Question 1

Kristen's grandmother promises to give her $3,000 at the end of three years and $4,000 at the end of four years.How much is the money worth today if Kristen could earn 6% annual interest on the funds?

Accepted Answer

The answer of Kristen's grandmother promises to give her $3,000...

Question 2

Long-term debt carries additional risk because interest and principal payments are not discretionary.

Accepted Answer

Long-term debt has a fixed interest and principal payment schedule, which must be met regardless of the company's financial performance. This can put added strain on a company's cash flow and overall financial health, making long-term debt riskier than other forms of financing.

Question 3

Kristen deposits $5,000 in the bank today.She will be earning 6% interest annually on her deposit.How much money will she have in the bank at the end of 5 years? (Round to the nearest dollar).

Accepted Answer

Calculation: $5,000 × 1.33822 = $6,691.

Question 4

On Bennett's 20A year-end statement of financial position,the book value of the liability for notes payable related to this purchase would equal which of the following?

Accepted Answer

The answer of On Bennett's 20A year-end statement of financial...

Question 5

On December 31,20A,Bennett recorded an adjusting entry to account for interest that had accrued on the note.What is the approximate amount of interest expense that would have accrued at December 31,20A?

Accepted Answer

The interest expense that would have accrued at December 31, 20A is approximately $25,400. This is because the note has a face value of $1,000,000 and an interest rate of 5%. The interest expense for one year would be $1,000,000 * 5% = $50,000. Since the note was issued on July 1, 20A, the interest expense that would have accrued at December 31, 20A is $50,000 * 6/12 = $25,400.

Question 6

A characteristic of a callable bond is the payment of the principal by the issuing corporation in instalments on several specified dates.

Accepted Answer

The answer of A characteristic of a callable bond is...

Question 7

On January 1,20A,Tie Company purchased a machine that had a sticker (list)price of $22,000.The seller agreed to allow Tie Company to pay for the machine over a three-year period at 10% interest on the unpaid balance and with equal payments of $8,444 due at the end of 20A,20B,and 20C.What is the amount that should be debited to the asset account,Machinery,on the day the contract was initiated is (rounded to the nearest dollar)?

Accepted Answer

The amount debited to the Machinery account should be the present value of the payments. The present value of $8,444 payments over three years at 10% interest is approximately $20,999.

Question 8

Kristen deposits $5,000 in the bank at the end of each year for five years.How much money will she have in the bank at the end of five years,assuming she will be earning 6% interest annually on her deposits? (Round to the nearest dollar).

Accepted Answer

To solve this problem, we can use the formula for the future value of an annuity:

FV = PMT x [(1 + r)^n - 1] / r

where:
PMT = the periodic payment
r = the interest rate
n = the number of periods

In this case, PMT = $5,000, r = 6%, and n = 5 (since Kristen is depositing money for five years). Plugging in these values, we get:

FV = $5,000 x [(1 + 0.06)^5 - 1] / 0.06
FV = $5,000 x 5.6371
FV = $28,185.50

Rounding to the nearest dollar, Kristen will have $28,186 in the bank at the end of five years. Therefore, the correct answer is D: $28,186.

Question 9

Accrued interest was recorded annually.On December 31,20C,the due date of the note,Bennett paid the amount due and recorded the transaction with which of the following?

Accepted Answer

The note's principal amount is $400,000, so on the due date, Bennett would debit Notes Payable for $400,000 to remove the liability from the books.

Question 10

A callable bond grants the option to the bondholder of electing to turn the bond in for early retirement.

Accepted Answer

A callable bond grants the issuer, not the bondholder, the option to redeem the bond before its maturity date.

Question 11

How much would Kristen have to deposit in the bank today if she will be earning a 6% annual rate of return and wants to have $5,000 in the bank at the end of five years? (Round to the nearest dollar).

Accepted Answer

To find the present value, we use the formula: PV = FV / (1 + r)^n. Here, FV = $5,000, r = 0.06, and n = 5. So, PV = 5000 / (1.06)^5 = $3,735.57, which rounds to $3,736.

Question 12

Kristen's grandmother promises to give her $1,000 at the end of each of the next five years.How much is the money worth today,assuming Kristen could invest the money and earn a 6% annual rate of return? (Round to the nearest dollar).

Accepted Answer

The present value of an annuity formula is used to calculate the worth of $1,000 received annually for five years at a 6% discount rate. The calculation is: PV = $1,000 * [(1 - (1 + 0.06)^-5) / 0.06] = $4,212.

Question 13

How much would Kristen have to deposit in the bank at the end of each of the next five years if she wishes to have $5,000 in the bank at the end of that time period,assuming she will be earning 6% annual rate of return? (Round to the nearest dollar).

Accepted Answer

The correct answer is A because $887 is the closest to the correct answer of $886.67.

Question 14

You have been asked to compute the cash equivalent price of a machine assuming the cost (including principal and interest)is to be paid in two equal payments after the acquisition date.What is the interest concept that best describes this application?

Accepted Answer

The best interest concept that describes this application is the present value of an annuity, as the cost of the machine (including principal and interest) is to be paid in two equal payments, which is an annuity. We need to calculate the cash equivalent price of the machine, which is the present value of this annuity.

Question 15

Bonds often are a superior method of financing in comparison with sale and issuance of capital shares because of both the (a)leverage effects and (b)tax deductibility of interest payments.

Accepted Answer

Bonds offer leverage effects because they allow the issuer to borrow a large amount of money at a fixed rate of interest, without diluting ownership or control of the company. Additionally, interest payments on bonds are tax deductible, providing another advantage over the issuance of capital shares.

Question 16

An amount is to be deposited in a savings account at the end of each year in order to provide funds for a trip to Europe at the end of the fourth year.You have been asked to determine the amount of the annual deposit.What is the interest concept that best describes this application?

Accepted Answer

The correct concept is the future value of an annuity, as it involves making regular (annual) deposits to accumulate a specific amount in the future.

Question 17

An unsecured bond usually is called an indenture.

Accepted Answer

An indenture is actually the written agreement or contract between the issuer of the bond and the bondholders, regardless of whether the bond is secured or unsecured.

Question 18

The use of financial leverage by a company does not result in increased risk for its investors.

Accepted Answer

The use of financial leverage increases the risk for investors because the company becomes more vulnerable to fluctuations in interest rates and may struggle to meet debt obligations if earnings decline.

Question 19

Kristen's grandmother promises to give her $1,000 at the end of five years.How much is the money worth today,assuming Kristen could invest the money and earn a 6% annual rate of return? (Round to the nearest dollar).

Accepted Answer

To calculate the present value of the $1,000, we need to use the present value formula:
PV = FV / (1 + r)^n
where PV is the present value, FV is the future value, r is the interest rate, and n is the number of periods.

In this case, FV = $1,000, r = 6% = 0.06, and n = 5. Plugging in these values into the formula, we get:
PV = $1,000 / (1 + 0.06)^5 = $747.27

Rounding to the nearest dollar, the present value of the $1,000 is $747, which is choice A.

Question 20

On January 1,20A,Goldstein Company purchased a machine.The seller agreed that a total of $9,000 would be paid over a three-year period--$3,000 per year at the end of 20A,20B,and 20C.At the time the machine was purchased,the market rate of interest was 10%.What amount should be debited to the asset account,Machinery,on the date of purchase (round to the nearest dollar)?

Accepted Answer

The present value of the payments should be calculated using the market rate of interest. The present value of $3,000 payments over three years at a 10% interest rate is approximately $7,461.

Quiz 11: Reporting and Interpreting Stockholders Equity

Kristen's grandmother promises to give her $3,000 at the end of three years and $4,000 at the end of four years.How much is the money worth today if Kristen could earn 6% annual interest on the funds?

Long-term debt carries additional risk because interest and principal payments are not discretionary.

Kristen deposits $5,000 in the bank today.She will be earning 6% interest annually on her deposit.How much money will she have in the bank at the end of 5 years? (Round to the nearest dollar) .

On Bennett's 20A year-end statement of financial position,the book value of the liability for notes payable related to this purchase would equal which of the following?

On December 31,20A,Bennett recorded an adjusting entry to account for interest that had accrued on the note.What is the approximate amount of interest expense that would have accrued at December 31,20A?

A characteristic of a callable bond is the payment of the principal by the issuing corporation in instalments on several specified dates.

Kristen deposits $5,000 in the bank at the end of each year for five years.How much money will she have in the bank at the end of five years,assuming she will be earning 6% interest annually on her deposits? (Round to the nearest dollar) .

Accrued interest was recorded annually.On December 31,20C,the due date of the note,Bennett paid the amount due and recorded the transaction with which of the following?

A callable bond grants the option to the bondholder of electing to turn the bond in for early retirement.

How much would Kristen have to deposit in the bank today if she will be earning a 6% annual rate of return and wants to have $5,000 in the bank at the end of five years? (Round to the nearest dollar) .

Kristen's grandmother promises to give her $1,000 at the end of each of the next five years.How much is the money worth today,assuming Kristen could invest the money and earn a 6% annual rate of return? (Round to the nearest dollar) .

How much would Kristen have to deposit in the bank at the end of each of the next five years if she wishes to have $5,000 in the bank at the end of that time period,assuming she will be earning 6% annual rate of return? (Round to the nearest dollar) .

You have been asked to compute the cash equivalent price of a machine assuming the cost (including principal and interest) is to be paid in two equal payments after the acquisition date.What is the interest concept that best describes this application?

Bonds often are a superior method of financing in comparison with sale and issuance of capital shares because of both the (a)leverage effects and (b)tax deductibility of interest payments.

An amount is to be deposited in a savings account at the end of each year in order to provide funds for a trip to Europe at the end of the fourth year.You have been asked to determine the amount of the annual deposit.What is the interest concept that best describes this application?

An unsecured bond usually is called an indenture.

The use of financial leverage by a company does not result in increased risk for its investors.

Kristen's grandmother promises to give her $1,000 at the end of five years.How much is the money worth today,assuming Kristen could invest the money and earn a 6% annual rate of return? (Round to the nearest dollar) .