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**ACCOUNTING AND THE TIME VALUE OF MONEY
**

IFRS questions are available at the end of this chapter.

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

No.

21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. S 35. S 36.

Description

Appropriate use of an annuity due table. Time value of money. Present value situations. Definition of interest. Interest variables. Identification of compounding approach. Future value factor. 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.

6-2

Test Bank for Intermediate Accounting, Fourteenth Edition

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

Answer

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

P S

No.

S P

Description

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. Adjust the interest rate for time periods. Definition of present value. Compound interest concepts. Difference between ordinary annuity and annuity due. Future value of 1 and present value of 1 relationship. Identify future value of 1 concept. Determine best bonus option Identify future value of an ordinary annuity Identify future value of an ordinary annuity 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. Present value of ordinary annuity and present value of annuity due relationship Identify present value of ordinary annuity concept. Determine least costly option. Definition of deferred annuities.

37. 38. P 39. P 40. 41. 42. 43. P 44. 45. 46. 47. 48. 49. 50. P 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61.

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

MULTIPLE CHOICE—Computational

Answer

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

No.

62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74. 75. 76.

Description

Calculate the future value of 1. Calculate amount of interest paid. 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.

Accounting and the Time Value of Money

6-3

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

Answer

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

No.

77. 78. 79. 80. 81. 82. 83. 84. 85. 86. 87. 88. 89. 90. 91. 92. 93. 94. 95. 96. 97. 98. 99. 100. 101. 102. 103. 104. 105. 106. 107. 108. 109. 110. 111. 112. 113. 114. 115. 116. 117. 118. 119. 120. 121. 122. 123.

Description

Present value of a single sum. Present value of a single sum, unknown number of periods. Future value of a single sum. Calculate the present value of 1. Calculate the future value of 1. Calculate the present value of 1. Calculate interest rate. Calculate number of years. Calculate the future value of 1. Calculate the present value of 1. Calculate the present value of 1. Calculate the present value of 1 and present value of an ordinary annuity. Calculate number if years. Calculate the amount of annual deposit. Calculate the amount of annual deposit. Calculate the amount of annual deposit. 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. Calculate cost of machine purchased on installment. Calculate present value of an ordinary annuity. Calculate present value of an annuity due. Calculate cost of machine purchased on installment. Calculate cost of machine purchased on installment. Calculate the annual rents of leased equipment. Calculate present value of an investment in equipment. Calculate proceeds from issuance of bonds. Calculate proceeds from issuance of bonds. Calculate present value of an ordinary annuity. Calculate interest rate. Calculate present value of an annuity due. Calculate effective interest rate. Calculate present value of an ordinary annuity. Calculate present value of an annuity due. Calculate annual interest rate. Calculate interest rate. Calculate annual lease payment. Calculate selling price of bonds.

6-4

Test Bank for Intermediate Accounting, Fourteenth Edition

**MULTIPLE CHOICE—CPA Adapted
**

Answer

c d c a b a a d b

No.

124. 125. 126. 127. 128. 129. 130. 131. 132.

Description

Calculate interest expense of bonds. Identification of correct compound interest table. Calculate interest revenue of a zero-interest-bearing note. Appropriate use of an ordinary annuity table. Calculate annual deposit of annuity due. Calculate the present value of a note. Calculate the present value of a note. Determine the issue price of a bond. Determine the acquisition cost of a franchise.

EXERCISES

Item

E6-133 E6-134 E6-135 E6-136 E6-137 E6-138 E6-139 E6-140

Description

Present and future value concepts. Compute estimated goodwill. Present value of an investment in equipment. Future value of an annuity due. Present value of an annuity due. Compute the annual rent. Calculate the market price of a bond. Calculate the market price of a bond.

PROBLEMS

Item

P6-141 P6-142 P6-143 P6-144 P6-145 P6-146

Description

Present value and future value computations. Annuity with change in interest rate. Present value of ordinary annuity and annuity due. Finding the implied interest rate. Calculation of unknown rent and interest. Deferred annuity.

**CHAPTER LEARNING OBJECTIVES
**

1. 2. 3. 4. 5. 6. 7. 8. Identify accounting topics where the time value of money is relevant. Distinguish between simple and compound interest. Use appropriate compound interest tables. Identify variables fundamental to solving interest problems. Solve future and present value of 1 problems. Solve future value of ordinary and annuity due problems. Solve present value of ordinary and annuity due problems. Solve present value problems related to deferred annuities and bonds.

MC 93. MC 95. 137. E P 136. MC 84. 105. 66. MC 113. 65. MC 81. 68. 8. 11. 90. E P 140. 48. 7. 10. Learning Objective 7 MC 110. MC 37. MC 111. 12. MC 117. Learning Objective 8 MC 123. MC 80. 108. MC 83. 143. 127. 72. 141. 47. MC 116. 17. P Type Item Type Item Type MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC P Item 24. 102. Learning Objective 5 MC 76. 124. 15. 32. 5. MC 119. 73. 4. Learning Objective 1 MC 22. 100. P Type TF TF MC MC MC MC MC MC MC MC MC MC MC MC MC NC MC MC MC MC MC MC TF Item 21. 128. 60. E P P P P TF = True-False MC = Multiple Choice . S P MC 35. MC 115. 122. 31. 109. MC 112. Type MC Item 25. MC 77. 70. 88. 3. MC 62. MC 82. 74. 19. 57. 30. 40. Learning Objective 6 MC 92. MC 94. 54. 46. 59. 145. MC 38. MC 23. 107. 75. 20. 43. 144. 16. 141. 53. 134. Learning Objective 2 TF 26. 139. 45. 55. 142. 69. 6. MC 87. MC 118. 18. Type MC MC 39. E = Exercise P = Problem MC MC 88. MC 86.Accounting and the Time Value of Money 6-5 SUMMARY OF LEARNING OBJECTIVES BY QUESTIONS Item 1. MC 85. 106. 27. 67. 71. Note: Type TF TF TF TF TF TF TF TF TF MC MC MC TF TF TF TF TF TF MC MC MC MC TF Item 2. S MC 34. MC 96. 104. 49. 125. 53. P 51. MC 97. MC 121. 28. 13. MC MC MC MC E E MC MC MC MC MC MC MC E E E 135. 126. MC 98. 29. MC 78. MC 36. 63. 64. 58. 101. MC 42. 61. 91. 9. Learning Objective 3 S MC 33. Learning Objective 4 MC 41. 138. 124. MC 120. MC 146. 56. MC 114. 133. P 44. 14. MC 79. 52. 103. 50. MC 99. 89.

must be used to properly evaluate longterm investment proposals. 11. Compound interest. 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. Compound interest uses the accumulated balance at each year end to compute interest in the succeeding year. . but one is an annuity due and one is an ordinary annuity. 2. Interest is the excess cash received or repaid over and above the amount lent or borrowed. If two annuities have the same number of rents with the same dollar amount. 12. 4. If the compounding period is less than one year. If two annuities have the same number of rents with the same dollar amount. 5. 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. but one is an annuity due and one is an ordinary annuity. 10. 14. 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. 13. 8. 15. 6. Fourteenth Edition TRUE-FALSE—Conceptual 1. 7. Simple interest is computed on principal and on any interest earned that has not been withdrawn. The future value of an ordinary annuity table is used when payments are invested at the beginning of each period. rather than simple interest. a company moves backward in time using a process of accumulation. In determining present value. 9.6-6 Test Bank for Intermediate Accounting. 3. the future value of the annuity due will be greater than the future value of the ordinary annuity. 16. Present value is the value now of a future sum or sums discounted assuming compound interest. The rents that comprise an annuity due earn no interest during the period in which they are originally deposited. The number of compounding periods will always be one less than the number of rents when computing the future value of an ordinary annuity. the present value of the annuity due will be greater than the present value of the ordinary annuity. The future value of a single sum is determined by multiplying the future value factor by its present value. The present value of an annuity due table is used when payments are made at the end of each period.

b. Ans. F F F T T Item 16. d. . 14. The relationship between time and money. Accounts receivable that are determined uncollectible. 18. F F T T T Item 11. b. What best describes the time value of money? a. A ten-year 8% bond is issued on January 2 with interest payable semiannually on July 1 and January 1 yielding 9%. A ten-year 8% bond is issued on January 2 with interest payable semiannually on July 1 and January 1 yielding 7%. Ans. b.Accounting and the Time Value of Money 6-7 17. c. d. The present value of an ordinary annuity is the present value of a series of equal rents withdrawn at equal intervals. Prepaid insurance. True False Answers—Conceptual Item 1. 2. Ans. 7. 5. 12. d. 22. At the date of issue. 3. A capital lease is entered into with the initial lease payment due one month subsequent to the signing of the lease agreement. 18. Pensions. 9. 19. Ans. Sinking funds. c. 10. 4. 19. 15. 13. Leases. bond buyers determine the present value of the bonds’ cash flows using the market interest rate. 17. 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. T F T F T MULTIPLE CHOICE—Conceptual 21. 20. A capital lease is entered into with the initial lease payment due upon the signing of the lease agreement. The future value of a deferred annuity is less than the future value of an annuity not deferred. Which of the following situations does not base an accounting measure on present values? a. 8. F T F T T Item 6. 20. An investment in a checking account. The interest rate charged on a loan. 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. c. 23.

Time. b. Quarterly. Assets. 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. Which of the following tables would show the smallest value for an interest rate of 5% for six periods? a.000 today? a. Future value of an ordinary annuity of 1 d. b. 29. c. d. d. Loan. Future value of an annuity due of 1 c. Monthly. An equity investment. d. Present value of 1 c. Future value of 1 b. If you invest $50. Annually. Daily. Present value of an ordinary annuity of 1 25. . Future value of an ordinary annuity of 1 d. Future value of an ordinary annuity of 1 b. which of the following compounding approaches would return the lowest amount after one year? a. Future value of 1 or present value of 1 b. Test Bank for Intermediate Accounting. Need more information. Present value of 1 c. b. 31. Present value of an ordinary annuity of 1 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. 30. starting one year hence? a. Future value of 1 b. 26.000 to earn 8% interest. What is NOT a variable that is considered in interest computations? a. Return on capital. Future value of $1 for 10 periods at 8% per period. Fourteenth Edition What is interest? a. Future value of an annuity due of 1 c. Present value of $1 for 10 periods at 8% per period.6-8 24. Principal. Future value of an ordinary annuity of 1 d. c. c. 27. d. Which factor would be greater — the present value of $1 for 10 periods at 8% per period or the future value of $1 for 10 periods at 8% per period? a. c.00000 for 1 period at every interest rate? a. Payment for the use of money. None of these Which table has a factor of 1. Interest rate. The factors are the same. 28. Present value of an annuity due of 1 d. b.

c. d. 2012. Present value of an annuity due of 1 table. Present value of an annuity due of 1 The figure . Future value of an ordinary annuity of 1 b.000 for the construction of a new parking lot in 4 years. Present value of an ordinary annuity of 1 table. b. On June 1. b. Which of the following transactions would best use the present value of an annuity due of 1 table? a. d. Future value of an ordinary annuity of 1 b. Future value of annuity of 1 c. Which table would show the largest factor for an interest rate of 8% for five periods? a. 34. b. S 37. Present value of an ordinary annuity of 1 c. S 35.000 to be made at the beginning of each year. Future value of 1 b. S 36. Which of the following tables would show the smallest factor for an interest rate of 10% for six periods? a. Future amount of an ordinary annuity of 1 table. Present value of an ordinary annuity of 1 c. Future value of an annuity due of 1 d. Present value of an annuity due of 1 6-9 33.Accounting and the Time Value of Money 32. From what interest table is this figure taken? a. Pitts Company sold some equipment to Gannon Company. Present value of 1 table.94232 is taken from the column marked 2% and the row marked three periods in a certain interest table. rents a warehouse for 7 years with annual rental payments of $120. c. Edmiston Co. What type of compound interest table is appropriate for this situation? a. d. Inc. 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. Future value of an annuity due of 1 d.000 to be made at the end of each year. Future amount of an ordinary annuity of 1 table. Inc. .000 and has agreed to pay back the principal plus interest in three years. Future amount of 1 table. wants to deposit a lump sum to accumulate $50. Present value of 1 d. 2012. The contract required 8 equal annual payments with the first payment due on June 1. c. Durant. Present value of an ordinary annuity of 1 table. The two companies entered into an installment sales contract at a rate of 8%. Fernetti. borrows $20. Babbitt. Inc. Future amount of 1 table. rents a truck for 5 years with annual rental payments of $20.

If compounding occurs quarterly. Richards Company sold some machinery to Fleming Company. 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 40. dividing the present value by the future value and looking for the quotient in the future value of 1 table. dividing the future value by the present value and looking for the quotient in the future value of 1 table. dividing the future value by the present value and looking for the quotient in the present value of 1 table. Present value of an ordinary annuity of 1 for four periods d. 8% for 32 periods. unearned receipt.10 P Test Bank for Intermediate Accounting. b. Future amount of an annuity of 1 for four periods b. annuity in arrears. 41. 2% for eight periods. d. The contract required four equal annual payments with the first payment due on December 1. 0 1 $1 2 $1 3 $1 4 $1 PV a. c. . d. annuity due. d. 8% for eight periods. If the number of periods is known. multiplying the present value by the future value and looking for the product in the present value of 1 table. Future amount of 1 for four periods c. which concept is being depicted? 38. the interest rate is determined by a. Present value of an annuity due of 1 for four periods. b. Fourteenth Edition 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. P 39. ordinary annuity. 2012. 2012. c. the date of the sale. 2% for 32 periods. then the table value is found at a. c. What present value concept is appropriate for this situation? a. The two companies entered into an installment sales contract at a predetermined interest rate. c. In the time diagram below. d. On December 1. An amount is deposited for eight years at 8%. b. 42. b.6 .

. the value now of a future amount. 45. b. Insufficient information to determine. Present value of an annuity due. c. Which time value concept would be used to determine the maturity value of the certificate? a.000 in a 3-year certificate of deposit earning 3. The signing bonus of $23. 2012.000 payable on the first day of work. Present value of one. Present value is a. 49. The higher the discount rate.000 payable after one year of employment. If a single sum is due on December 31. The firm offered Jerry either a signing bonus of $23. Assuming that the relevant interest rate is 10%. 46. c. b. always smaller than the future value. The present value of one equals one divided by the future value of one. Future value of an ordinary annuity. 6 . c. What is the primary difference between an ordinary annuity and an annuity due? a. 2012. Present value of an annuity due.11 P 44. The signing bonus of $26. $1. The present value of one equals one plus the future value factor for n+1 value Peter invests $100. Present value of one. Future value of one. The process of accumulating interest on interest is referred to as discounting. c. d. d. b. b.100 due one year from today is equivalent to $1. Ordinary annuity only relates to present values. The timing of the periodic payment.000 payable after one year of employment. Annuity due only relates to present values. The interest rate.Accounting and the Time Value of Money 43. d. the present value of that sum decreases as the date draws closer to December 31. Jerry recently was offered a position with a major accounting firm. If Jethro wanted to save a set amount each month in order to buy a new pick-up truck when the new models are next available. 47. the higher the present value. What is the relationship between the future value of one and the present value of one? a. c. Future value of one. 48. Future value of an ordinary annuity. d. which time value concept would be used to determine the monthly payment? a. c. b. d. c. Which of the following statements is true? a. If money is worth 10% compounded annually. d. all of these. the amount that must be invested now to produce a known future value. b. The present value of one equals the future value of one plus one.000 today. The present value of one equals one plus future value factor for n-1 periods. The options are equivalent. d.5% at his local bank. which option should Jerry choose? a. b.000 payable on the first day of work or a signing bonus of $26.

6 . At the end of five years. 55. 6% ordinary annuity of 1. plus 1. . b. d.12 Test Bank for Intermediate Accounting.00000 to the ordinary annuity table value for one less period. d. The factor for the future value of an annuity due is found by subtracting 1. the factor for the future value of annuity due of 1 for n = 5. What kind of problem is this? a. 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.000 times the future value of a 5-year. b. $40. How should she compute her required annual investment? a. Which statement is false? a. $20.000 accumulated.10. c. c. $40. multiplied by 1. divided by 1. b.000 times the present value of a 5-year. c.000 divided by the present value of a 5-year.000 (including principal) from an investment fund at the end of each year for five years. $20. The investment will earn 6% compounded annually. d. 10% ordinary annuity of 1. If the interest rate is 10%.10. 53.00000 from the ordinary annuity table value for one more period.000 divided by the future value of a 5-year. 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. Present value of one. $40. she will need a total of $40.000 divided by the future value of a 5-year. 6% ordinary annuity of 1. 10% ordinary annuity of 1. 10% ordinary annuity of 1. Betty wants to know how much she should begin saving each month to fund her retirement. 10% ordinary annuity of 1.000 divided by the present value of a 5-year. Rents occur at the end of each period of an annuity due. c. b. Rents occur at the beginning of each period of an annuity due. Which of the following is true? a. i = 10% a.10. Present value of an ordinary.000 times the present value of a 5-year. Al Darby wants to withdraw $20. Sue Gray wants to invest a certain sum of money at the end of each year for five years. $20. How should he compute his required initial investment at the beginning of the first year if the fund earns 10% compounded annually? a. Rents occur at the beginning of each period of an ordinary annuity. 6% ordinary annuity of 1. P 51 52. 6% ordinary annuity of 1. $20. d. None of these. d. b. Fourteenth Edition 50. Future value of one. i = 10% is equal to the factor for the future value of an ordinary annuity of 1 for n = 5. Future value of an ordinary annuity. minus 1. d. c. $40.000 times the future value of a 5-year. The factor for the present value of an annuity due is found by adding 1. c. 54. b.10.

000 payments at the beginning of each of the next twenty-five years. To compute the present value. all of which would provide needed capacity. the future value of the annuity due is less than the future value of the ordinary annuity.10). she borrowed the balance from the local savings and loan under a 30-year 6% mortgage loan requiring equal monthly installments at the end of each month. Paula purchased a house for $300. d. The ordinary annuity factor equals one plus the annuity due factor for n+1 periods. If an annuity due and an ordinary annuity have the same number of equal payments and the same interest rates. b. Management found three locations. the accountant would use the present value factor in the 10% column for a. d. Present value of an ordinary annuity. Present value of one. Location A. which option is the least costly to the company? a. 60. Location C requires $40. b. The ordinary annuity factor is not related to the annuity due factor. 59. The annuity due factor equals one plus the ordinary annuity factor for n−1 periods. 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. the present value of the annuity due is less than the present value of the ordinary annuity. Location A may be purchased for $500. eight periods.13 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.000.10). Location B. the future value of the annuity due is equal to the future value of the ordinary annuity. Location C. c. seven periods.000. d. Future value of an ordinary annuity.000 and annual payments at the end of each of the next twenty years of $50. Location B may be acquired with a down payment of $100. 6 . eight periods and multiply by (1 + . The annuity due factor equals the ordinary annuity factor for n+1 periods minus one. Stemway requires a new manufacturing facility. then a. b. d. c. c. Which time value concept would be used to determine the monthly payment? a. b. d. 57. Future value of one. the present value of the annuity due is greater than the present value of the ordinary annuity.Accounting and the Time Value of Money 56. Assuming Stemway's borrowing costs are 8% per annum. b. What is the relationship between the present value factor of an ordinary annuity and the present value factor of an annuity due for the same interest rate? a. c. nine periods and multiply by (1 – .000. After providing a 20% down payment. 58. the only difference is the price. c. Location A and Location B. .

Charlie Corp. Fourteenth Edition 61. d. a d d a d c 45. If the first rent is received at the end of the sixth period. 49. a d b a c d 27. Item Ans. 24. $34. 32 periods at 1%. $150. 35. 60. A deferred annuity is an annuity in which the rents begin after a specified number of periods. $184. Which of the following is false? a. b. MULTIPLE CHOICE—Computational 62. 28. 44.” 30. 63. b b c c d Solution to Multiple Choice question for which the answer is “none of these. 21. Multiple Choice Answers—Conceptual Item Ans. Item Ans.000. 8 periods at 1%.6 . then the amount of $1 left on deposit for 8 years would be found in a table using a. 50. pay over the term of the loan? a. b b a d c c 33. 23.14 Test Bank for Intermediate Accounting. 53. 40. Present value of an Ordinary Annuity of 1. 41. $65.000. c. b. 64. Item Ans. 54. To compute the present value of a deferred annuity. 36. 26. d. 56.912. 42. 37. Item Ans.000. compounded semi-annually. 38. The future value of a deferred annuity is the same as the future value of an annuity not deferred. 22. How much interest will Charlie Corp. b c c a a c 39. 8 periods at 4%. How much will ABC have in the account after five years if interest is reinvested? a. is purchasing new equipment with a cash cost of $150. Item Ans.440. d. The manufacturer has offered to accept $34.196. c. 34. 46. $50. $66.440 payment at the end of each of the next six years. 47. 30. 58. 61. b.640. Item Ans. If a savings account pays interest at 4% compounded quarterly. 59. $67. 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. . d. 52. c. $56. a c b d d b 51. 25. b.440.000 for an assembly line.000 with First National Bank in an account earning interest at 6% per annum. 32. 43. Assume ABC Company deposits $50. it means the ordinary annuity is deferred for six periods. 31. 29. c. c c b c b b 57. 32 periods at 4%. 48. 55.

000 × 1.000 × 1.080 × 3 If $3.000 ÷ 1.Accounting and the Time Value of Money 6 .000 × 1.15 Items 65 through 68 apply to the appropriate use of interest tables. Future Value of 1 at 8% 1.00 discounted at 10% for one to five periods.360 1.000 × 1.000 × 1. $10.469 c.909 2 0. 67. Periods 1 2 3 4 5 65.000 × 1.000 × 1.000 × 1. $4.260 × 3 c. what amount will be available six years from now? a.360 × 4 c.166) + ($3.000 × 1.000 × 1. 68. $4. $3. Each of the items 65 to 68 is based on 8% interest compounded annually. Given below are the future value factors for 1 at 8% for one to five periods.080 × 3 d.000 ÷ 1.260 d.000 × 1.000 × 1.000 × 1.000 is invested each year for four years with the first investment to be made today? a. Given below are the present value factors for $1.000 three years from today? a.000 × 1.000 × 1. $10.360) d.080) + $6. ($6.260 × 2 66.000 × 1.080 × 1.000 × 1.080 × 4 If $4. Items 69 through 72 apply to the appropriate use of present value tables. Present Value of $1 Discounted at 10% per Period Periods 1 0.683 5 0. $4.166) + ($6.080) + ($6.260 1.166 × 3 d.000 b.826 3 0. $6. what amount will be available three years from today? a. $3.000 × 1.080) + ($3.751 4 0.166 1.260) + ($6.000 × 1. $4.260 c.080 × 6 b. $6.080 1. $3. ($3.000 is put in a savings account today.000 is put in a savings account today.000 × 1. ($6. $10.260 b.000 ÷ 1.260) What amount will be in a bank account three years from now if $6.260 b.621 .469 What amount should be deposited in a bank account today to grow to $10.260) + ($6. Each of the items 69 to 72 is based on 10% interest compounded annually. $10.166) + ($6.

000 ÷ 0. $6. $4.000 × 0. 75. its present value is $102.909) + ($5. 5 years b.000 × 0.826 × 2 c.826) + ($5.600 c.909 d.683) d. 72. If the future receipt is discounted at an interest rate of 10%.000 in a savings account today. $11.000 × 0.000 × 0.000 to be received six years from today? a. $5. Dunston Company will receive $200.000 ÷ 0. 8 years 70. $6.16 Test Bank for Intermediate Accounting.500. $3. 7 years d. .000 × 0.000 × 0.751) + ($5. what amount of cash would be available two years from today? a.826 d.000 ÷ 0. $10.6 . 74.909 × 6 b.826) + ($3.000 ÷ 0. $487. $6. $4.200 d. $4.) a.000 × 0.000 received? a.000 × 0. $377.236 Mordica Company will receive $250. 71. ($3.000 in a future year.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.751 b.683 × 3 What amount should be deposited in a bank today to grow to $3.000 is deposited today? The future value of one at 6% for one period is 1.000 × 0. c.000 three years from today? a.909 × 2 What is the present value today of $6.000 receipt is a.000 × 0.000 × 0.000 × 0.500. ($5. $128. In how many years is the $200.000 b.000 + ($5. 73.751) d. $5. a.826 b.621 × 0. If the appropriate interest rate is 10%.909) + ($5. $10. $3. b.909 × 3 c.000 × 0.632.909 × 4 At the end of two years. $4.000 × 0.180.000 in 7 years. Fourteenth Edition 69. $3. what will be the balance in a savings account paying 6% annually if $10.826) + ($5. $6.06.751 What amount should an individual have in a bank account today before withdrawal if $5.000 ÷ 0. $11. the present value of the $250.000 × 0.290. If an individual put $4.751 × 2 c.683 × 4 c.751) b. 6 years c.909) + ($3. $5.000 × 0. $127.000 × 0.000 × 0. d.

the amount in the investment fund is a. In how many years is the $300. 80. c.17 Milner Company will invest $400.000. $400. 81.116. $24.924. b.000.000. To what amount should the investment grow in five years if interest is compounded semi-annually? a.000. What amount must be invested today in an investment that earns 6% interest. c. 78. $145. b.780.337. $1. $536.051. c. $1. c. $650. b.000 today. $670. Assuming an appropriate interest rate is 5% compounded annually. compounded annually? a. 5 years b. $410. b.976. $500.890. $520. $669. b. $155.134. $151. 6 years c. $2. The investment will earn 6% for 5 years.Accounting and the Time Value of Money 76.000 she received from her grandmother today in a fund that is expected to earn 10% per annum.050. $161. its present value is $189.497. The investment will earn 6% for 5 years.000 after twenty years.306. 77. Barber Company will receive $800.000 received? a.724.000 in four years to purchase a new home. Barkley Company will receive $300.000. what is the present value of this amount? a. d. $177. $535. If the future receipt is discounted at an interest rate of 8%.558.000 today. d. the amount in the investment fund is a.115.528.000. c. d. Bella requires $120. John Jones won a lottery that will pay him $2.000.000 in a future year.292. 79. c. d. . $5. Angie invested $100. 6 . 8 years Altman Company will invest $500. If the appropriate interest rate is 10%.145.420. 7 years d. b. $753. $98. d. In 5 years. with no funds withdrawn. In 5 years. the present value of the $800. $162. $95. with no funds withdrawn.000 in 7 years. 82.000.208. $408.051.600.000.000 receipt is a.156. d.

c. . a. d. 16 years. $311. If she is able to earn 8% per annum on an investment. 86. b. Fourteenth Edition 83. $34. $10. $10. b. b.000 to invest today at an annual interest rate of 4%. c. 85. how much will she have to spend on her vacation? a. c. 8%. $6.604.997.000 investment today so that he will have $380.000 for her dream vacation. Approximately how many years will it take before the investment grows to $162.660. d. c. 20 years. d.000 at the end of each year for the next ten years and then returns a maturity value of $300.000? a.336. 7%. Ethan has $80. $13. $7. d. 11 years. Assuming that Jane has $8. 84. c. What would you pay for an investment that pays you $3. 9%.202. 18 years. b.000 after forty years? Assume that the relevant interest rate for this type of investment is 6%. d. What interest rate (the nearest percent) must Charlie earn on a $150. $93.806.000. $144.958.706. Jane wants to set aside funds to take an around the world cruise in four years. 88.18 Test Bank for Intermediate Accounting. $134.219. 87. $138. a.000 to invest today in an account expected to earn 6% per annum.350.936. What would you pay for an investment that pays you $20.6 . $6.400. b. c.158. $273. Jane expects that she will need $10. $935.100. b. $2. $291.010.000 after ten years? Assume that the relevant interest rate for this type of investment is 8%.000 after 12 years? a. d. Jane wants to set aside funds to take an around the world cruise in four years. 6%.540. how much will she have to set aside today so that she will have sufficient funds available? a.

d. $24. b.891. $2.838. If Pearson wants to earn 12% on the investment. Lucy and Fred want to begin saving for their baby's college education.219. d. d. Lucy and Fred want to begin saving for their baby's college education. and also on each January 1st for the next five years (2013 – 2017).000 for her dream vacation. assuming a 12% interest rate? a. 90. d. d.629. b. d.924.000 in eighteen years.691.000 today (January 1. $48. $54. 6 years.350.471. $27. They estimate that they will need $300. If she is able to earn 8% per annum on an investment.000 receipts. b. 7 years.664. If they are able to earn 5% per annum. $25. Jane expects that she will need $10. $36. 94.105. how much must be deposited at the beginning of each of the next eighteen years to fund the education? a.823. 6 . What is the present value of the six $8. c. Jane wants to set aside funds to take an around the world cruise in four years. $72. 8 years. how much must be deposited at the end of each of the next eighteen years to fund the education? a.000 every December 31st for the next six years (2012 – 2017). 2012). 2012? a. If they are able to earn 6% per annum. c. b. 92. Pearson Corporation makes an investment today (January 1.111. They will receive $6. c.000 in eighteen years.000 for a down payment for a house.Accounting and the Time Value of Money 89.055.534. b. They estimate that they will need $200. Garretson Corporation will receive $8. 93.000 to invest. $13. $6. $2. $11. c.19 Anna has $30.668. b. 2012). She requires $50. what is the most they should invest on January 1. 91.618. c. $6.664. $64. 9 years. $32.712.922. $7.604. If she is able to invest at 6%. . $24. c. $5. how many years will it be before she will accumulate the desired balance? a. $11. $10. how much will she need to set aside at the beginning of each year to accumulate sufficient funds? a.

2017? a. 99.072. what amount will be in the investment fund on December 31. $230. What is the present value of the six $40.191.335.456. c. $205. d. $136.144.450. 98. $324. $136. Hiller Corporation makes an investment today (January 1. $184. what amount will be in the investment fund on December 31. b. b. d.342. Tipson Corporation will invest $15. $363. c. 2012? a. $121. $243.608. 2017? a. If Hiller wants to earn 12% on the investment. $138. If Spencer will earn 12% on the investment. $121. c. 2017? a. d. 2012).000 every January 1st for the next six years (2012 – 2017). $123. $405. $454. $69. b. $164.456. If Renfro will earn 12% on the investment.000 every January 1st for the next six years (2012 – 2017).671. 2012). If Wagner will earn 12% on the investment. 2017? a. d.728.560.000 today (January 1. $61. If Linton will earn 12% on the investment. c. They will receive $40. $272. Vannoy Corporation will invest $30. what amount will be in the investment fund on December 31.240. Fourteenth Edition 95. . b. what amount will be in the investment fund on December 31. d.335.608. $184.728.191.072.000 every December 31st for the next six years (2012 – 2017).000 every December 31st for the next six years (2012 – 2017). 100.20 Test Bank for Intermediate Accounting. $61.760. 96. c. $164.000 receipts. d. $69.456.000 every December 31st for the next six years (2012 – 2017).570 b. 97. c. assuming a 12% interest rate? a.560. what is the most they should invest on January 1.671 b. $324. Sonata Corporation will receive $20.6 . Renfro Corporation will invest $50. and also on each January 1st for the next five years (2013 – 2017).670. Spencer Corporation will invest $15. $363.

2019? a. 2012 to a fund paying 8% interest compounded annually. $40. .7466 6.2064 5.606 b. $53. c.63663 12.366 b. b. What is the required amount of each deposit? a. $106.925 Korman Company wishes to accumulate $400. $63. within $10.820 d.000 Use the following 8% interest factors for questions 102 through 105.9847 6 periods 4. Present Value of Ordinary Annuity 5. 2018? The fund pays interest at 8% compounded annually.2469 Future Value of Ordinary Annuity 8.388 $218.5731 5 periods 3.229 c.820 d.000 annual deposits each September 1 beginning in 2011.000 by May 1. $37. $260.2397 4.932 $239. 6 .92280 10.600 d.000 at 9% each January 1 beginning in 2012. with the last deposit being made on September 1. 2012.537 b. What will be the balance on September 1.312 103. Present Value of Future Value of Ordinary Annuity Ordinary Annuity 4 periods 3. on January 1. Kline Company decided to begin accumulating a fund for asset replacement five years later. what will the balance be on December 31.000 $200. $89.466 If $6. 2012 and it earns 8%. d.5233 a.21 On January 1.820 c. The company plans to make five annual deposits of $40. 2017 (one year after the last deposit)? The following 9% interest factors may be used. $68. $69. a. $57.Accounting and the Time Value of Money 101. 2020 by making 8 equal annual deposits beginning May 1.4859 7. $57. What will be the balance in the fund. $75. $34.000 is deposited annually starting on January 1. 2018 in a fund which is accumulated by making $10.48756 7 periods 8 periods 9 periods 102.606 c. 104.8897 5.

The future value of one for five periods at 8% is 1.06069 16 8.000 b. 2012 in a savings account paying 6% annually in order to make annual withdrawals of $25. Fourteenth Edition 105. which is to be financed by making 8 annual payments of $8. $50.000 each beginning December 31.000 at the end of the years 2012 and 2013? The present value of one at 6% for one period is .794 b. a. $22. $49.019 d. $47.000 d.250 Jenks Company financed the purchase of a machine by making payments of $10. $50. The interest rate was 10%. . $175.8666. The future value of an ordinary annuity of 1 for five periods is 6.9434. $300. What was the cost of the machine to Jenks? a. 108. What was the cost of the machine? a.175 c. $22. $56. $146.723 c. $40. $25. 107.667 A machine is purchased by making payments of $6.214 b. $39. What amount should be recorded as the cost of a machine purchased December 31.975 c. 2013? The applicable interest rate is 8%.835 b.000 at the end of each of five years. $161.250 How much must be invested now to receive $20. $58.000 at the beginning of each of the next five years. 2012.631 c. $45.000 d. $85. $14.99271. 109.31256 a.10510.000 is received today and the rate is 9%? Present Value of Ordinary Annuity at 9% Periods 14 7. The appropriate rate of interest was 8%.6 .22 Test Bank for Intermediate Accounting.000 for 15 years if the first $20.000 d. $45. $36.093 d.927 c. The present value of an ordinary annuity of 1 for five periods is 3.78615 15 8. The present value of an ordinary annuity for five periods at 8% is 3. a.79079.46933.745 106.294 b. The future value of an ordinary annuity for five periods at 8% is 5.973 How much must be deposited on January 1.

970 On January 2.000. $401. d.238 Find the present value of an investment in plant and equipment if it is expected to provide annual earnings of $26. Present Value of Period Ordinary Annuity 19 8.51356 21 8.034 b. 12% (pays interest semiannually) bond issue sold to yield an effective rate of 10% is a. The market price of a $500. The present value of an ordinary annuity at 10% for 15 periods is 7. $561.23939. $197. d.64869 a. $35. 112.758 b. $562.3855 6. $32. 113.4632 0. The current yield rate on such bonds is 10%.318. $247.36492 20 8.592 d.758 d. $566. The future value of 1 at 10% for 15 periods is 4. Calculate the amount of the annual rent. The bonds pay interest annually on January 1.60608.000 $2. b.864 c. Assume a 10% rate and earnings at year end.7101 6.018 $3. 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.000 for 15 years and to have a resale value of $50. $209. Lane wants a return of 10%.728 c. It is to be leased for 20 years with rent received at the beginning of each year.000. .445. has a machine that cost $300. The present value of 1 at 10% for 15 periods is . compute the amount that Wine will realize from the sale (issuance) of the bonds. ten-year.Accounting and the Time Value of Money 110. Wine Corporation wishes to issue $3. c. $936.180.311. 2012. c.078 0.631. $44.000 at the end of that period. $35.17725. $3. 10-year bonds. b.1446 111.204 $3. 6 .000 (par value) of its 8%.23 Lane Co.000.000. Using the interest factors below.635. a.000.

c.990. 7%. $68. Fourteenth Edition 114. $1. 117. $1. c. b.550. d. 6%.000 at the end of each of the next twenty years. $125. The list price of the car is $36. the dealer will provide financing where Jeremy must pay $7. The lease term is five years with $16. d. b.080. Otherwise. Compute the effective interest rate to the nearest percent that Jeremy would pay if he chooses to make the five annual payments? a. 7%.723. What is the present value of the payments discounted at 8% per annum? a.183. $6. what is the present value of this amount? a. 5%.890. $122. 118. What would you pay for an investment that pays you $15. d. b. 116. 5%. John won a lottery that will pay him $150. a. Jonas won a lottery that will pay him $200. 4%.180. Zebra Finance has offered to purchase the payment stream for $2.000 at the beginning of each year for the next ten years? Assume that the relevant interest rate for this type of investment is 10%. b.000 at the end of each of the next twenty years.864.077.902. b. $32.994. $61.472. What interest rate (to the nearest percent) was used to determine the amount of the payment? a.540.6 .718. $142. Jeremy is in the process of purchasing a car. 8%. Janet.042. $135.24 Test Bank for Intermediate Accounting. $63. $15. $129. What would you pay for an investment that pays you $20. $57.000 at the end of each year for the next twenty years? Assume that the relevant interest rate for this type of investment is 12%. the dealer will reduce the price by 10%. James leases a ski chalet to his best friend.786. c.000 annual payments due at the beginning of each year.000. 6%. Assuming an appropriate interest rate is 8% compounded annually. d.294. $112. d.590.892. c. a. 119.487.706 at the end of each of the next five years. If Jeremy pays cash for the car. d.000. c. c. 115. .884. $1. b.

8%. 88. d c a c a b c c d 89. c. 87. 123. 118. 65. 5%. 104. 96. 95. $8. 9%. 91.800 at the end of the next five years? a. 115. 6 .5 million 12% bonds in a private placement on July 1.310. 10%. 83.476. 103. b c d a a d c d a 107. 94. 121. 119. Item Ans. 84. c. Stech Co. 76. d. the market interest rate for similar types of bonds was 8%. Item Ans. b. 121.25 Ziggy is considering purchasing a new car. 113. 93.266.598. d b d d a b c d a 98. 86.000 for the assembly line. 90. 122. Jeremy Leasing purchases and then leases small aircraft to interested parties. 67. 97.000. 99. If the lease is for twenty years and annual lease payments are required to be made at the end of each year. 109. 122. 62. 73. 2012. 7%. d. 102.962.566. Item Ans. is issuing $6. 112. d. 66. The manufacturer has offered to accept $45. 114. 78. 74.244. 4%. 110. 6%. 105. 69. 101. At the time of issuance. 63. is purchasing new equipment with a cash cost of $200. b b c a b b b c d 116.476. 111. c. b. 70. Each $1.Accounting and the Time Value of Money 120.314.920 payments at the end of each of the next six years. 108. 106. will be paying? a. 117. 77. Item Ans. 75.070. 64. Multiple Choice Answers—Computational Item Ans.764. The bonds mature in ten years. a b d b b c b a . d a d b c c b b c 80. 11%. The company is currently determining the required rental for a small aircraft that cost them $600. d. b.000 bond pays interest semi-annually on December 31 and June 30 of each year. c. 92. $70.992. $30.600. The cash purchase price for the car is $33. 82. $10. What is the interest rate that Charlie Corp. 79. $8. 85. Item Ans. 72. 100. 123. $8. a d d c b a b c c 71. $13. Item Ans. What is the expected selling price of the bonds? a. what will be the annual rental if Jeremy wants to earn a return of 10%? a. 68. 81. $64. b. 120. What is the annual interest rate if Ziggy is required to make annual payments of $7. Charlie Corp.

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. A ten-year 8% bond is issued on January 2 with interest payable semiannually on January 2 and July 1 yielding 9%.6 . $0 b.000 c. The prevailing rate of interest for a note of this type at January 1. On January 1. $16. Interest is payable semiannually on January 1 and July 1. 2012? a.177 to yield 12%.26 Test Bank for Intermediate Accounting.000 zero-interest-bearing note due on January 1. $30. $600. A ten-year 8% bond is issued on January 2 with interest payable semiannually on January 2 and July 1 yielding 7%. a company purchased a new machine which it does not have to pay for until May 1. c. 2015. 125. What amount of interest revenue should be included in Abel's 2013 income statement? a. $20. Present value of annuity of 1 d. $15. $31. . b. the cost of the machine would be the total payment multiplied by what time value of money factor? a. Ball Co. $36. sold to Cey Corp. d. 126.000 On May 1. $26. Future value of 1 c. exchanged equipment for a $200. 2014 will include both principal and interest. Assuming interest at a 10% rate. 2012. Fourteenth Edition MULTIPLE CHOICE—CPA Adapted 124.000 of its 10% bonds for $531. The total payment on May 1. A capital lease is entered into with the initial lease payment due one month subsequent to the signing of the lease agreement.559 b. Gore Co. 2012.500 d. 127. 2014.871 d. The present value of $1 at 10% for three periods is 0. A capital lease is entered into with the initial lease payment due upon the signing of the lease agreement. Future value of annuity of 1 b. 2012 was 10%. Present value of 1 On January 1.000 c. What amount should Gore report as interest expense for the six months ended June 30. 2012.75.

The first payment was made on December 30. c.11 129. On January 1.300. $391. 2016. .000. c. at an estimated cost of $5. d. 1. sold goods to Flynn Company.712 On AGH's December 31.3553 4.972.Accounting and the Time Value of Money 128. adopted a plan to accumulate funds for environmental improvements beginning July 1. $978. $438. b.250.000 annually for seven years. b.5645 . 6 .977.231 8 5. c. the net note payable to Grant is a. $481. Ott should record sales revenue in January 2012 of a. $399. Present value factors are as follows: Present Value of Ordinary Present Value of Annuity of 1 at 11% Annuity Due of 1 at 11% Period 7 4.586.5132 Present Value of Ordinary Annuity of 1 at 10% 4. and the others are due annually on December 30.000. $1. Information on present value factors is as follows: Period 6 7 Present Value of 1 at 10% . The first payment was made on January 1.64 5. in exchange for a zero-interest-bearing note requiring eight payments of $70. 2012. $321. $889.8684 130.156. The first deposit was made on July 1.000. The prevailing rate of interest for this type of note at date of issuance was 10%. 2012. 2012.474. AGH. $1. Dolan Corp. At date of issuance. Dolan plans to make four equal annual deposits in a fund that will earn interest at 10% compounded annually.220.840.840. 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 Dolan should make four annual deposits of a.61 4.485.522. 2012.146 5. $366. b. Ott Co. d. 2012 balance sheet. $329. $360.000. Inc. On December 30.27 On January 15. 2012. purchased a machine from Grant Corp. the prevailing rate of interest for this type of note was 11%.712 5.077. d. 2012. Flynn signed a zero-interestbearing note requiring payment of $90.

$174.000. b a 130. PV = $10. On July 1. Present value factors are as follows: At 8% At 10% Present value of 1 for 10 periods 0. 62. $270. 1.400. Item Ans. 65. The agreement provides that the down payment is not refundable and no future services are required of the franchisor.000. Haley Co. c. $2. for an initial franchise fee of $240. 2013. c.000.000 × 1. 124. Item Ans. Of this amount. Item Ans.463 0. Answer a d d c b Derivation $50. Inc.710 6.760. $80.28 Test Bank for Intermediate Accounting.000 beginning July 1. c d 126. 125.940.145 The total issue price of the bonds was a. 1.000.632.000.260 × $3.000 ÷ 1. . 2012.440 × 6) − $150.000 = $56. 4% ÷ 4 = 1%. $3. On January 1.6 .000 and a stated interest rate of 8% payable annually on January 1.000.000. 4 × 8 = 32 periods. $2.69 2. 129.000 was paid when the agreement was signed and the balance is payable in four equal annual payments of $40. Wynne's credit rating indicates that he can borrow money at 14% for a loan of this type. d.000.640. 2012 at a. 127.400. Fourteenth Edition 131. b DERIVATIONS — Computational No.800. 64. Item Ans. ($34.400. issued ten-year bonds with a face amount of $3. 2012. 0. 66. 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 Wynne should record the acquisition cost of the franchise on July 1. $240. Multiple Choice Answers—CPA Adapted Item Ans.260 × PV = $10. The bonds were priced to yield 10%. b. b.59 1. $196.386 Present value of an ordinary annuity of 1 for 10 periods 6. 131. c a 128. d.260.000.196. $2. 63.91 132.34392 = $67. a d 132. Ed Wynne signed an agreement to operate as a franchisee of Kwik Foods..

051. 81.37689 = $753. 75. $2.000 × 0.71008) + ($300.000 × .080.115.51316 is PV factor for 7 years. 80. 84. 76. $800.000 × 0. 69.826) + ($5.080)6 or $4.166) + ($6. 82. 86.100. 0.73503 = $7.000 × 1.90565 × 1. 0.051 ÷ $300.751. 89.826 × PV = $4. 85.826.000 × . 71.33823 = $669.000 + ($5.000 × 0.350.260) + ($6.000.000 ÷ $380.025 is FV factor for 18 years. 77.63017 is PV factor for 6 years. PV = $4.000 = 1.000 ÷ (30. $120. $4.292.000 × 6. $162. .890.780.080) + $6.909) + ($5.000 × (1. Answer a b c c d a d b c c b b c d c a c a b c c d d b d Derivation ($6.63017. $3.000 × .158. $300.000 × 1. $400. 83. $10. 70.51316 = $410.105.621 × 0. 74.469 × 1. 0.000.660. $100.000 × 0. 72. 73.025.664.09722 = $291.33823 = $535. $3.26248 = $10.66667.46319) = $273.000 = 0. 79.000 × 1.000 × 1. 1.528. $150.000 ÷ $80. $5.236. $6. $250.06)2 = $11. $10. . $500.000 × 1.79209 = $95.000 × 1. $189. $102. $50.000 ÷ $30.000 × 0.000 ÷ 28. $8.000 × 1.06) = $6.000 × .000.51316. 68.000 × . 78.000 × 0. 88.000 × 1.62890 = $162.909. 91.290.13279 = $10.000.632 ÷ $200.000 = 2.51316 = $128.000 × (1.Accounting and the Time Value of Money 6 . 67. $200.29 No.000 ÷ 0.000 = 0. 87.39474 is PV factor for 8%. ($20.751).39474.000 = .66667 is FV factor for 9 years.000 × 0. 2. 90.

b 114.46221) + ($500.59 is PV factor for 4%.60478 = $36.000 × 4.48756 – 1) = $68.723. $150.11519 = $121. 97. R = $400.81815 = $1.019.30 Test Bank for Intermediate Accounting. 92.16987 = $25.10).000 × (3.9434)2] = $45. 98.000 × 9. 111.000 × 3.000 × 8.000 × .000 × 8.000 × 4.7466 = $45.000 × 10.000 × .820. c d . $2. 115.12 = $136. ($25.37689) = $562.000 (annual interest payment) ($240. $8. 108.472.000 × 0.000 ÷ 11.000 × (0.728.760.932 or $40. Answer d a b c d a b c d a a d c d a b b c a b b Derivation $10.11519 × 1.000 × 5.000 × 5. $30. 106.973.12 = $272.63663 = $106. $50.311. $40.48756 = $34.835.631.11141 = $164. 104.000 × 4.204.9434) + [$25.000 × 12.08. 107. $500. 93.000 (semiannual interest payment) ($30.06 = $30.000 × 8.000. 94. 100.000 ÷ $200.51356 × 1. $6.08 = $240.728.6 . 112.10) = $6.000 × 4. $8.79079 × 1.000 × 7.3855) = $2.000 × (7. R = $300. Fourteenth Edition No.034.000 = R × (8. (10.366.1446) + ($3.000.000 × 4.456. $300.60478 = $184.335.63663 × 1.11519 = $405.9847 × 1.000 × 8.000 × .000 × 0. 103.000 × (7.927. 110.668.60608) + ($50.23939) = $209. $40. $20.99271 = $39. 95.08) × R = $400.000 × (12. 13.09.191.09.000 × 8. 101.000. $40. 105.63663 × 1. $10.838.78615 + 1) = $175.055. $10.000 × 10. 113.000 ÷ 9.000 = 13. 102.5233 – 1) = $260. 109. 99.50611 × 1.000 × .000 ÷ (4.36492 = $32.11141 = $24.06069 × 1.925 or $6.718. $15.11519 × 1.59. $6.08) = $2. $3.723 or $20. $15.000 × 6.670. ($26. $6. 96.

31 No. .000. ($6. $600.000 × 4.45639) + ($390. ($40. $200.000 × 1.800 = 4. $200.500. 4.30769.712) – $70.000 × . 4.000 ÷ $45. Conceptual. 124.000 ($240.Accounting and the Time Value of Money 6 . $20.871.06 = $31. Conceptual. R = $5. 129.000 × 6. 5.91) + $80.000.51356 = $70. Answer c d c a b a a d b Derivation $531. 123.000 × 4.000 = $329. 117. ($36.000 × (4. 125.000.145) + ($3.000 = $196.75902 = $135. 121.000 × 0.920 = 4.000 ÷ 8. 122.08 = $240.000. 119.11 = $978.476.31214 = $68.35540 is PV factor for 10%.000 × 6. 4.90) ÷ $7.177 × .30769 is PV factor for 5%.000 × 2.11 × R = $5. $3.000.20438 is PV factor for 6%.000 (present value of note) $150.840. $15.000 × 5. $33.000 × .000 × . $70.180. Answer a b d b b c b a Derivation $16.000 × .8684 × 1. 118.000 × 13.000 × 0.600 ÷ $7. $165.474. 131.20438. 130.10 = $165. 120.46944 = $112.042.000.1) = $481. $90.35540.712 = $329. 127. 116.000 × 7.764.75 = $150.972.59033) = $8.386) = $2. 128.800.994.400.500.000 ÷ 5. 132. DERIVATIONS — CPA Adapted No.10 = $16.266.706 = 4.840 or ($70.632. 126.

6-134—Compute estimated goodwill.38877) = $81.000 are expected for 8 years. Concept _____ 1.. a. Identify the diagrams with the concepts by writing the identifying letter of the diagram on the blank line at the left. $1 $1 $1 _____ 5..6 . | | | | | Solution 6-133 1.32 Test Bank for Intermediate Accounting. e 2. Future value of an annuity due of 1. |. | $1 | | | | ? e. c Ex.555.000 for 32 periods at 3% ($4. Solution 6-134 Present value of $4. c. Fourteenth Edition EXERCISES Ex. _____ 2. ? Diagram of Concept $1 | | $1 | $1 | $1 | ? $1 Present value of 1. Excess annual earnings of $16. b 5. Present value of an ordinary annuity of 1. d.| ? $1 | | | _____ 4. Present value of an annuity due of 1. f 4.| $1 $1 _____ 6. Future value of 1. 6-133—Present and future value concepts... (Tables needed.000 × 20. On the right are six diagrams representing six different present and future value concepts stated on the left. | $1 | $1 | $1 | $1 | ? f.. Future value of an ordinary annuity of 1. b. | ? | $1 | $1 |. _____ 3. d 6. a 3.) Compute estimated goodwill if it is found by discounting excess earnings at 12% compounded quarterly. .. Assume n = 4 and i = 8%.

10 × 7. Ex. Crone wants a return of 10%. .41766 × $20. (Tables needed.33 Find the present value of an investment in equipment if it is expected to provide annual savings of $20.000) = 21. 6-136—Future value of an annuity due. Solution 6-138 Present value factor for an annuity due for 15 periods at 10% (1.000 for ten periods at 8% ($25.000 ÷ 8.) 6 . 2021? Solution 6-136 Future value of an annuity due of $6. 6-135—Present value of an investment in equipment. 6-138—Compute the annual rent.000.000 at the end of that period.362.) Determine the market price of a $300. (Tables needed.000 is received today and the rate is 8%? Solution 6-137 Present value of an annuity due of $25. Assume an interest rate of 9% and that savings are realized at year end. has machinery that cost $90.36669 = $10.19293 × 1.000 discounted for 10 periods at 9% (.) Crone Co.121 Present value of investment in equipment $149.000) = $128. 6-137—Present value of an annuity due.757. It is to be leased for 15 years with rent received at the beginning of each year.) If $6.000 for ten years if the first $25.000. how much will accumulate by December 31. 10% (pays interest semiannually) bond issue sold to yield an effective rate of 12%.353 Present value of $50.000 for 10 years and to have a resale value of $50. Ex.000 for 10 periods at 9% ($6.000 for 10 periods at 9% (6.000 is deposited annually starting on January 1.474 Ex. 6-139—Calculate market price of a bond.36669 $90.172. (Tables needed. ten-year.09) = $99. 2012 and it earns 9%. Compute the amount of the annual rent.(Tables needed. (Tables needed.000 × 7. Ex.) How much must be invested now to receive $25.000 × 15.Accounting and the Time Value of Money Ex.24689) = $181.60608) = 8. Solution 6-135 Present value of $20.42241 × $50.

400 one year after completion of residency. Part (c) Judy Thomas has a $1. Part (b) Tom wants to retire at the end of this year (2012).36009 Calculate the issue price of the bonds.000 × 7. 2012 to be able to withdraw $50. Joe's tells her that she may settle the account in one of two ways since she can't pay it all now: 1.000 discounted for 20 periods at 6% ($300.000 × .000 and a stated interest rate of 12% payable semiannually on July 1 and January 1.607 PROBLEMS Pr.34 Test Bank for Intermediate Accounting.000 discounted for 10 periods at 5% ($500.6 .61391) = Present value of $30. assuming the amount on deposit will earn 8% interest annually.46992) = Present value of $300.55839 Present value of an ordinary annuity of 1 for 5 periods at 10% 3. to learn how much he should deposit on December 31. Assuming that the cost of money is the only factor in Judy's decision and that the cost of money to her is 8%. . Fourteenth Edition Solution 6-139 Present value of $15. Present value table factors are: Present value of 1 for 5 periods at 10% . On January 1.31180) = Market price of the bond issue $172. three years from today.79079 Present value of an ordinary annuity of 1 for 5 periods at 12% 3.62092 Present value of 1 for 5 periods at 12% . 2. 6-140—Calculate market price of a bond. Part (a) Compute the amount that a $30. The bonds were sold to yield 10%.61391 Present value of 1 for 10 periods at 6% . Pay $600 now and $1. 6-141—Present value and future value computations. His life expectancy is 20 years from his retirement.000 × 11. Pay $2. issued five-year bonds with a face value of $500.540 $265.72173) = Issue price of the bonds $306.56743 Present value of 1 for 10 periods at 5% .72173 Present value of an ordinary annuity of 1 for 10 periods at 6% 7.000 investment today would accumulate at 10% (compound interest) by the end of 6 years. Tom has come to you.000 for 20 periods at 6% ($15. Solution 6-140 Present value of $500.000 for 10 periods at 5% ($30.60478 Present value of an ordinary annuity of 1 for 10 periods at 5% 7.652 $538.000 × .955 231.000 at the end of each year for the next 20 years. which alternative should she choose? Your answer must be supported with calculations.800 overdue debt for medical books and supplies at Joe's Bookstore. two years from today.500 when she completes her residency. his CPA.049 93. She has only $600 in her checking account and doesn't want her parents to know about this debt. 2012 Lance Co.589 Ex.

798 Future value of ordinary annuity of $8.382 Years 7-10: Future value of $63.33592 × 1.4641 × $63.500 × .35 Part (a) Future value of $30.000 for 4 periods at 10%: 4.000 × 1.50025 12.000 compounded @ 10% for 6 years ($30. Part (b) Present value of a $50.128 + $92.000 for 6 periods at 8%: (7.48656 6.908.33164 .24689 11 Periods 2.99900 . Jan Green established a savings account for her son's college education by making annual deposits of $8.08) × $8. 6-142—Annuity with change in interest rate.905 Pr.15892 .798 = $129.81815) = $490.382 = $92.500 now = Present value of $600 now = Present value of Alternative 1 Alternative 2 Present value of $2.77156) = $53.000 at the beginning of each of six years to a savings account paying 8%.Accounting and the Time Value of Money Solution 6-141 6 .382 for 4 periods at 10%: 1.286 600 $1.71008 7.926 Pr.24689 6. $1.400 × .71008 . The lease requires 10 annual payments of $8.64549 7.42888 16.6410 × $8.886 $1.74664 10 Periods 2.000 = $37.147.000 ordinary annuity discounted @ 8% for 20 years ($50.46319 14. Part (c) Alternative 1 Present value of $1.000 × 9.000 were made at the end of each year from the seventh through the tenth years. 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 1.48756 6.400 discounted @ 8% for 3 years ($2. Alternative 1 is preferable.85734) = Present value of $1. the account balance was transferred to a bank paying 10%. At the end of the sixth year.128 Sum in bank at end of tenth year: $37.13896 7.500 discounted @ 8% for 2 years ($1. What was the account balance at the end of the tenth year? Solution 6-142 Years 1-6: Future value of annuity due of $8.000 at the end of each year and provides the lessor (Eller) with an 8% return on its investment.000 = $63. Jill Morris is presently leasing a small business computer from Eller Office Equipment Company. 6-143—Present value of an ordinary annuity due. and annual deposits of $8.79383) On the present value basis.

Solution 6-144 Lease A — Calculation of the Implied Interest Rate: $30.000 at 8% for 10 years is 7.6048 The 3. what was the original cost of the computer to Eller? (b) What amount would each payment be if the ten annual payments are to be made at the beginning of each period? Solution 6-143 (a) Present value of an ordinary annuity of $8.) Instructions (a) Assuming the computer has a ten-year life and will have no salvage value at the expiration of the lease.681 ÷ 7.79075 The 4.24689 = $53. 6-144—Finding the implied interest rate. Payments are due at the start of each year. Bates Company has.144 Factor for Present Value of Ordinary Annuity for 5 yrs. . Lease B — Lease B applies to a machine which can be purchased for $114. however.978 Factor for Present Value of Annuity Due for 6 yrs.144. Bates Company has chosen to lease the machine for $24.407 Pr. Lease A — Lease A covers office equipment which could be purchased for $108.144 ÷ $30. $53. 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 × (factor for Present Value of Annuity Due for 6 yrs.71008 × $8.978.000 = 3.000 at 8% for 10 years is 6.000 = 4.000 per year on a 6-year lease.6 . Bates Company has entered into two lease agreements.6048 factor implies a 12% interest rate.24689. Fourteenth Edition Pr. payable at the end of each of the next 5 years.000 = (b) Present value factor for an annuity due of $8. 6-143 (cont. = $108.978 ÷ $24. chosen to lease the equipment for $30. = $114.36 Test Bank for Intermediate Accounting.) = $114.681 $7. Lease B — Calculation of the Implied Interest Rate: $24.000 × (factor for Present Value of Ordinary Annuity for 5 yrs.79075 factor implies a 10% interest rate (present value of an annuity due table).) = $108.000 per year. Instructions Calculate the implied interest rate for the lease payments.

10782 (present value of a 10-rent annuity due at 5%.30641 Instructions (a) Calculate the amount of each rent.57948 15.) $600.85312 Present Value of $1 . who is willing to make 20 annual payments of $75.915 (Accrual) $50.215 Lease Receivable $525. Since it will require several years and a considerable sum of money before the property is fully detoxified and capable of generating revenues.14457 6.61391 12. 2012 and are made every 6 months until July 1.53117 Present Value of an Ordinary Annuity 5.000 ÷ 8.294 Rent No.20679 Present Value of an Ordinary Annuity 7.35049 Future Value of an Ordinary Annuity 13. (b) Interest Revenue during 2012: Cash Received $74. Carey wishes to sell the land now. (b) How much interest revenue will Pine earn in 2012? Solution 6-145 (a) Calculation of rent: 7. The lease payments begin January 1.59374 2.003 None Total Interest Revenue $ -026.300 23.72173 8.10782 = $74.003.57789 . Assuming that the appropriate rate of interest is 9%.42410 .02656 . it leased this equipment to Sears Company for 5 years. and Buyer B.35795 2. 2011 for $600. 6 .000 each. the useful life of the equipment.000. 1 2 None Date 1/1/12 7/1/12 12/31/12 Pr.997 478. Carey Company owns a plot of land on which buried toxic wastes have been discovered. who is willing to pay $480.Accounting and the Time Value of Money Pr.72173 × 1. Pine Leasing wants to earn 10% annually on its investment.003 74. 6-145—Calculation of unknown rent and interest. 6-146—Deferred annuity. to whom should Carey sell the land? Show calculations. 2016.05 = 8. On the same date.71034 Various Factors at 5% Present Future Value of an Value of $1 Ordinary Annuity .55133 1.38554 . with the first payment to be made 5 years from today.49506 Periods or Rents 9 10 11 Future Value of $1 1. Various Factors at 10% Periods or Rents 9 10 11 Future Value of $1 2.37 Pine Leasing Company purchased specialized equipment from Wayne Company on December 31. It has located two potential buyers: Buyer A.64461 11. .62889 1.93743 18.000 for the land now.58468 14.75902 6.10782 7.

46689 × $75.000 for 24 periods at 9% Less present value of ordinary annuity of $75.6 . Fourteenth Edition Solution 6-146 Buyer A. The present value of the purchase price is: Present value of ordinary annuity of $75. 9.017 . The present value of the purchase price is $480.23972 6.70661 3. Buyer B.000 for 4 periods (deferred) at 9% Difference Multiplied by annual payments Present value of payments Conclusion: Carey should sell to Buyer B.38 Test Bank for Intermediate Accounting.000.000 $485.

Answers to True / False questions: 1.Accounting and the Time Value of Money 6 . Under IFRS. True 4. False 5. Under IFRS. 2. if an estimate is being developed for a large number of items with varied outcomes. 4. 5. Under IAS 37 and the establishment of estimate provisions. discounting is required where the time value of money is material. IFRS does not intend to issue detailed guidance on the selection of a discount rate when the time value of money is required to determine cash flows. True 2. the discount rate should reflect risks for which future cash flow estimates have been adjusted. True 3.39 IFRS QUESTIONS True / False 1. True . Under IFRS. the rate implicit in the lease is generally used to discount minimum lease payments. 3. then the expected value method is used.

with interest compounded at 10% per year. d. i% = $300. $40. Calculation: Martin should use the manufacturer's payment plan. with the deposit to be returned at the expiration of the lease.11096.000 $30.987 = 8.000 = $69. The rates for both the bank and manufacturer are the same. What amount will the company receive at the time the lease expires? a. b.000 is made.987. Fourteenth Edition Multiple Choice Questions: 1. The company purchases equipment with a price of $300.6 . c.000 Calculation: Total interest = Total payments—amount owed today $369. Underwood Company maintains its accounting records using IFRS. Should Martin borrow from the bank or use the manufacturer's payment plan to pay for the equipment? a. for a lease period of 10 years. d. PV − OA9.870 $36. . with the first payment due one year after the purchase. a security deposit of $20. The company recently signed a lease for a new office building. Inspection of the10 period row reveals a rate of about 4%. Calculation: Future value of $20.711.870 (10 × $36. Under the lease agreement.000 × 2.875. since it is about a 4% rate as compared to the bank's 6% rate. 3. Martin could borrow $300. d. $122.000.875 Use the following information to answer questions 2 & 3.987) − $300. so Martin would be indifferent. $69. The manufacturer has offered a payment plan that would allow Martin to make 10 equal annual payments of $36. c. Borrow from the bank. $27. Martin Industries maintains its accounting records using IFRS.000 ÷ $36. c. There is not enough information to answer this question.59374) = $51.000 from its bank to finance the purchase at an annual rate of 6%. b.870.000 @ 10% for 10 years ($20.892.987 $120. $51. How much total interest will Martin pay on this payment plan? a. 2.000. Use the manufacturer's payment plan.40 Test Bank for Intermediate Accounting. b.

6 .85734 = $64. Since there is no stated interest rate on the note.000.776 $2. the market interest rate for similar financial instruments is 10%.760 The selling price of the bonds = $1.000 $1.269.699. 2) = $75. manufactures furniture. Moore Industries manufactures exercise equipment.970 Formula for the principal: PV = FV (PVFn.690. After a careful evaluation of the request.23138) PV = $462.730 $1. c.220. i) PV − OA = $110. At the time of issuance. c. d.301 5. with interest payable each March 1 and September 1. the controller uses the current market rate of 8% to derive the present value factor. 5%) PV = $2. i) PV = $2. 2027.690. $2.000 (PVF − OA30.000. d. A credit to Sales Revenue for $75.000. Recently the vice president of operations of the company has requested construction of a new plant to meet the increasing demand for the company's exercise equipment.000.301. 5%) PV − OA = $110. Rationale: Notes Receivable 75.000 order to Save-A Lot Furniture in exchange for a zero-interest-bearing note due from the customer in two years.000.301 Discount on Notes Receivable 10.970 + $462. due on March 1. A debit to Notes Receivable for $64.37245) PV − OA = $1. b.153. .153.41 Barton Company.000 × PV (8%. A debit to Discount on Notes Receivable for $6.760 = $2.000 of 11% bonds on March 1. the board of directors has decided to raise funds for the new plant by issuing $2. Based on this information and the incorporation of the time value of money.699 $75. which of the following would be recorded by Barton to recognize this sale? a.000 (PVF30. A credit to Discount on Notes Receivable for $10.000 × . Barton sells a $75.000 Sales Revenue 64.730.970 Calculations: Formula for the interest payments: PV − OA = R (PVF − OAn. What is the selling price of the bonds? a.000 (15. a company who maintains its accounting records using IFRS.Accounting and the Time Value of Money 4. b. 2012.690.000 (0.

it is assessed for impairment on an annual basis.436 Calculations: This exercise determines the present value of an ordinary annuity of expected cash flows as a fair value estimate. At the end of the year.000 850. It has developed the following cash flow estimates related to the trade name based on internal information.000 20% 170.000 30% $144. d. All sales are accompanied by a one-year warranty. • • Jamison Company uses IFRS for its financial reporting.000 730. the company has the following data: 2.000) + (2.000 $264. (n = 7.790. To the nearest dollar.000 $120.000 $3.000 850. The trade name is assumed to have no residual value after the 7 years.000 = $132. What is the expected value of the warranty cost provision? a.000 $679. b. It produces machines that sell globally.000 Reegan determines that the appropriate discount rate for this estimation is 6%. Cash Flow Probability Expected Estimate × Assessment = Cash Flow $480. Reegan Company owns a trade name that was purchased in an acquisition of Hamilton Company.) Probability Assessment 30% 50% 20% Cash Flow Estimate $480.000 730.42 Test Bank for Intermediate Accounting. l = 6%) Present Value $679. The trend over the past five years has been that 4% of the machines were defective in some way and had to be repaired.58238 = $3.000 Calculation: (2.000 × 4% × 50% × $3. Of this 4%. what is the estimated fair value of the trade name? a.000 . but according to GAAP.436 7.000 units were sold during the year. The trade name has a book value of $3.790.000 × PV Factor. Reegan must estimate the fair value of the trade name. Fourteenth Edition 6. c. To perform this impairment test. half required a full replacement at a cost of $3. d.000 × 5.000 + $12. b.000 50% 365.000 $2. c.6 .500.000 $ 679. (Assume the cash flows occur at the end of each year. Each cash flow estimate reflects Reegan's estimate of annual cash flows over the next 7 years. $240.060.000 × 4% × 50% × $300) = $120.000.000 per unit and half were able to be repaired at an average cost of $300.500. $3.000 $132.

562 $277. The payments are $6.000 × 3. c.519 $38.43 Maxim Company leased an office under a five-year contract.791 Calculation: PV $6. d.88965 = $38. Faced with the downturn in the economy.897 10 Techtronics.575 Calculation: ($180.000 (4 years. However.000 × 3. c.000 at the end of the 20 years. The risk-free rate on government bonds is 4%.400 = $112.500 $226. has been found to have polluted the property surrounding its plant.000 (5 years. the pollution will be remediated before transfer back to its owner. b. 6 . Faced with the downturn in the economy.46511 = $20. a technology company that uses IFRS for its financial reporting. The risk-free rate on government bonds is 5%. they have had no luck with this effort and the landlord will not allow the lease to be cancelled. d.295 Calculation: PV $10. The company's most recent interest rate for financing from a bank is 9%. If this option is exercised. If you assume that these estimates are derived from best estimates of likely outcomes and the risk-free rate is 5%.000 per year and there are five years left on the lease. which has been accounted for as an operating lease. $238.562 . which has been accounted for as an operating lease. $21. The payments are $10.000 $20. 9%) = $10. b.000. There is a 70% chance that the lease will not be renewed and the cleanup will cost $180. the viable company decided to sub-lease the office. What is the provision for the lease under IFRS? a. The company's most recent interest rate for financing from a bank is 6%. the viable company decided to sub-lease the office.500 $112.572 $24.780 $22.55684) + ($375.37689) = $70. The lease has a renewal option for another 8 years. they have had no luck with this effort and the landlord will not allow the lease to be cancelled.000 $44.897 $43. What is the provision for the lease under IFRS? a. There is 30% chance that the lease will be renewed and the cleanup costs will be $375. Dolphin Company leased an office under a six-year contract. the expected present value of the cleanup provision is: a. $50.162 + $42. d.000 per year and there are four years left on the lease. the cleanup will be done at the end of the renewal period.000 × 30% × 0.791 9. b.Accounting and the Time Value of Money 8. The property is leaded for 12 years and Techtronics has agreed that when the lease expires.000 × 70% × 0. 6%) = $6. c. However.

a 2. c 6. b . b 8. c 10.6 .44 Test Bank for Intermediate Accounting. a 5. b 4. d 9. 1. a 3. Fourteenth Edition Answers to Multiple Choice. d 7.

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