Question 1

Use this information to answer the following question. $$\begin{array} { | c | c | c | } 
\hline \text { Periods } & \text { Present Value of } \$ 1 \text { at } 7 \text { Percent } & \text { Present Value of Ordinary Annuty of } \
&& \$ 1 \text { at } 7 \text { Percent } \
1 & 0.935 & 0.935\
\hline 2 & 0.873 & 1.808\
\hline 3 & 0.816 & 2.624 \
\hline
\end{array}$$  If $100 is invested,how much will it grow to at the end of the three years?

Accepted Answer

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Question 2

A company enters into a contract to purchase a certain quantity of goods from another company during the following month.At this point,would a liability exist? Explain why or why not.

Accepted Answer

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Question 3

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 4

Use this information to answer the following question. $$\begin{array} { | c | c | c | } 
\hline \text { Periods } & \text { Future Value of } \$ 1 \text { at } 12 \text { Percent } & \text { Future Value of Ordinary Annuity of } \
& & 1 \text { at } 12 \text { percent } \
\hline 1 & 1.120 & 1.000 \
\hline 2 & 1.254 & 2.120 \
\hline 3 & 1.405 & 3.374 \
\hline
\end{array}$$ A deposit of $2,700 made at the end of each year for three years would grow to how much?

Accepted Answer

The future value of an ordinary annuity of $1 at 12% for 3 years is 3.374. Therefore, the future value of a $2,700 annuity is $2,700 * 3.374 = $9,109.80.

Question 5

Use this information to answer the following question. $$\begin{array} { | c | c | c | } 
\hline \text { Periods } & \text { Present Value af } 1 \text { at } 7 \text { Percent } & \text { Present Value af Ordinary Annuity af } \
&&\text { \$1 at } 7 \text { Percent } \
1 & 0.935 & 0.935 \
\hline 2 & 0.873 & 1.808 \
\hline 3 & 0.816 & 2.624 \
\hline
\end{array}$$ What is the present value of receiving $400 at the end of each year for three years?

Accepted Answer

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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

Heidi wishes to deposit an amount into her savings account that will enable her to withdraw $800 per year for the next four years.She should deposit $800,multiplied by the

Accepted Answer

Heidi wants to withdraw $800 per year for the next four years, which is an ordinary annuity. Therefore, she should use the present value of an ordinary annuity factor to calculate how much she needs to deposit into her savings account.

Question 8

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

Accepted Answer

The answer of The future value of an ordinary annuity...

Question 9

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 10

Fabian Company is considering the purchase of a machine that will save the company $2,000 per year in operating costs for a period of seven years.The most it should pay for the machine is equal to

Accepted Answer

The most the company should pay for the machine is the present value of the savings it will generate over the 7-year period. Using the formula for the present value of an ordinary annuity, the value is $2,000 times the present value factor for 7 periods at the appropriate interest rate. Therefore, choice A is the best answer. Choice B is incorrect because it does not take into account the time value of money or the savings generated by the machine. Choice C is incorrect because it uses the future value formula instead of the present value formula. Choice D is incorrect because it uses the future value formula instead of the present value formula.

Question 11

Use this information to answer the following question. $$\begin{array} { | c | c | c | } 
\hline \text { Periods } & \text { Present Value of } \$ 1 \text { at } 7 \text { Percent } & \text { Present Value of Ordinary Annuty of } \
&& \$ 1 \text { at } 7 \text { Percent } \
1 & 0.935 & 0.935\
\hline 2 & 0.873 & 1.808\
\hline 3 & 0.816 & 2.624 \
\hline
\end{array}$$ What amount must be deposited today so that $600 may be withdrawn at the end of each year for three years?

Accepted Answer

The present value of an ordinary annuity of $1 at 7% for 3 periods is 2.624. To find the amount to be deposited today, multiply $600 by 2.624, which equals $1,574.40.

Question 12

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

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Question 13

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

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Question 14

Which of the following phrases is not descriptive of an ordinary annuity?

Accepted Answer

An ordinary annuity is a series of equal payments made at the end of equal periods of time. Payments made at the beginning of equal periods of time are descriptive of an annuity due.

Question 15

The closing entry that would be made at the yearend transferring the interest expense of $50 on a note is:

Accepted Answer

Interest expense is closed to the income summary account at year-end, so the entry debits income summary and credits interest expense.

Question 16

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 the interest is compounded semiannually, there are a total of 20 compounding periods (2 per year for 10 years). Using the formula for future value factor, FV = (1 + r/n)^(nt), where r = annual interest rate, n = number of compounding periods per year, and t = number of years, we can calculate the future value factor. Plugging in the values given, we get FV = (1 + 0.06/2)^(2*10) = 1.939, which means that the amount deposited today should be multiplied by 1.939 to calculate the amount that will accumulate by the end of 10 years. Therefore, choice B is the best option as it matches the 20 periods at 3 percent required for the semiannual compounding.

Question 17

Use this information to answer the following question. $\begin{array}{|c|c|c|}
\hline\text { Periods } & \text { Present Value of } \$ 1 \text { at } 7 \text { Percent } & \text { Present Value of Ordinary Annuity of } \
&&\$ 1 \text { at } 7 \text { Percent }\
\hline 1 & 0.935 & 0.935 \
\hline 2 & 0.873 & 1.808 \
\hline 3 & 0.816 & 2.624 \
\hline
\end{array}$
 What amount must be deposited today to grow to $450 in three years?

Accepted Answer

The problem is asking for the present value, which means we need to solve for the initial deposit. We can use the formula FV = PV(1 + r)^n, where FV = $450, r is the interest rate, and n is the number of years. Solving for PV, we get PV = FV / (1 + r)^n. We are not given the interest rate, so we cannot solve for the exact amount. However, we can narrow down our choices by estimating the interest rate. If we assume an interest rate of 8%, we can use the formula to estimate the present value: PV = $450 / (1 + 0.08)^3 = $367.20. This matches choice B, so that is the best choice.

Question 18

Assume that a company received $1,200 in advance for one year membership fee in the fitness center.The entry that would be made to record the recognition of revenue at the end of first month is:

Accepted Answer

The company has received $1,200 in advance for one-year membership fee, which means the revenue should be recognized over the period of one year. At the end of the first month, 1/12th of the total revenue (i.e., $1,200/12 = $100) can be recognized as revenue earned. Therefore, the entry should be:

Debit Cash $100 
Credit Unearned Revenue $100

Option C correctly records the recognition of revenue by debiting cash and crediting unearned revenue.

Question 19

A company places $10,000 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 $10,000 * (0.09/12) = $75. The entry records the interest earned as an increase in Short-Term Investments and Interest Income.

Question 20

Meggie's Fitness center received $720 from a customer in advance for one year membership in the fitness center.The entry that would be made to record the fee receipt is:

Accepted Answer

The answer of Meggie's Fitness center received $720 from a...

Quiz 8: Current Liabilities and Fair Value Accounting