 Description Present value and future value computations. EXERCISES Item E6-93 E6-94 E6-95 E6-96 E6-97 E6-98 E6-99 E6-100 Description Present and future value concepts. 87. Calculate present value of an annuity due. Calculate cost of machine purchased on installment. 90. Deferred annuity. Present value of an annuity due. 81. 89. Compute the annual rent. . Calculate the market price of a bond. Calculate present value of an ordinary annuity. Calculate present value of an investment in equipment. 77.

77. 102. 22. 55. 6. 4. MC 84. Identify variables fundamental to solving interest problems. MC 93. 50. 104. 105. MC 66. 48. 76. MC 65. 101. 72. MC 69. 11. MC 58. 5. MC 90. 78. 95. MC 92. MC 82. Learning Objective 8 MC 106. 46. 51. 7. MC 86. 103. Twelfth Edition CHAPTER LEARNING OBJECTIVES 1. 45. Solve present value problems related to deferred annuities and bonds. Note: TF TF TF TF TF TF TF TF TF MC TF TF TF TF TF MC MC MC TF 2. MC E P P P TF = True-False MC = Multiple Choice . MC 47. 15. 54. 5. 18. 41. 52. 24. 63. 96. 56. Learning Objective 5 MC 57. MC 60. Learning Objective 7 MC 81. 25. 71. 8. 75. MC 62. 7. 16. P TF TF MC MC MC MC MC MC MC MC TF MC NC MC MC MC MC MC TF 21. MC 67. 44. MC 32. 98. 39. E E E P MC MC MC E E E P P 73. MC 83. 94. 8. 70. MC 68. P E = Exercise P = Problem MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC E 85. Distinguish between simple and compound interest. 12. 80. S P MC 29. 74. 3. 19. MC 89. MC 97. Learning Objective 6 MC 64. Learning Objective 4 MC 35. 9. 41. 37. Solve present value of ordinary and annuity due problems. MC 61. Solve future and present value of 1 problems. 3. MC Learning Objective 3 S MC 28. 49. MC 36. 79. 101. 10. MC 59. S MC 30. Solve future value of ordinary and annuity due problems. MC 87. 34. MC 88. 53. MC 31. P P Learning Objective 1 MC Learning Objective 2 TF 84. 23. 2. 99. 14. 100. P 33. 20. 43. 27. 42. 13. 40. 6. 38. 4. Use appropriate compound interest tables. SUMMARY OF LEARNING OBJECTIVES BY QUESTIONS Ite Ty Ite Ty Ite Ty Ite Ty Ite Ty Ite Ty Ite Typ 1. MC 91. 17.6-4 Test Bank for Intermediate Accounting. 26. Identify accounting topics where the time value of money is relevant.

9. 8. 3. 7. Compound interest uses the accumulated balance at each year end to compute interest in the succeeding year. must be used to properly evaluate longterm investment proposals. The future value of an ordinary annuity table is used when payments are invested at the beginning of each period. 14. The rents that comprise an annuity due earn no interest during the period in which they are originally deposited. . If two annuities have the same number of rents with the same dollar amount. If two annuities have the same number of rents with the same dollar amount. The future value of a single sum is determined by multiplying the future value factor by its present value. 12. 5. 13. The time value of money refers to the fact that a dollar received today is worth less than a dollar promised at some time in the future. 4. the future value of the annuity due will be greater than the future value of the ordinary annuity. If the compounding period is less than one year. The unknown present value is always a larger amount than the known future value because dollars received currently are worth more than dollars to be received in the future. the annual interest rate must be converted to the compounding period interest rate by dividing the annual rate by the number of compounding periods per year. but one is an annuity due and one is an ordinary annuity. a company moves backward in time using a process of accumulation. The present value of an annuity due table is used when payments are made at the end of each period. but one is an annuity due and one is an ordinary annuity. 15. Simple interest is computed on principal and on any interest earned that has not been withdrawn. 2. 10.Accounting and the Time Value of Money 6-5 TRUE-FALSE—Conceptual 1. 16. In determining present value. Present value is the value now of a future sum or sums discounted assuming compound interest. Compound interest. rather than simple interest. Interest is the excess cash received or repaid over and above the amount lent or borrowed. 6. The number of compounding periods will always be one less than the number of rents when computing the future value of an ordinary annuity. 11. the present value of the annuity due will be greater than the present value of the ordinary annuity.

18. A ten-year 8% bond is issued on January 2 with interest payable semiannually on July 1 and January 1 yielding 7%. 5. F T F T T Item 6. 12. 14. A ten-year 8% bond is issued on January 2 with interest payable semiannually on July 1 and January 1 yielding 9%. d. 15. Present value of an ordinary annuity of 1 22. Future value of an annuity due of 1 c. 17. bond buyers determine the present value of the bonds’ cash flows using the market interest rate. Future value of an ordinary annuity of 1 d. Twelfth Edition 17. Future value of an ordinary annuity of 1 d. 3. 19. 4. Ans. Ans. True False Answers—Conceptual Item 1. 2. 19. The future value of a deferred annuity is less than the future value of an annuity not deferred. T F T F T MULTIPLE CHOICE—Conceptual 21. F F F T T Item 16. Future value of 1 or present value of 1 b. The present value of an ordinary annuity is the present value of a series of equal rents withdrawn at equal intervals. Future value of 1 b. .6-6 Test Bank for Intermediate Accounting. c. A capital lease is entered into with the initial lease payment due upon the signing of the lease agreement. 10. b. 7. 13. 23. Which of the following tables would show the smallest value for an interest rate of 5% for six periods? a.000 today? a. 8. At the date of issue. Ans. Present value of 1 c. 9. A capital lease is entered into with the initial lease payment due one month subsequent to the signing of the lease agreement. Which of the following transactions would require the use of the present value of an annuity due concept in order to calculate the present value of the asset obtained or liability owed at the date of incurrence? a. 20. F F T T T Item 11. 20. The future value of an annuity due factor is found by multiplying the future value of an ordinary annuity factor by 1 minus the interest rate. 18. Present value of an ordinary annuity of 1 Which table would you use to determine how much you would need to have deposited three years ago at 10% compounded annually in order to have $1. Ans.

2006. Present value of 1 d. 25. Present value of annuity of 1 Which of the following tables would show the largest value for an interest rate of 10% for 8 periods? a.Accounting and the Time Value of Money 24. Future value of annuity of 1 c. What type of compound interest table is appropriate for this situation? a. None of these Which table has a factor of 1. Future value of 1 b. Future value of an annuity due of 1 d. 6-7 Which table would you use to determine how much must be deposited now in order to provide for 5 annual withdrawals at the beginning of each year. Present value of an ordinary annuity of 1 Which table would show the largest factor for an interest rate of 8% for five periods? a. The contract required 8 equal annual payments with the first payment due on June 1. b.00000 for 1 period at every interest rate? a. Future value of an ordinary annuity of 1 b. S 30. Present value of an ordinary annuity of 1 c. d. Present value of an ordinary annuity of 1 table. Future value of an ordinary annuity of 1 d. Present value of 1 table. Future value of an annuity due of 1 c. b. c. Future value of an ordinary annuity of 1 b. Present value of an ordinary annuity of 1 c. The two companies entered into an installment sales contract at a rate of 8%. Present value of an annuity due of 1 The figure . 2006. Future value of 1 b. Future amount of an ordinary annuity of 1 table. From what interest table is this figure taken? a. Future amount of an ordinary annuity of 1 table. Present value of an ordinary annuity of 1 table. . Walsh Company sold some equipment to Fischer Company. Future value of an ordinary annuity of 1 b. d. 26. 27. Present value of an annuity due of 1 table. 28. c. Future amount of 1 table. Present value of an annuity due of 1 d. Present value of an annuity due of 1 Which of the following tables would show the smallest factor for an interest rate of 10% for six periods? a. S 29. Present value of 1 c.94232 is taken from the column marked 2% and the row marked three periods in a certain interest table. Future value of an annuity due of 1 d. On June 1. Future amount of 1 table. starting one year hence? a.

b. 2% for 32 periods. 8% for 32 periods. wants to deposit a lump sum to accumulate $50. the date of the sale. . Future amount of an annuity of 1 for four periods b. 2% for eight periods. rents a truck for 5 years with annual rental payments of $20. P 32. b.000 for the construction of a new parking lot in 4 years.000 to be made at the beginning of each year. c. In the time diagram below. Future amount of 1 for four periods c. b.000 to be made at the end of each year. d. c. unearned receipt. What present value concept is appropriate for this situation? a. Diamond Bar. P 33. An amount is deposited for eight years at 8%. On December 1. 2007. b. c. Inc. c.000 and has agreed to pay back the principal plus interest in three years. 2007. annuity in arrears. A series of equal receipts at equal intervals of time when each receipt is received at the beginning of each time period is called an a. d. 8% for eight periods. The two companies entered into an installment sales contract at a predetermined interest rate. d. ordinary annuity. Present value of an ordinary annuity of 1 for four periods d. Babbitt. Twelfth Edition Which of the following transactions would best use the present value of an annuity due of 1 table? a. 35. Inc. Michael Hess Company sold some machinery to Shawn Keling Company. Michener Co. Durant. P Present value of an ordinary annuity Present value of an annuity due Future value of an ordinary annuity Future value of an annuity due 34. then the table value is found at a. Present value of an annuity due of 1 for four periods. The contract required four equal annual payments with the first payment due on December 1. annuity due. which concept is being depicted? 31. rents a warehouse for 7 years with annual rental payments of $120. borrows $20. 0 1 $1 2 $1 3 $1 4 $1 PV a. If compounding occurs quarterly. Inc. d.6-8 S Test Bank for Intermediate Accounting.

.00000 to the ordinary annuity table value for one less period.10. b. b. d. b. the present value of that sum decreases as the date draws closer to December 31. dividing the present value by the future value and looking for the quotient in the future value of 1 table. c. 42. Which of the following is true? a. b. Present value is a. c.10. the interest rate is determined by a. Which statement is false? a.10. dividing the future value by the present value and looking for the quotient in the future value of 1 table. $1. 2010. Ed Sloan wants to withdraw $20. dividing the future value by the present value and looking for the quotient in the present value of 1 table.000 today. minus 1.00000 from the ordinary annuity table value for one more period. The factor for the present value of an annuity due is found by multiplying the ordinary annuity table value by one minus the interest rate. The factor for the future value of an annuity due is found by multiplying the ordinary annuity table value by one plus the interest rate. 2010. If the interest rate is 10%. d. The factor for the future value of an annuity due is found by subtracting 1. 41. None of these. always smaller than the future value. i = 10% a. b. Rents occur at the end of each period of an annuity due. d. P 39 40. b. the factor for the future value of annuity due of 1 for n = 5. 6-9 If the number of periods is known. d. The higher the discount rate.100 due one year from today is equivalent to $1. the value now of a future amount. Rents occur at the beginning of each period of an ordinary annuity. d. divided by 1.10.000 (including principal) from an investment fund at the end of each year for five years. the amount that must be invested now to produce a known future value. i = 10% is equal to the factor for the future value of an ordinary annuity of 1 for n = 5. Rents occur at the beginning of each period of an annuity due. If money is worth 10% compounded annually. c. The factor for the present value of an annuity due is found by adding 1. all of these. c. Which of the following statements is true? a. If a single sum is due on December 31. P 38. plus 1. multiplied by 1. d.Accounting and the Time Value of Money 36. c. The process of accumulating interest on interest is referred to as discounting. How should he compute his required initial investment at the beginning of the first year if the fund earns 10% compounded annually? 37. c. the higher the present value. multiplying the present value by the future value and looking for the product in the present value of 1 table.

10). b. 46. 10% ordinary annuity of 1. c. $40. c.000 divided by the future value of a 5-year. c. eight periods and multiply by (1 + . $40. then a.000 times the future value of a 5-year. If the first rent is received at the end of the sixth period. The accountant has only one present value table which shows the present value of an annuity of $1 payable at the end of each period. 6% ordinary annuity of 1. $20. To compute the present value. we compute the present value of an ordinary annuity of 1 for the entire period and subtract the present value of the rents which were not received during the deferral period. How should she compute her required annual investment? a. d. $40.6 . the future value of the annuity due is less than the future value of the ordinary annuity. d. If an annuity due and an ordinary annuity have the same number of equal payments and the same interest rates. $20. the present value of the annuity due is greater than the present value of the ordinary annuity. eight periods. the present value of the annuity due is less than the present value of the ordinary annuity. 43. she will need a total of $40. b.10 Test Bank for Intermediate Accounting. it means the ordinary annuity is deferred for six periods. c.000 times the future value of a 5-year. 44. 10% ordinary annuity of 1.10). 10% ordinary annuity of 1.000 times the present value of a 5-year.000 divided by the present value of a 5-year. d. b.000 divided by the present value of a 5-year. 6% ordinary annuity of 1. A deferred annuity is an annuity in which the rents begin after a specified number of periods. . 45.000 times the present value of a 5-year. To compute the present value of a deferred annuity. seven periods.000 accumulated. b. 6% ordinary annuity of 1. d. nine periods and multiply by (1 – . $20. the accountant would use the present value factor in the 10% column for a. b. d. $40. An accountant wishes to find the present value of an annuity of $1 payable at the beginning of each period at 10% for eight periods. The future value of a deferred annuity is the same as the future value of an annuity not deferred. $20. c. The investment will earn 6% compounded annually. Ann Ruth wants to invest a certain sum of money at the end of each year for five years. 6% ordinary annuity of 1.000 divided by the future value of a 5-year. the future value of the annuity due is equal to the future value of the ordinary annuity. 10% ordinary annuity of 1. Twelfth Edition a. Which of the following is false? a. At the end of five years.

080) + ($3.000 × 1.000 × 1.000 × 1.166) + ($6. 35.260) + ($6. Item Ans.000 × 1. 36. Given below are the future value factors for 1 at 8% for one to five periods. ($6. 24.000 ÷ 1. $6. $10.000 × 1. a d d a 37. Item Ans.166) + ($3.000 is invested each year for four years with the first investment to be made today? a. c.360 × 4 c.260 d. 8 periods at 4%. 40. Future Value of 1 at 8% 1.080 × 3 If $3. 30.000 × 1.080 1.000 × 1.360) d. Present value of an Ordinary Annuity of 1.166) + ($6. 50. $10. 23. 42. Each of the items 48 to 51 is based on 8% interest compounded annually. 43. $3. 21. 22. ($6. then the amount of $1 left on deposit for 8 years would be found in a table using a.000 × 1. If a savings account pays interest at 4% compounded quarterly.260) + ($6. 39. 32. c a a c 33. 31. $10.000 ÷ 1.000 is put in a savings account today. d. a b a d 25. Item Ans. 32 periods at 1%.000 × 1.Accounting and the Time Value of Money 6 . 44. Item Ans. $3.360 1. what amount will be available three years from today? a. d c c c 41.000 × 1. c c b c 29.080) + $6. 32 periods at 4%. 8 periods at 1%. $10.000 × 1. Items 48 through 51 apply to the appropriate use of interest tables. $3. ($3.260) What amount will be in a bank account three years from now if $6. 34.000 b.260 b. Periods 1 2 3 4 5 48. b d Solution to Multiple Choice question for which the answer is “none of these. Item Ans.260 1. MULTIPLE CHOICE—Computational 47.000 × 1.000 three years from today? a.000 × 1. 28.000 × 1.080 × 4 49. 46. Item Ans.166 1. b c b b 45. 27.11 Multiple Choice Answers—Conceptual Item Ans.260 c.” 24. .260 × 3 c.080) + ($6. b.000 × 1.080 × 3 d. $6. 26.260 b.000 ÷ 1.000 × 1. 38.469 What amount should be deposited in a bank account today to grow to $10.

$3. Each of the items 52 to 55 is based on 10% interest compounded annually. .469 c.826 b. Twelfth Edition If $4. $3. 55.909 × 3 c. $4.000 × 0.826) + ($5.080 × 6 b.00 discounted at 10% for one to five periods.000 × 1.000 ÷ 0.000 × 0.000 × 0.080 × 1.909) + ($5.000 × 0.000 in a savings account today.) a. ($5. 54.000 × 1.000 to be received six years from today? a.000 three years from today? a.826) + ($3.751) d.751) + ($5. $4.909 d.751) b.909 × 6 b.000 ÷ 0. $4. $4.909) + ($5.826 3 0.000 × 1.12 51. $4.683) d. $3. Given below are the present value factors for $1.000 × 0.909) + ($3.683 × 4 c.683 5 0.000 × 0. $5. what amount of cash would be available two years from today? a. what amount will be available six years from now? a. $5.826 × 2 c. Present Value of $1 Periods Discounted at 10% per Period 1 0.000 × 0.000 × 1. $5.000 + ($5.826) + ($5.909 2 0.000 ÷ 0.621 × 0.000 × 0.751 4 0.260 × 2 Items 52 through 55 apply to the appropriate use of present value tables.000 ÷ 0. $4.000 × 0. ($3.909 × 2 What is the present value today of $6.166 × 3 d.6 .000 is needed each year for four years with the first withdrawal to be made today and each subsequent withdrawal at one-year intervals? (The balance in the bank account should be zero after the fourth withdrawal.000 ÷ 0.751 × 2 c. If an individual put $4.000 × 0.000 × 0.826 d.000 × 0.000 × 0. $6.751 b. $6.000 × 0. Test Bank for Intermediate Accounting.683 × 3 What amount should be deposited in a bank today to grow to $3. $4. $6.751 What amount should an individual have in a bank account today before withdrawal if $5.621 52.000 × 0.000 is put in a savings account today. $6.000 × 0.000 × 0.909 × 4 53.000 × 0. $4.

$51. In 5 years.360. b.600 d. Sheeley Company will receive $100. the amount in the investment fund is a. $402.469. $755. c. 59. 58. 6 . c. d.13 At the end of two years. In how many years is the $100. what will be the balance in a savings account paying 6% annually if $5. $268. 8 years Jensen Company will invest $200.000 received? a.000 in 7 years.000.000. The investment will earn 6% for 5 years. c.Accounting and the Time Value of Money 56.000.000 in a future year. $300. 6 years c.06. $5. 7 years d.000. $390. $200. a. $5. If the appropriate interest rate is 10%. 5 years b. 6 years c. If the appropriate interest rate is 10%.000 today.017. $5. its present value is $63. b. $267. .000 b. 5 years b. the amount in the investment fund is a. $260.646. $151. $974. with no funds withdrawn. 57. d.000 receipt is a.000 today. the present value of the $100. $5. Swanson Company will receive $100.580.316.000 in 7 years.300 c. 7 years d. If the future receipt is discounted at an interest rate of 8%.000.000.058.316. b. with no funds withdrawn.000 is deposited today? The future value of one at 6% for one period is 1. 61. Finley Company will receive $500. $256. b.000 received? a. its present value is $51. d. If the future receipt is discounted at an interest rate of 10%. 8 years Jasper Company will invest $300. $194. The investment will earn 6% for 5 years. 62.000 in a future year. 60.000 receipt is a.872.087. $401. In 5 years.618 Windsor Company will receive $100.000. the present value of the $500.000. c. In how many years is the $100. d. $255. $51.

2006? a. Pedigo Corporation will invest $30.000 today (January 1.000 every December 31st for the next six years (2006 – 2011). 2011? a. 65. $81. $46. Twelfth Edition Quincey Corporation makes an investment today (January 1. b.048. b. 67. and also on each January 1st for the next five years (2007 – 2011).048. $162.000 every December 31st for the next six years (2006 – 2011). $181.304.048. $41. d. They will receive $20. If Quincey wants to earn 12% on the investment.890. If Linton will earn 12% on the investment.114 b. c. d.000 every December 31st for the next six years (2006 – 2011).152. If Schmitt will earn 12% on the investment. what amount will be in the investment fund on December 31.6 .000 every January 1st for the next six years (2006 – 2011).228. $82. c. assuming a 12% interest rate.096. 66.048. $90. $82. 2006). 2006). 2006? a.000 every December 31st for the next six years (2006 – 2011). Craig Rusch Corporation will receive $10. $41. What is the present value of the six $20. $81. what amount will be in the investment fund on December 31. Gorman Corporation makes an investment today (January 1. what is the most they should invest on January 1. $92.114. c. assuming a 12% interest rate? a.890. c.000 today (January 1. 2006). what amount will be in the investment fund on December 31. $81. b. $81. If Gorman wants to earn 12% on the investment. $46.? a. 68.152. $181. If Pedigo will earn 12% on the investment. and also on each January 1st for the next five years (2007 – 2011).14 63.228.780.152. c. 69. Test Bank for Intermediate Accounting. $90.780. . $90. d.000 receipts.096. $41.890. d. what is the most they should invest on January 1. Renfro Corporation will receive $20. c. 2006).114. 2011? 64.304. $41.890. Schmitt Corporation will invest $10. $92. They will receive $10. $46. d.114.152. b. $46. 2011? a. Linton Corporation will invest $10. d. b.000 receipts. $162. $90. What is the present value of the six $10.

Present Value of Ordinary Annuity 5. What will be the balance in the fund. What will be the balance on September 1. $243.383 c. 6 .456. $202. 2011? a.785. 2014? a. 2007. within $10. The company plans to make five annual deposits of $50.000 is deposited annually starting on January 1.000 every January 1st for the next six years (2006 – 2011).183 d. $123.880.225. $57. 2013? The fund pays interest at 8% compounded annually.670.2397 4.973 If $5.235 $272.000 at 9% each January 1 beginning in 2007.166 $299. Carly Company decided to begin accumulating a fund for asset replacement five years later.92280 10. 2007 and it earns 8%.480 d.438 73. 2013 in a fund which is accumulated by making $8. with the last deposit being made on September 1. On January 1. . on January 1.093 b.000 annual deposits each September 1 beginning in 2006.9847 6 periods 4.144.15 Wagner Corporation will invest $25. $71. c. d. d. If Wagner will earn 12% on the investment.500 $250.000 71. $53.120. a. $326.614 b. $227. b.48756 7 periods 8 periods 9 periods 72. b.2064 5. b.2469 Future Value of Ordinary Annuity 8.5233 a. $115.63663 12. $272. Use the following 8% interest factors for questions 72 through 75. what will the balance be on December 31.7466 6.342 $138. $102.4859 7.8897 5. what amount will be in the investment fund on December 31. c. Present Value of Future Value of Ordinary Annuity Ordinary Annuity 4 periods 3. $85. $44. d. $60.Accounting and the Time Value of Money a.5731 5 periods 3. $48.183 c. c. 2012 (one year after the last deposit)? The following 9% interest factors may be used. $45. 70.

77.000 for 15 years if the first $10. a. The present value of an ordinary annuity of 1 for five periods is 3. What was the cost of the machine to Foley? a.000 is received today and the rate is 9%? Present Value of Periods Ordinary Annuity at 9% 14 7.448 b.125 Foley Company financed the purchase of a machine by making payments of $18.000 at the end of each of five years. 2007 in a savings account paying 6% annually in order to make annual withdrawals of $20. 76.31256 a. 79. which is to be financed by making 8 annual payments of $6. $36.06069 16 8.000 at the end of the years 2007 and 2008? The present value of one at 6% for one period is .000 b. $34.16 74. $40.115 d. $37.99271. $17. $105.10510. The future value of one for five periods at 8% is 1. $90. $80. The future value of an ordinary annuity of 1 for five periods is 6. a.79079.869 c. The present value of an ordinary annuity for five periods at 8% is 3. $26. What is the required amount of each deposit? a. The appropriate rate of interest was 8%. 2006. $42.78615 15 8. $28.480 How much must be deposited on January 1.820 d. 2015 by making 8 equal annual deposits beginning May 1.9434. 2007 to a fund paying 8% interest compounded annually. $37.6 . $73.862 c. $150. .607 b.481 c.234 What amount should be recorded as the cost of a machine purchased December 31.668 b. $63.000 d. The future value of an ordinary annuity for five periods at 8% is 5.000 d. $52. Test Bank for Intermediate Accounting. $87.204 c.8666.000 at the beginning of each of the next five years.000 d. What was the cost of the machine? 75. The interest rate was 10%. Twelfth Edition Henson Company wishes to accumulate $300. 78. $26.600 A machine is purchased by making payments of $5.205 b.000 each beginning December 31.000 by May 1. $71.800 How much must be invested now to receive $10. 2007? The applicable interest rate is 8%.740 c.46933. $30.

$169. has a machine that cost $200. $224.000 for 15 years and to have a resale value of $40.754.303 c. Catt wants a return of 10%. 2007. d. Assume a 10% rate and earnings at year end. Present Value of Period Ordinary Annuity 19 8. c.000 at the end of that period. b.51356 21 8. Calculate the amount of the annual rent. 12% (pays interest semiannually) bond issue sold to yield an effective rate of 10% is a. $226.578 $30. ten-year.3855 6. c. It is to be leased for 20 years with rent received at the beginning of each year. $33.212. $324. Using the interest factors below. 10-year bonds. The present value of 1 at 10% for 15 periods is . $185. Yenn Corporation wishes to issue $2.578.925. b. 82. a.276 d.Accounting and the Time Value of Money a. $224.23939.356 b.052 0. Note: Students must be given interest tables for question 83.000.000.36492 20 8.17 Catt Co. The future value of 1 at 10% for 15 periods is 4.000.012 $2.136 $2.000 $1.64869 a. $374. $23. . d. 83. b. The bonds pay interest annually on January 1.954 6 . c.1446 81.654.000.849 $18.17725.000.576 On January 2.7101 6.526 $20.728 b. $159. Present value of 1 at 8% for 10 periods Present value of 1 at 10% for 10 periods Present value of an ordinary annuity at 8% for 10 periods Present value of an ordinary annuity at 10% for 10 periods a.728 d. $29. $21.4632 0. 80. d.000 (par value) of its 8%.909 c. The market price of a $200. $23.492 Find the present value of an investment in plant and equipment if it is expected to provide annual earnings of $21.60608. $2. The present value of an ordinary annuity at 10% for 15 periods is 7. compute the amount that Yenn will realize from the sale (issuance) of the bonds. The current yield rate on such bonds is 10%.472.

a a d c d a 77. b b c a b b 83.706 b. Interest is payable semiannually on January 1 and July 1. c d a d b c 59.000 On May 1. d. 47. Future value of annuity of 1 b.75. 63. The present value of $1 at 10% for three periods is 0. 55. 58. 2007. 61. The prevailing rate of interest for a note of this type at January 1. What amount of interest revenue should be included in Abel's 2008 income statement? a. Abel Co. 2009. 54. 81. Item Ans. Item Ans. 74. 75. 49. 69. 2007. Twelfth Edition Multiple Choice Answers—Computational Item Ans. Item Ans. 56.000 c. c d a b c d 71. c. d c b a b c 53. Item Ans.247 d. 67. c b b c a b 65. 51. Nott Co.000 For which of the following transactions would the use of the present value of an ordinary annuity concept be appropriate in calculating the present value of the asset obtained or the liability owed at the date of incurrence? a. 70. 2007 was 10%. 78. a company purchased a new machine which it does not have to pay for until May 1. 52. A ten-year 8% bond is issued on January 2 with interest payable semiannually on January 2 and July 1 yielding 7%. 76. $17. Present value of 1 On January 1. 68.000 of its 10% bonds for $354. 80.000 noninterest-bearing note due on January 1. On January 1. 87. Present value of annuity of 1 d. 62. $20. 2007? a.118 to yield 12%. 82. Item Ans. b MULTIPLE CHOICE—CPA Adapted 84. . 48. 2010. 64. The total payment on May 1. 60.200 d. Future value of 1 c. $13.000 c. $12. b. exchanged equipment for a $160. $400. 66. the cost of the machine would be the total payment multiplied by what time value of money factor? a. 85. Assuming interest at a 10% rate. 73. $0 b. 57. 86. Item Ans. $21. What amount should Nott report as interest expense for the six months ended June 30. 79. A capital lease is entered into with the initial lease payment due upon the signing of the lease agreement. $24. 50. 2009 will include both principal and interest. $16. 72.6 . A capital lease is entered into with the initial lease payment due one month subsequent to the signing of the lease agreement.18 Test Bank for Intermediate Accounting. sold to Day Corp. 2007. A ten-year 8% bond is issued on January 2 with interest payable semiannually on January 2 and July 1 yielding 9%.

On December 30. the prevailing rate of interest for this type of note was 11%.712 5.5645 .64 5. Present value factors are as follows: At 8% At 10% Present value of 1 for 10 periods 0. $862.000. c.600.600. The first deposit was made on July 1. d. $285. issued ten-year bonds with a face amount of $2. Grant Co. 2007. On January 1.Accounting and the Time Value of Money 88.11 89. $1.779. in exchange for a noninterest-bearing note requiring eight payments of $50. $257.618.5132 Present Value of Ordinary Annuity of 1 at 10% 4. $348. Eaton signed a noninterestbearing note requiring payment of $80.386 Present value of an ordinary annuity of 1 for 10 periods 6. 2011.000. $235. The first payment was made on December 30.300.61 4.600. 2007. The bonds were priced to yield 10%.712 On Cey's December 31. 2007. 2007. the net note payable to Frank is a. b. $285.000.000 and a stated interest rate of 8% payable annually on January 1. b.000.463 0.000. Lex should record sales revenue in January 2007 of a. Inc.472. 2007 balance sheet.231 8 5. at an estimated cost of $4. purchased a machine from Frank Corp. On January 1. 2007. Lex Co. $261. 91. $389. 2007.775.3553 4. d. b. d. Present value factors are as follows: Present Value of Ordinary Present Value of Period Annuity of 1 at 11% Annuity Due of 1 at 11% 7 4.424.419.069. Information on present value factors is as follows: Period 6 7 Present Value of 1 at 10% . 6 . adopted a plan to accumulate funds for environmental improvements beginning July 1. 2007. c.000 annually for seven years.145 .710 6. At date of issuance. Future value factors are as follows: Future value of 1 at 10% for 5 periods Future value of ordinary annuity of 1 at 10% for 4 periods Future value of annuity due of 1 at 10% for 4 periods Flynn should make four annual deposits of a. Flynn Corp. The first payment was made on January 1.8684 90.000.146 5. 1.19 On January 15. and the others are due annually on December 30. $782. Flynn plans to make four equal annual deposits in a fund that will earn interest at 10% compounded annually. Cey. $711. $428. sold goods to Eaton Company. The prevailing rate of interest for this type of note at date of issuance was 10%. c.

92.000 ÷ 0.000 × 0.000 + ($5. 87.909) + ($5.000.260) + ($6. 84.000. $4.755. Inc. 4% ÷ 4 = 1%.840. 1. . 2008. 89.000 × 0.469 × 1.000 × (1. 54. d.000 × 0.200.000.260.000 × 1. 2007. Item Ans. 48. c.000 × 0.000. The agreement provides that the down payment is not refundable and no future services are required of the franchisor.000. 0. d. Item Ans.000 × 1. c. b.080)6 or $4.000. $5.800.. PV = $10. $147.000 × 1. c d 86.826.826) + ($5. b a 90.6 . On July 1. $1.000.91 Multiple Choice Answers—CPA Adapted Item Ans. Twelfth Edition The total issue price of the bonds was a.909. $1. $2. $6. for an initial franchise fee of $180.080) + $6. 91. Ed Vance signed an agreement to operate as a franchisee of Kwik Foods. Vance's credit rating indicates that he can borrow money at 14% for a loan of this type. 55. $1.000 × 1. $130.000.300. Answer d c b a b c c d a Derivation 4 × 8 = 32 periods.826 × PV = $4. c a 88. 49. 0.260 × PV = $10. a d 92.751). b DERIVATIONS — Computational No.000. Of this amount. 85. 51. b. Item Ans. Item Ans. $180.960.080.59 1.000 beginning July 1. PV = $4. 53.166) + ($6. 2007 at a. Information on present and future value factors is as follows: Present value of 1 at 14% for 4 periods Future value of 1 at 14% for 4 periods Present value of an ordinary annuity of 1 at 14% for 4 periods Vance should record the acquisition cost of the franchise on July 1.20 Test Bank for Intermediate Accounting.800.000 ÷ 1. $60. $3.000.751. $202.69 2.621 × 0.000 was paid when the agreement was signed and the balance is payable in four equal annual payments of $30.000 × 0. 1. 50. 52.260 × $3. 47. ($6.

74.63017 is PV factor for 6 years. 80.60478 = $46.000 × 10.60478 = $92.000 = 0.16987 = $20.51316 is PV factor for 7 years.10) = $5. $300. $500. $5.456.21 No.000 × 4.000 × (1.000 = 0.08.000 × (0.Accounting and the Time Value of Money 6 .048.11519 × 1. $51.63017. $8.5233 – 1) = $326.63663 = $85.000 × 1. 58. 79.48756 – 1) = $57.000 × 1.08) × R = $300.9847 × 1. 61.78615 + 1) = $87.9434)2] = $36.12 = $227.51316 = $256.469.000 × 4.36492 = $21.668. $20.000 × 8. 66. 64.000 × 8.152. $50.115.7466 = $34.000 ÷ 9. $5.000 × 5. $20.11519 = $243.580. $10.99271 = $71. $200.228.000 ÷ 11.63663 × 1.000 × (12.093.000 × 0.06)2 = $5. 65.316. 63.000 × (7.09. ($20.11141 = $41.10).438 or $5.11141 = $82. Answer d b c c b c c a b c d a b c d a a d c d a b b c a Derivation $5. 76.869.000 × 10. 75.06069 × 1.000 × (3. $30.480.000 × 0.51316.79079 × 1. $10.000 × 8.09.890. $200. 59.48756 = $26. 72.63663 × 1. R = $200.51316 = $51. 71. 69. 0. 67.000 × 4.12 = $90. 57.51356 × 1. $10.11519 × 1.000 × 3.000 × 0. 73. $100.000. 68.114.862 or $10. 78. R = $300. 60.33823 = $267.017 ÷ $100.000 × 8.000 × (7.000 = R × (8.225.356.166 or $50.000 × 5. 70.11519 = $81. 0.9434) + [$20. $10.33823 = $401.000 × 4.000 × 8.646. $18.849.000 × 4. $6.096. 62. $10.316 ÷ $100. . (10. $25. $63.618. 56. 77.

6 .000 = $147.600.11 = $782.000.000 (semiannual interest payment) ($12. 83.37689) = $224.118 × .60608) + ($40.779. Conceptual.000 × . $200.000 × . Answer b b b Derivation ($21.145) + ($2.1) = $428.8684 × 1. 81.08 = $160.000 ($160.000 ÷ 5.000 × 12.000 = $235.000 × 6. 5.000 × 0.755.000 × 0.06 = $21.1446) + ($2.000.000.712 = $235.000 × . $50. Answer c d c a b a a d b Derivation $354.000 × 2.300.3855) = $1.419.10 = $13.06 = $12. 82. 89.200. . 85.000.000 (annual interest payment) ($160. 86. R = $4.712) – $50. 87. 92.200.000. 91. Twelfth Edition No.000 (present value of note) $120.000 × . Conceptual.000.303.000 × 5.600 or ($50.000 × 0.247. $80.925.000 × 6.91) + $60. 90.000. $132.000.23939) = $169. $2.386) = $1. DERIVATIONS — CPA Adapted No.000 × .000 × (4.46221) + ($200. 88.754.000 × 7. 84. $160.000 × 1.11 × R = $4.000 × . ($30.75 = $120.08 = $160. $2.000 × 4.10 = $132.136.22 Test Bank for Intermediate Accounting.

c Ex. c. (Tables needed. _____ 4. Present value of 1. f 4. Assume n = 4 and i = 8%...000 × 20.. Future value of an ordinary annuity of 1. Solution 6-94 Present value of $3. Solution 6-93 1. | ? | $1 | $1 |. $1 $1 $1 ? $1 ? Diagram of Concept $1 | | | | $1 | | $1 | | |. Present value of an annuity due of 1. b. a 3.. e 2.) Compute estimated goodwill if it is found by discounting excess earnings at 12% compounded quarterly. . _____ 6. _____ 3. d. | $1 | ? f.000 are expected for 8 years.23 EXERCISES Ex. On the right are six diagrams representing six different present and future value concepts stated on the left.Accounting and the Time Value of Money 6 .166.| $1 $1 | $1 | | $1 | | $1 | | $1 | ? e. b | | | | | 5. 6-93—Present and future value concepts. 6-94—Compute estimated goodwill.| ? $1 $1 _____ 5. a. Future value of an annuity due of 1. Identify the diagrams with the concepts by writing the identifying letter of the diagram on the blank line at the left..000 for 32 periods at 3% ($3. d 6. Future value of 1. Excess annual earnings of $12. Concept _____ 1.38877) = $61.. Present value of an ordinary annuity of 1. _____ 2.

2007 and it earns 9%.000 × 15. 6-96—Future value of an annuity due.42241 × $25.19293 × 1. $64.) Find the present value of an investment in equipment if it is expected to provide annual savings of $10.) If $4. (Tables needed. how much will accumulate by December 31. 10% (pays interest semiannually) bond issue sold to yield an effective rate of 12%. Ex. Aaron wants a return of 10%. It is to be leased for 15 years with rent received at the beginning of each year.000 for ten years if the first $20.737 . 6-95—Present value of an investment in equipment. Compute the amount of the annual rent. 6-99—Calculate market price of a bond.000 discounted for 10 periods at 9% (.) Determine the market price of a $200.6 . 2016? Solution 6-96 Future value of an annuity due of $4.000 at the end of that period.41766 × $10.10 × 7.60608) = 8. Twelfth Edition Ex.000) = Present value of investment in equipment Ex.000 for 10 periods at 9% ($4.000) = Present value of $25.36669 $80. (Tables needed.938. 6-97—Present value of an annuity due.) Aaron Co.000 is deposited annually starting on January 1.000 is received today and the rate is 8%? Solution 6-97 Present value of an annuity due of $20. (Tables needed.000 ÷ 8. 6-98—Compute the annual rent. has machinery that cost $80. Ex.241.24 Test Bank for Intermediate Accounting.) How much must be invested now to receive $20.000 for 10 periods at 9% (6. Ex. (Tables needed.36669 = $9. (Tables needed. Assume an interest rate of 9% and that savings are realized at year end.09) = $66.177 10.000 for 10 years and to have a resale value of $25.560 $74.000.000.24689) = $144.562. Solution 6-98 Present value factor for an annuity due for 15 periods at 10% (1. ten-year.000 × 7.000 for ten periods at 8% ($20. Solution 6-95 Present value of $10.

322 $430.61391 Present value of 1 for 10 periods at 6% . Part (a) Compute the amount that a $20. three years from today. Ken's tells her that she may settle the account in one of two ways since she can't pay it all now: 1.Accounting and the Time Value of Money Solution 6-99 Present value of $10.000 discounted for 20 periods at 6% ($200. 6-100—Calculate market price of a bond.600 one year after completion of residency.000 when she completes her residency.79079 Present value of an ordinary annuity of 1 for 5 periods at 12% 3. 6-101—Present value and future value computations. . Part (c) Mary Houser has a $1. She has only $400 in her checking account and doesn't want her parents to know about this debt.000 × 7.31180) = Market price of the bond issue Ex. 2007 Kiner Co.36009 Calculate the issue price of the bonds. issued five-year bonds with a face value of $400.62092 Present value of 1 for 5 periods at 12% .000 and a stated interest rate of 12% payable semiannually on July 1 and January 1. Don has come to you.55839 Present value of an ordinary annuity of 1 for 5 periods at 10% 3. Present value table factors are: Present value of 1 for 5 periods at 10% .200 overdue debt for medical books and supplies at Ken's Bookstore.059 On January 1. to learn how much he should deposit on December 31.000 discounted for 10 periods at 5% ($400. Solution 6-100 Present value of $400.000 investment today would accumulate at 10% (compound interest) by the end of 6 years. Pay $400 now and $1.000 at the end of each year for the next 20 years. The bonds were sold to yield 10%.000 × .72173 Present value of an ordinary annuity of 1 for 10 periods at 6% 7.564 185. Assuming that the cost of money is the only factor in Mary's decision and that the cost of money to her is 8%. Pay $1. 6 .000 × . 2007 to be able to withdraw $40.000 for 10 periods at 5% ($24.25 $114.60478 Present value of an ordinary annuity of 1 for 10 periods at 5% 7. his CPA.699 62.000 × 11.886 PROBLEMS Pr. assuming the amount on deposit will earn 8% interest annually. which alternative should she choose? Your answer must be supported with calculations. 2. His life expectancy is 20 years from his retirement.000 for 20 periods at 6% ($10.61391) = Present value of $24. two years from today.56743 Present value of 1 for 10 periods at 5% .46992) = Present value of $200. Part (b) Don wants to retire at the end of this year (2007).72173) = Issue price of the bonds $245.360 $177.

Twelfth Edition Solution 6-101 Part (a) Future value of $20.599 Future value of ordinary annuity of $6. Part (c) Alternative 1 Present value of $1.600 discounted @ 8% for 3 years ($1.46319 14.6410 × $6.726.000 × .537 $ 857 400 $1.48756 6.000 = $27.000 for 4 periods at 10%: 4.15892 .85734) = Present value of $1.000 × 9. Meg Sloan established a savings account for her son's college education by making annual deposits of $6. 6-102—Annuity with change in interest rate.431.537 for 4 periods at 10%: 1.000 at the end of each year and provides the lessor (Darby) with an 8% return on its investment.4641 × $47.33164 . Part (b) Present value of a $40. 6-103—Present value of an ordinary annuity due.000 discounted @ 8% for 2 years ($1.000 now = Present value of $400 now = Present value of Alternative 1 Alternative 2 Present value of $1. What was the account balance at the end of the tenth year? Solution 6-102 Years 1-6: Future value of annuity due of $6.24689 11 Periods 2.77156) = $35.48656 6.50025 12.000 × 1.000 compounded @ 10% for 6 years ($20. Jill Norris is presently leasing a small business computer from Darby Office Equipment Company. You may use the following 8% interest factors: Future Value of 1 Present Value of 1 Future Value of Ordinary Annuity of 1 Present Value of Ordinary Annuity of 1 Present Value of Annuity Due of 1 9 Periods 1.000 were made at the end of each year from the seventh through the tenth years.33592 × 1. Pr.99900 .599 = $97.79383) On the present value basis.64549 7.846 Sum in bank at end of tenth year: $27. Alternative 1 is preferable.42888 16.000 for 6 periods at 8%: (7. the account balance was transferred to a bank paying 10%.81815) = $392. and annual deposits of $6.08) × $6.13896 7.000 at the beginning of each of six years to a savings account paying 8%.26 Test Bank for Intermediate Accounting.000 = $47.24689 6.71008 7.270 Years 7-10: Future value of $47.6 .600 × .71008 .445 Pr. The lease requires 10 annual payments of $4.74664 10 Periods 2.846 + $69.000 ordinary annuity discounted @ 8% for 20 years ($40.537 = $69.257 $1. At the end of the sixth year.

24689 = Pr.79075 The 4.000 × (factor for Present Value of Annuity Due for 5 yrs.048. payable at the end of each of the next 5 years.27 Instructions (a) Assuming the computer has a ten-year life and will have no salvage value at the expiration of the lease. 6-103 (cont. chosen to lease the equipment for $10.704 .000 × (factor for Present Value of Ordinary Annuity for 6 yrs. 6-104—Finding the implied interest rate. Payments are due at the start of each year.6048 factor implies a 12% interest rate. Cline Company has chosen to lease the machine for $12.048 Factor for Present Value of Ordinary Annuity for 6 yrs. Instructions Calculate the implied interest rate for the lease payments. = $36.71008 × $4.24689.840 ÷ 7.000 = 4.840 $3.000 = 3.000 at 8% for 10 years is 6.000 = (b) Present value factor for an annuity due of $4.79075 factor implies a 10% interest rate (present value of an annuity due table).) = $57.048 ÷ $10.489 Factor for Present Value of Annuity Due for 5 yrs. Cline Company has entered into two lease agreements.000 per year.489. Cline Company has.) 6 . Solution 6-104 Lease A — Calculation of the Implied Interest Rate: $10. In each case the cash equivalent purchase price of the asset acquired is known and you wish to find the interest rate which is applicable to the lease payments.000 per year on a 6-year lease. Lease B — Calculation of the Implied Interest Rate: $12. $26.Accounting and the Time Value of Money Pr.000 at 8% for 10 years is 7. $26.489 ÷ $12.) = $36. however.6048 The 3. = $57. what was the original cost of the computer to Darby? (b) What amount would each payment be if the ten annual payments are to be made at the beginning of each period? Solution 6-103 (a) Present value of an ordinary annuity of $4. Lease A — Lease A covers office equipment which could be purchased for $36. Lease B — Lease B applies to a machine which can be purchased for $57.

It has located two potential buyers: Buyer A.000. with the first payment to be made 5 years from today.42410 .58468 14. and Buyer B.28 Test Bank for Intermediate Accounting.000 for the land now. Rice Leasing Company purchased specialized equipment from Wayne Company on December 31.533 15.71034 Various Factors at 5% Present Future Value of an Value of $1 Ordinary Annuity .000 ÷ 8.30641 Instructions (a) Calculate the amount of each rent. Since it will require several years and a considerable sum of money before the property is fully detoxified and capable of generating revenues.20679 Present Value of an Ordinary Annuity 7.38554 .57948 15. Rice Leasing wants to earn 10% annually on its investment.72173 8.72173 × 1.335 None Interest Revenue $ -017.14457 6. The lease payments begin January 1. 1 2 None Date 1/1/07 7/1/07 12/31/07 Total Pr. Assuming that the appropriate rate of interest is 9%.943 (Accrual) $33.75902 6.85312 Present Value of $1 . Twelfth Edition Pr. who is willing to make 20 annual payments of $50.61391 12.02656 . 2007 and are made every 6 months until July 1. Cash Received $49. Baker wishes to sell the land now.35049 Future Value of an Ordinary Annuity 13. to whom should Baker sell the land? Show calculations.93743 18. the useful life of the equipment. 6-105—Calculation of unknown rent and interest.57789 .62889 1. (b) Interest Revenue during 2007: Rent No.665 318.05 = 8. 2011. On the same date.863 .335. who is willing to pay $320. Various Factors at 10% Periods or Rents 9 10 11 Future Value of $1 2.64461 11.6 .10782 7. (b) How much interest revenue will Rice earn in 2007? Solution 6-105 (a) Calculation of rent: 7.335 49. 6-106—Deferred annuity. Baker Company owns a plot of land on which buried toxic wastes have been discovered. 2006 for $400.49506 Periods or Rents 9 10 11 Future Value of $1 1.476 Lease Receivable $350.10782 (present value of a 10-rent annuity due at 5%.) $400. it leased this equipment to Sears Company for 5 years.10782 = $49.53117 Present Value of an Ordinary Annuity 5.000 each.35795 2.55133 1.59374 2.

345 .70661 3.000.000 for 24 periods at 9% Less present value of ordinary annuity of $50.46689 × $50.000 for 4 periods (deferred) at 9% Difference Multiplied by annual payments Present value of payments Conclusion: Baker should sell to Buyer B. The present value of the purchase price is $320.Accounting and the Time Value of Money Solution 6-106 Buyer A.23972 6.000 $323. 6 .29 9. Buyer B. The present value of the purchase price is: Present value of ordinary annuity of $50.

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