Question 1

Fabian Company is considering the purchase of a machine that will save the company $4,000 per year in operating costs for a period of 10 years.The most it should pay for the machine is equal to

Accepted Answer

The present value of the savings generated by the machine over 10 years can be calculated as the present value of an ordinary annuity.
PV = PMT x [(1 - (1 + r)^-n)/r], where PV is the present value, PMT is the annual savings of $4,000, r is the discount rate, and n is the number of periods, which is 10 years.

Assuming a discount rate of 10%, we can calculate the present value as follows:
PV = $4,000 x [(1 - (1 + 0.10)^-10)/0.10]
PV = $31,446.70

Therefore, the most Fabian Company should pay for the machine is $31,446.70. Option A is the correct choice as it states that the most Fabian Company should pay is $4,000 times the present value of an ordinary annuity for 10 periods.

Question 2

Use this information to answer the following question.  What is the present value of receiving $1,200 at the end of each year for three years at a 12% interest rate?

Accepted Answer

The answer of Use this information to answer the following...

Question 3

The future value of an ordinary annuity table would not include the factor

Accepted Answer

The future value of an ordinary annuity table includes factors greater than 1, as they represent the accumulation of interest over time. A factor of 0.971 would not be included as it represents a discount factor, not an accumulation factor.

Question 4

Dorothy wishes to deposit an amount into her savings account that will enable her to withdraw $1,500 per year for the next five years.She should deposit $1,500,multiplied by the

Accepted Answer

Dorothy needs to withdraw $1,500 per year for the next five years, which is a typical example of an ordinary annuity. Therefore, she should use the present value of an ordinary annuity factor to calculate the amount she needs to deposit to achieve her goal.

Question 5

A company purchases an asset on a deferred payment plan,ultimately paying $10,000.On the payment date,the company would

Accepted Answer

The answer of A company purchases an asset on a...

Question 6

A company sells merchandise on a deferred payment plan,ultimately receiving $5,000 on the account receivable.On the payment date,the company would

Accepted Answer

Since the customer made a payment on the account receivable, the company needs to reduce the balance in the Accounts Receivable account. Therefore, the company would credit Accounts Receivable for less than $5,000. The other options are not applicable in this scenario as there is no indication of interest income, a decrease in sales, or a need to debit the asset account for the full amount of $5,000.

Question 7

Use this information to answer the following question.  What amount must be deposited today at a 12% interest rate so that $1,200 may be withdrawn at the end of each year for three years?

Accepted Answer

This can be solved using the present value of an annuity formula: 
PV = PMT * [(1 - (1 + r)^-n) / r] 
Where PV is the present value, PMT is the payment amount, r is the interest rate, and n is the number of payment periods. 
Plugging in the given values: 
PV = $1,200 * [(1 - (1 + 0.12)^-3) / 0.12] 
PV = $3,148.80 
Therefore, the amount that must be deposited today is $3,148.80, which is option C.

Question 8

A business accepts a 9 percent,$25,000 note due in 120 days.Assuming simple interest,how much (amount rounded)will the business receive when the note falls due?

Accepted Answer

To calculate the amount the business will receive when the note falls due, we need to use the simple interest formula:

I = P*r*t

Where: 
- I = Interest 
- P = Principal 
- r = interest rate as decimal 
- t = time in years

In this case, P = $25,000, r = 9% = 0.09 (as a decimal), and t = 120/365 = 0.3288 years (since there are 365 days in a year).

So,

I = $25,000 * 0.09 * 0.3288 = $721.80

Therefore, the total amount the business will receive when the note falls due is:

$25,000 + $721.80 = $25,721.80

Rounding this to the nearest dollar, we get:

$25,740

So the best choice is C: $25,740.

Question 9

First City Bank computes interest semiannually.If the interest rate is currently 6 percent per annum,the amount deposited today should be multiplied by which future value factor to calculate the amount that will accumulate by the end of 10 years?

Accepted Answer

Since interest is computed semiannually, there are 20 periods in 10 years (2 periods per year for 10 years).

The interest rate is 6% per annum, which means the semiannual interest rate is 3% (6% divided by 2).

To calculate the future value factor for 20 periods at 3%, we use the formula:

Future value factor = (1 + r)^n
where r is the interest rate per period and n is the number of periods.

Plugging in the values, we get: 
Future value factor = (1 + 0.03)^20 = 1.8061

Therefore, to calculate the amount that will accumulate by the end of 10 years, we need to multiply the amount deposited today by the future value factor of 1.8061.

Question 10

A company wishes to make annual contributions into a fund intended to retire $400,000 in debt five years from now.The amount to contribute each year equals $400,000

Accepted Answer

The correct answer is A because the company wants to find the amount to contribute each year to retire $400,000 in debt five years from now. The future value of an ordinary annuity factor is used to find the present value of a series of equal payments made at the end of each period.

Question 11

A company places $20,000 into a money market account for four months.The account is expected to pay 9 percent annual interest,compounded monthly.After one month,the entry to record interest earned is:

Accepted Answer

The interest for one month is calculated as $20,000 * (0.09/12) = $150. The entry to record interest earned is to debit Short-Term Investments and credit Interest Income.

Question 12

Compound interest is computed quarterly on $700 for seven years at 12 percent annual interest.The future value table is used by multiplying the $700 by which factor?

Accepted Answer

Compound interest calculated quarterly over seven years at an annual rate of 12% means the interest is compounded 4 times a year (quarterly) for 7 years, totaling 28 periods, and the interest rate per period is 12%/4 = 3%.

Question 13

The higher the interest rate assumed,the

Accepted Answer

The higher the interest rate, the lower the present value of a sum due in the future because a higher discount rate is used to calculate present value, reducing the value of future cash flows.

Question 14

Use this information to answer the following question.  A deposit of $5,400 made at the end of each year for three years at a 12% interest rate would grow to how much?

Accepted Answer

The answer of Use this information to answer the following...

Question 15

Use this information to answer the following question.  A single deposit of $4,000 made at the beginning of period 1 at a 12% interest rate would grow to how much at the end of three years?

Accepted Answer

The answer of Use this information to answer the following...

Question 16

Use this information to answer the following question.  What amount must be deposited today at a 12% interest rate to grow to $900 in three years?

Accepted Answer

The formula for future value of a lump sum is FV = PV x (1 + r)^n, where FV is the future value, PV is the present value, r is the interest rate, and n is the number of periods. In this case, we want to find the present value, so we can rearrange the formula to solve for PV: PV = FV / (1 + r)^n. Substituting the given values, we get PV = 900 / (1 + 0.12)^3 = $734.40. Therefore, the best choice is B, $734.40.

Question 17

Use this information to answer the following question.  If an accumulation of $6,000 is desired at the end of three years,at a 12% interest rate what amount must be deposited at the end of each of the three years?

Accepted Answer

The answer of Use this information to answer the following...

Question 18

Which of the following statements is true regarding the time value of money?

Accepted Answer

The time value of money refers to the principle that a dollar today is worth more than a dollar in the future due to the potential earning power of money over time. Therefore, it is better to receive $1 now than a year from now because if we have that dollar now, we can invest it and potentially earn some interest or returns. Waiting a year to receive the dollar would result in missing out on potential earnings.

Question 19

A business accepts a 12 percent,$38,000 note due in three years.Assuming simple interest,how much will the business receive when the note falls due?

Accepted Answer

To calculate the amount the business will receive when the note falls due, we need to use the simple interest formula:

Interest = Principal x Rate x Time

Where:
Principal = $38,000
Rate = 12% = 0.12
Time = 3 years

So, the interest on the note is:

Interest = $38,000 x 0.12 x 3 = $13,680

Therefore, the total amount the business will receive when the note falls due is:

Total amount = Principal + Interest
Total amount = $38,000 + $13,680 = $51,680

Hence, the best choice is B.

Question 20

Use this information to answer the following question.  If $100 is invested at a 12% interest rate,how much will it grow to at the end of the three years?

Accepted Answer

The answer of Use this information to answer the following...

Quiz 9: Current Liabilities and Fair Value Accounting

Fabian Company is considering the purchase of a machine that will save the company $4,000 per year in operating costs for a period of 10 years.The most it should pay for the machine is equal to

Use this information to answer the following question. What is the present value of receiving $1,200 at the end of each year for three years at a 12% interest rate?

The future value of an ordinary annuity table would not include the factor

Dorothy wishes to deposit an amount into her savings account that will enable her to withdraw $1,500 per year for the next five years.She should deposit $1,500,multiplied by the

A company purchases an asset on a deferred payment plan,ultimately paying $10,000.On the payment date,the company would

A company sells merchandise on a deferred payment plan,ultimately receiving $5,000 on the account receivable.On the payment date,the company would

Use this information to answer the following question. What amount must be deposited today at a 12% interest rate so that $1,200 may be withdrawn at the end of each year for three years?

A business accepts a 9 percent,$25,000 note due in 120 days.Assuming simple interest,how much (amount rounded) will the business receive when the note falls due?

First City Bank computes interest semiannually.If the interest rate is currently 6 percent per annum,the amount deposited today should be multiplied by which future value factor to calculate the amount that will accumulate by the end of 10 years?

A company wishes to make annual contributions into a fund intended to retire $400,000 in debt five years from now.The amount to contribute each year equals $400,000

A company places $20,000 into a money market account for four months.The account is expected to pay 9 percent annual interest,compounded monthly.After one month,the entry to record interest earned is:

Compound interest is computed quarterly on $700 for seven years at 12 percent annual interest.The future value table is used by multiplying the $700 by which factor?

The higher the interest rate assumed,the

Use this information to answer the following question. A deposit of $5,400 made at the end of each year for three years at a 12% interest rate would grow to how much?

Use this information to answer the following question. A single deposit of $4,000 made at the beginning of period 1 at a 12% interest rate would grow to how much at the end of three years?

Use this information to answer the following question. What amount must be deposited today at a 12% interest rate to grow to $900 in three years?

Use this information to answer the following question. If an accumulation of $6,000 is desired at the end of three years,at a 12% interest rate what amount must be deposited at the end of each of the three years?

Which of the following statements is true regarding the time value of money?

A business accepts a 12 percent,$38,000 note due in three years.Assuming simple interest,how much will the business receive when the note falls due?

Use this information to answer the following question. If $100 is invested at a 12% interest rate,how much will it grow to at the end of the three years?