Question 1

Which of the following phrases is not descriptive of an ordinary annuity?
A)Payments made at the beginning of equal periods of time
B)Both present and future value can be calculated
C)Compound interest assumed
D)Series of equal payments

Accepted Answer

An ordinary annuity is a series of equal payments made at the end of equal periods of time. Therefore, payments made at the beginning of equal periods of time is not descriptive of an ordinary annuity.

Question 2

Hilda wishes to deposit an amount into her savings account that will enable her to withdraw $1,600 per year for the next four years.She should deposit an amount equal to $1,600 multiplied by the
A)present value of a single sum factor.
B)present value of an ordinary annuity factor.
C)future value of a single sum factor.
D)future value of an ordinary annuity factor.

Accepted Answer

Hilda wants to withdraw a fixed amount for a fixed number of years, which is the definition of an ordinary annuity. Therefore, she should use the present value of an ordinary annuity factor to determine the deposit amount.

Question 3

Company A's current assets = $10,000,total assets = $26,000,current liabilities = $7,000 and total liabilities = $47,000.What is Company A's working capital?
A)$3,000
B)$21,000
C)1.43
D)0.55

Accepted Answer

Working capital is calculated by subtracting current liabilities from current assets. Therefore, Company A's working capital is $10,000 - $7,000 = $3,000. Option A is the correct answer. Option B is incorrect because it is the value of total assets, not working capital. Option C and D are not related to the question.

Question 4

A company wishes to make annual contributions into a fund intended to retire $700,000 in debt five years from now.The amount to contribute each year equals $700,000
A)divided by the appropriate future value of an ordinary annuity factor.
B)times the appropriate present value of an ordinary annuity factor.
C)times the appropriate future value of an ordinary annuity factor.
D)divided by the appropriate present value of an ordinary annuity factor.

Accepted Answer

To retire a future debt using annual contributions, the amount to contribute each year is calculated by dividing the future debt by the future value of an ordinary annuity factor. This factor accounts for the interest that will be earned on each contribution over time.

Question 5

Days' payable is the shortest in which of the following industries?
A)Grocery stores
B)Computers
C)Machinery
D)Auto and home supply

Accepted Answer

Grocery stores generally have a shorter days' payable since they have a higher inventory turnover and faster cash flow due to their perishable products. Computers and machinery have longer days' payable since they typically deal with higher ticket items and have longer manufacturing or delivery timelines. Auto and home supply can vary but generally have longer days' payable due to managing large and diverse product lines.

Question 6

McAfee Corporation borrowed $20 million to finance the construction of a new building.In addition to the annual interest that is not included in the face,one-tenth of the principal amount borrowed is to be repaid each year.If the borrowing occurred one month prior to year end,how should the loan be presented on the upcoming balance sheet?

Accepted Answer

The answer of McAfee Corporation borrowed $20 million to finance...

Question 7

Fergus Company is considering the purchase of a machine that will save the company $4,000 per year in operating costs for a period of seven years.The most it should pay for the machine is equal to
A)$4,000 times the present value of an ordinary annuity for 7 periods.
B)$28,000.
C)$4,000 divided by the future value of a single sum at the end of 7 periods.
D)$4,000 times the future value of an ordinary annuity for 7 periods.

Accepted Answer

The most Fergus Company should pay for the machine is the present value of the savings it will generate. This is calculated as $4,000 times the present value of an ordinary annuity for 7 periods, which accounts for the time value of money over the 7-year period.

Question 8

Use this information to answer the following question.  
-If an accumulation of $16,000 is desired at the end of three years,what amount must be deposited at the end of each of the three years,assuming an APR of 12 percent?
A)$4,742.15
B)$53,984.00
C)$11,387.90
D)$22,480.00

Accepted Answer

To find the amount that must be deposited at the end of each of the three years, we can use the following formula:

PMT = FV / ((1+r)^n - 1) * (1+r)

Where:

PMT = Payment (amount to be deposited each year) 
FV = Future Value ($16,000 in this case) 
r = Annual Percentage Rate (12% in this case) 
n = Number of Years (3 in this case)

Plugging in the values, we get:

PMT = 16000 / ((1+0.12)^3 - 1) * (1+0.12) 
PMT = $4,742.15

Therefore, choice A is the best answer.

Question 9

A company sells merchandise on a deferred payment plan,ultimately receiving $6,000 on the account receivable.On the payment date,the company would
A)credit Accounts Receivable for less than $6,000.
B)debit Interest Income for the imputed amount.
C)credit Sales for less than $6,000.
D)debit the asset account for $6,000.

Accepted Answer

The answer of A company sells merchandise on a deferred...

Question 10

Which of the following is a measure of liquidity?
A)Payables turnover
B)Current ratio
C)Working capital
D)All of these are used to evaluate a company's liquidity.

Accepted Answer

All of these options are used to evaluate a company's liquidity. Payables turnover measures how quickly a company pays off its debts, indicating its ability to meet short-term obligations. Current ratio compares a company’s current assets to its current liabilities, indicating whether it can cover short-term debts. Working capital is the difference between a company’s current assets and current liabilities, indicating its ability to meet short-term financial obligations. Therefore, all three options are measures of liquidity.

Question 11

A company purchases an asset on a deferred payment plan,ultimately paying $15,000.On the payment date,the company would
A)credit Cash for less than $15,000.
B)debit Interest Expense for the imputed amount.
C)debit the asset account for $15,000.
D)debit Accounts Payable for $15,000.

Accepted Answer

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

Question 12

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

The answer of A company enters into a contract to...

Question 13

The future value of an ordinary annuity table would not include the factor
A)0.909.
B)2.010.
C)20.300.
D)1.000.

Accepted Answer

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

Question 14

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?
A)28 periods at 3 percent
B)7 periods at 3 percent
C)7 periods at 12 percent
D)28 periods at 7 percent

Accepted Answer

Compound interest computed quarterly for 7 years at 12% annual interest means the interest is compounded 4 times a year (quarterly) for 7 years, making it 4 * 7 = 28 periods, and the annual rate of 12% is divided by 4 to get a quarterly rate of 3%.

Question 15

Second National Bank computes interest semiannually.If the annualized interest rate (APR)is currently 6 percent,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)20 periods at 12 percent
B)20 periods at 3 percent
C)10 periods at 6 percent
D)10 periods at 3 percent

Accepted Answer

Since the interest is compounded semiannually, there will be a total of 20 compounding periods (10 years x 2 compoundings per year). Therefore, we need to use the future value factor for 20 periods. The interest rate per period is half of the annualized rate, i.e., 3 percent (6 percent divided by 2). Therefore, we should use the future value factor for 20 periods at 3 percent.

Question 16

Use this information to answer the following question.  
-A deposit of $5,800 made at the end of each year for three years would grow to how much,assuming an APR of 12 percent?
A)$8,149.00
B)$19,569.20
C)$17,400.00
D)$19,488.00

Accepted Answer

This problem involves calculating the future value of an annuity, where equal payments are made at regular intervals into an account that earns interest. The formula for the future value of an annuity is FV = P * [((1 + r)^n - 1) / r], where P is the payment amount, r is the annual interest rate (as a decimal), and n is the number of payments. Here, P = $5,800, r = 0.12 (12%), and n = 3. Plugging these values into the formula gives FV = 5800 * [((1 + 0.12)^3 - 1) / 0.12] = 5800 * [((1.12)^3 - 1) / 0.12] = 5800 * (0.404928 / 0.12) = 5800 * 3.3744 ≈ $19,569.20.

Question 17

Company A's current assets = $10,000,total assets = $26,000,current liabilities = $7,000 and total liabilities = $47,000.What is Company A's current ratio?
A)$3,000
B)$21,000
C)1.43
D)0.55

Accepted Answer

Current ratio = Current Assets / Current Liabilities

Current Assets = $10,000
Current Liabilities = $7,000

Current Ratio = $10,000 / $7,000 = 1.43

Therefore, the correct answer is (C) 1.43.

Question 18

To find the days' payable,
A)divide 365 by the payables turnover.
B)multiply the payables turnover by 365.
C)divide the payables turnover by 365.
D)subtract 365 from the payables turnover.

Accepted Answer

Days' payable is calculated by dividing 365 by the payables turnover ratio to determine the average number of days a company takes to pay its invoices.

Question 19

Which of the following is not a component of the operating cycle?
A)Sales to customers
B)Collection of accounts receivable
C)Recognition of depreciation
D)Purchases from suppliers

Accepted Answer

Sales to customers, collection of accounts receivable, and purchases from suppliers are all components of the operating cycle. Recognition of depreciation is not a component of the operating cycle, as it is a non-cash expense that reflects the decrease in value of a long-term asset over time.

Question 20

The payables turnover is measured
A)in days.
B)as a percentage.
C)in dollars.
D)in times.

Accepted Answer

The payables turnover ratio is measured in times, which represents the number of times a company pays off its accounts payable during a certain time period.

Quiz 10: Current Liabilities and Fair Value Accounting

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

Hilda wishes to deposit an amount into her savings account that will enable her to withdraw $1,600 per year for the next four years.She should deposit an amount equal to $1,600 multiplied by the

Company A's current assets = $10,000,total assets = $26,000,current liabilities = $7,000 and total liabilities = $47,000.What is Company A's working capital?

A company wishes to make annual contributions into a fund intended to retire $700,000 in debt five years from now.The amount to contribute each year equals $700,000

Days' payable is the shortest in which of the following industries?

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

Use this information to answer the following question. -If an accumulation of $16,000 is desired at the end of three years,what amount must be deposited at the end of each of the three years,assuming an APR of 12 percent?

A company sells merchandise on a deferred payment plan,ultimately receiving $6,000 on the account receivable.On the payment date,the company would

Which of the following is a measure of liquidity?

A company purchases an asset on a deferred payment plan,ultimately paying $15,000.On the payment date,the company would

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.

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

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?

Second National Bank computes interest semiannually.If the annualized interest rate (APR) is currently 6 percent,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?

Use this information to answer the following question. -A deposit of $5,800 made at the end of each year for three years would grow to how much,assuming an APR of 12 percent?

Company A's current assets = $10,000,total assets = $26,000,current liabilities = $7,000 and total liabilities = $47,000.What is Company A's current ratio?

To find the days' payable,

Which of the following is not a component of the operating cycle?

The payables turnover is measured