Test Bank: Financial Accounting Information for Decisions 7th Edition by Wild Test Bank

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Appendix B

Applying Present and Future Values

These abbreviated tables can be used with the test questions that are tagged: Factor

Present Value of 1

Periods	3%	4%	5%	6%	7%	8%	9%	10%	12%
3	0.9151	0.8890	0.8638	0.8396	0.8163	0.7938	0.7722	0.7513	0.7118
4	0.8885	0.8548	0.8227	0.7921	0.7629	0.7350	0.7084	0.6830	0.6355
5	0.8626	0.8219	0.7835	0.7473	0.7130	0.6806	0.6499	0.6209	0.5674
6	0.8375	0.7903	0.7462	0.7050	0.6663	0.6302	0.5963	0.5645	0.5066
7	0.8131	0.7599	0.7107	0.6651	0.6227	0.5835	0.5470	0.5132	0.4523
8	0.7894	0.7307	0.6768	0.6274	0.5820	0.5403	0.5019	0.4665	0.4039
9	0.7664	0.7026	0.6446	0.5919	0.5439	0.5002	0.4604	0.4241	0.3606
10	0.7441	0.6756	0.6139	0.5584	0.5083	0.4632	0.4224	0.3855	0.3220

Future Value of 1

Periods	3%	4%	5%	6%	7%	8%	9%	10%	12%
3	1.0927	1.1249	1.1576	1.1910	1.2250	1.2597	1.2950	1.3310	1.4049
4	1.1255	1.1699	1.2155	1.2625	1.3108	1.3605	1.4116	1.4641	1.5735
5	1.1593	1.2167	1.2763	1.3382	1.4026	1.4693	1.5386	1.6105	1.7623
6	1.1941	1.2653	1.3401	1.4185	1.5007	1.5869	1.6771	1.7716	1.9738
7	1.2299	1.3159	1.4071	1.5036	1.6058	1.7138	1.8280	1.9487	2.2107
8	1.2668	1.3686	1.4775	1.5938	1.7182	1.8509	1.9926	2.1436	2.4760
9	1.3048	1.4233	1.5513	1.6895	1.8385	1.9990	2.1719	2.3579	2.7731
10	1.3439	1.4802	1.6289	1.7908	1.9672	2.1589	2.3674	2.5937	3.1058

Present Value of an Annuity of 1

Periods	3%	4%	5%	6%	7%	8%	9%	10%	12%
3	2.8286	2.7751	2.7232	2.6730	2.6243	2.5771	2.5313	2.4869	2.4018
4	3.7171	3.6299	3.5460	3.4651	3.3872	3.3121	3.2397	3.1699	3.0373
5	4.5797	4.4518	4.3295	4.2124	4.1002	3.9927	3.8897	3.7908	3.6048
6	5.4172	5.2421	5.0757	4.9173	4.7665	4.6229	4.4859	4.3553	4.1114
7	6.2303	6.0021	5.7864	5.5824	5.3893	5.2064	5.0330	4.8684	4.5638
8	7.0197	6.7327	6.4632	6.2098	5.9713	5.7466	5.5348	5.3349	4.9676
9	7.7861	7.4353	7.1078	6.8017	6.5152	6.2469	5.9952	5.7950	5.3282
10	8.5302	8.1109	7.7217	7.3601	7.0236	6.7101	6.4177	6.1446	5.6502

Future Value of an Annuity of 1

Periods	3%	4%	5%	6%	7%	8%	9%	10%	12%
3	3.0909	3.1216	3.1525	3.1836	3.2149	3.2464	3.2781	3.3100	3.3744
4	4.1836	4.2465	4.3101	4.3746	4.4399	4.5061	4.5731	4.6410	4.7793
5	5.3091	5.4163	5.5256	5.6371	5.7507	5.8666	5.9847	6.1051	6.3528
6	6.4684	6.6330	6.8019	6.9753	7.1533	7.3359	7.5233	7.7156	8.1152
7	7.6625	7.8983	8.1420	8.3938	8.6540	8.9228	9.2004	9.4872	10.089
8	8.8923	9.2142	9.5491	9.8975	10.260	10.637	11.029	11.436	12.300
9	10.159	10.583	11.027	11.491	11.978	12.488	13.021	13.580	14.776
10	11.464	12.006	12.578	13.181	13.816	14.487	15.193	15.937	17.549

True / False Questions

[Question]

1. Interest is the borrower’s payment to the owner of an asset for its use.

Answer: TRUE

Blooms Taxonomy: Remember
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 1 Easy
Learning Objective: B-C1

Topic: Interest

[Question]

2. From the perspective of a depositor, a savings account is a liability with interest.

Answer: FALSE

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: B-C1

Topic: Interest

[Question]

3. An interest rate is also called a discount rate.

Topic: Interest

[Question]

4. A company can use present and future value computations to estimate the interest component of holding assets over time.

Answer: TRUE

Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: B-C1

Topic: Interest

[Question]

5. The number of periods in a present value calculation can only be expressed in years.

Answer: FALSE

Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: B-P1

Topic: Present Value

[Question]

6. The present value factor for determining the present value of a single sum to be received three years from today at 10% interest compounded semiannually is 0.7462.

Answer: TRUE

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: B-P1

Topic: Present Value
Topic: Factor

[Question]

7. The present value of 1 formula is often useful when a borrowed asset must be repaid in full at a later date and the borrower wants to know its worth at the future date.

Answer: FALSE

Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: B-P1

Topic: Present Value

[Question]

8. In a present value or future value table, the length of one time period may be one year, one month, or any other length of time depending on the situation.

Topic: Present Value
Topic: Future Value

[Question]
9. The present value of $2,000 to be received nine years from today at 8% interest compounded annually is $1,000 (rounded to full dollar amount).

Answer: TRUE

Feedback: $2,000 x 0.5002 = $1,000

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: B-P1

Topic: Present Value
Topic: Factor

[Question]

10. Sandra has a savings account that is now $50,000. She started with $28,225 and earned interest at 10% compounded annually. It took five years to accumulate the $50,000.

Answer: FALSE

Feedback: $28,225/$50,000 = 0.5645. This is the present value of 1 factor, 10%, 6 periods.

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: B-P1

Topic: PV
Topic: Factor

[Question]

11. Future value can be found if the interest rate (i), the number of periods (n), and the present value (p) are known.

Topic: Future Value

[Question]

12. The number of periods in a future value calculation can only be expressed in years.

Topic: Future Value

[Question]

13. The future value of $100 compounded semiannually for three years at 12% equals $140.49.

Answer: FALSE

Feedback: $100 x 1.4185 = $141.85

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: B-P2

Topic: Future Value
Topic: Factor

[Question]

14. At an annual interest rate of 8% compounded annually, $5,300 will accumulate to a total of $7,210.65 in five years.

Answer: FALSE

Feedback: $7,210.65/$5,300 = 1.3605. This is the future value of 1 factor for four periods, 8%.

Blooms Taxonomy: Remember
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: B-P2

Topic: Factor
Topic: Future Value

[Question]

15. An annuity is a series of equal payments occurring at equal intervals.

Topic: Annuity

[Question]
16. The present value of an annuity table can be used to determine the series of equal payments that are required by a loan agreement.

Topic: Present Value

[Question]

17. An ordinary annuity refers to a series of equal payments made or received at the end of equal intervals.

Topic: Ordinary Annuity

[Question]

18. The present value of $5,000 per year for three years at 12% compounded annually is $12,009.

Answer: TRUE

Feedback: $5,000 x 2.4018 = $12,009

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: B-P3

Topic: Factor
Topic: Present Value
Topic: Annuity

[Question]

19. With deposits of $5,000 at the end of each year, you will have accumulated $38,578 at the end of the sixth year if the annual rate of interest is 10%.

Answer: TRUE

Feedback: $5,000 x 7.7156 = $38,578

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: B-P4

Topic: Factor
Topic: Future Value
Topic: Annuity

[Question]

20. The future value of an ordinary annuity is the accumulated value of each annuity payment with interest one period after the date of the final payment.

Topic: Ordinary Annuity

Multiple Choice Questions

[Question]

21. Interest is:

A. Time.

B. A borrower's payment to the owner of an asset for its use.

C. The same as a savings account.

D. Always a liability.

E. Always an asset.

Answer: B

Blooms Taxonomy: Remember
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 1 Easy
Learning Objective: B-C1

Topic: Interest

[Question]
22. Which interest rate column would you use to determine the factor from a present value table or a future value table for 8% compounded quarterly?

A. 12%

B. 6%

C. 3%

D. 2%

E. 1%

Answer: D
Feedback: 8% /4 = 2%

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: B-P1
Learning Objective: B-P2

Topic: Factor
Topic: Present Value
Topic: Future Value
Topic: Interest

[Question]

23. A company is considering investing in a project that is expected to return $350,000 four years from now. How much is the company willing to pay for this investment if the company requires a 12% return?

A. $ 55,606

B. $137,681

C. $222,425

D. $265,764

E. $350,000

Answer: C

Feedback: $350,000 x 0.6355 = $222,425

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: B-P1
Topic: Factor
Topic: Present Value

[Question]

24. Sam has a loan that requires a single payment of $4,000 at the end of three years. The loan's interest rate is 6%, compounded semiannually. How much did Sam borrow?

A. $3,358.40

B. $4,000.00

C. $3,660.40

D. $4,776.40

E. $3,350.00

Answer: E

Feedback: $4,000 x 0.8375 = $3,350.00

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: B-P1
Topic: Factor
Topic: Present Value

[Question]

25. A company expects to invest $5,000 today at 12% annual interest and plans to receive $15,529 at the end of the investment period. How many years will elapse before the company accumulates the $15,529?

A. 0.322 years

B. 3.1058 years

C. 5 years

D. 8 years

E. 10 years

Answer: E

Feedback: $15,529/$5,000 = 3.1058

Future value of 1 factor of 3.1058 relates to 12%, 10 periods

Alternatively: $5,000/$15,529 = 0.3220

Present value of 1 factor of 0.3220 relates to 12%, 10 periods

Blooms Taxonomy: Apply

AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: B-P1
Learning Objective: B-P2
Topic: Factor
Topic: Present Value
Topic: Future Value

[Question]

26. Keisha has $3,500 now and plans on investing it in a fund that will pay her 12% interest compounded quarterly. How much will Keisha have accumulated after two years?

A. $4,433.80

B. $4,340.00

C. $4,390.40

D. $3,920.00

E. $3,500.00

Answer: A

Feedback: $3,500 x 1.2668 = $4,433.80

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: B-P2
Topic: Factor
Topic: Future Value

[Question]

27. How long will it take an investment of $25,000 at 6% compounded annually to accumulate to a total of $35,462.50?

A) 4 years

B) 5 years

C) 6 years

D) 2 years

E) 10 years

Answer: C

Feedback: $35,462.50/$25,000 = 1.4185, the future value of 1 factor at 6% for six periods

[Question]

28. What interest rate is required to accumulate $6,802.50 in four years from an investment of $5,000?

A. 5%

B. 8%

C. 10%

D. 12%

E. 15%

Answer: B

Feedback: $6802.50/$5,000 = 1.3605, the future value of 1 factor at 8% for four periods

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: B-P2
Topic: Factor
Topic: Future Value

[Question]

29. Crowe Company has acquired a building with a loan that requires payments of $20,000 every six months for five years. The annual interest rate on the loan is 12%. What is the present value of the building?

A. $72,096

B. $113,004

C. $147,202

D. $86,590

E. $200,000

Answer: C

Feedback: $20,000 x 7.3601 = $147,202

[Question]

30. Jon Shear expects an investment of $25,000 to return $6,595 annually. His investment is earning 10% per year. How many annual payments will he receive?

A. Five payments

B. Six payments

C. Four payments

D. Three payments

E. More than six payments

Answer: A

Feedback:
$25,000/$6,595 = 3.7908, the present value of an annuity of 1 factor at 10% for five periods

[Question]

31. A company is considering an investment that will return $20,000 at the end of each semiannual period for four years. If the company requires an annual return of 10%, what is the maximum amount it is willing to pay for this investment?

A. Not more than $63,398

B. Not more than $126,796

C. Not more than $80,000

D. Not more than $129,264

E. Not more than $160,000

Answer: D

Feedback: $20,000 x 6.4632 = $129,264

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: B-P3
Topic: Factor
Topic: Annuity
Topic: Present Value

[Question]

32. What amount can you borrow if you make six quarterly payments of $4,000 at a 12 % annual rate of interest?

A. $24,838.00

B. $21,668.80

C. $31,049.00

D. $40,000.00

E. $44,800,00

Answer: B

Feedback: $4,000 x 5.4172 = $21,668.80

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: B-P3
Topic: Factor
Topic: Annuity
Topic: Present Value

[Question]

33. An individual is planning to set-up an education fund for her children. She plans to invest $10,000 annually at the end of each year. She expects to withdraw money from the fund at the end of 10 years and expects to earn an annual return of 8%. What will be the total value of the fund at the end of 10 years?

A. $ 46,320

B. $ 67,107

C. $100,000

D. $144,870

E. $215,890

Answer: D

Feedback: $10,000 x 14.487 = $144,870

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: B-P4
Topic: Factor
Topic: Annuity
Topic: Future Value

[Question]

34. Chad is setting up a retirement fund, and he plans on depositing $5,000 per year in an investment that will pay 7% annual interest. How long will it take him to reach his retirement goal of $69,080?

A. 13.816 years

B. 0.072 years

C. 10 years

D. 20 years

E. 5 years

Answer: C

Feedback: $69,080/$5,000 = 13.816, the future value of an annuity of 1 factor at 7%, 10 periods

Short Essay

[Question]

35. What is interest?

Answer:

Interest represents a borrower's payment to the owner of an asset in exchange for its use.

Blooms Taxonomy: Remember
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 1 Easy
Learning Objective: B-C1
Topic: Interest

[Question]

36. Explain the concept of the present value of a single amount.

Answer:

The present value of a single amount to be received at a future date is equal to the amount that can be invested now at the specified interest rate to yield the future value.

[Question]

37. Explain the concept of the future value of a single amount.

Answer:

The future value of a single amount is equal to the amount that would accumulate at a future date at a specified rate of interest.

Blooms Taxonomy: Remember
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 1 Easy
Learning Objective: B-P2
Topic: Future Value

[Question]

38. Explain the concept of the present value of an annuity.

Answer:

The present value of an annuity is the amount that can be invested now at the specified interest rate to yield a series of equal periodic payments.

Blooms Taxonomy: Remember
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: B-P3
Topic: Present Value
Topic: Annuity

[Question]

39. Explain the concept of the future value of an annuity.

Answer:

The future value of an annuity to be invested at a specified rate of interest is the amount that would accumulate at the date of the final periodic payment.

Blooms Taxonomy: Remember
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 1 Easy
Learning Objective: B-P4
Topic: Future Value
Topic: Annuity

Short Answer Questions

[Question]

40. A company needs to have $200,000 in four years, and will create a fund to ensure that the $200,000 will be available. If they can earn a 7% return, how much must the company invest in the fund today to equal the $200,000 at the end of four years?

Answer: $200,000 x 0.7629 = $152,580

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: B-P1
Topic: Present Value
Topic: Factor

[Question]

41. Annette has a loan that requires a $25,000 payment at the end of three years. The interest rate on the loan is 5%, compounded annually. How much did Annette borrow today?

Answer: $25,000 x 0.8638 = $21,595

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: B-P1
Topic: Present Value
Topic: Factor

[Question]

42. Thompson Company has acquired a machine from a dealer which requires a payment of $45,000 at the end of five years. This transaction includes interest at 8%, compounded semiannually. What is the value of the machine today?

Answer: $45,000 x 0.6756 = $30,402

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: B-P1
Topic: Present Value
Topic: Factor

[Question]

43. A company is creating a fund by depositing $65,763 today. The fund will grow to $90,000 after eight years. What annual interest rate is the company earning on the fund?

Answer: $65,763/$90,000 = 0.7307

This is the present value of 1 factor for eight periods at 4%.

Alternatively: $90,000/$65,763 = 1.3686

This is the future value of 1 factor for 8 periods at 4%.

[Question]

44. A company is setting aside $21,354 today and wishes to have $30,000 at the end of three years for a down payment on a piece of property. What interest rate must the company earn?

Answer: $21,354/$30,000 = 0.7118

This is the present value of 1 factor for three periods at 12%. This implies the company must earn 12%.

Alternatively: $30,000/$21,354 = 1.4049. This is the future value of 1 factor for three periods at 12%.

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: B-P1
Learning Objective: B-P2
Topic: Factor
Topic: Present Value
Topic: Future Value

[Question]

45. A company has $50,000 today to invest in a fund that will earn 7%. How much will the fund contain at the end of eight years?

Answer: $50,000 x 1.7182 = $85,910

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: B-P2
Topic: Factor
Topic: Future Value

[Question]

46. Troy has $105,000 now. He has a loan of $175,000 that he must pay at the end of five years. He can invest his $105,000 at 10% interest compounded semiannually. Will Troy have enough to pay his loan at the end of the five years?

Answer: $105,000 x 1.6289 = $171,034.50

No, Troy will be $3,965.50 short of his goal of $175,000.

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: B-P2
Topic: Factor
Topic: Future Value

[Question]

47. Madera Iron Sculpting is planning to save the money needed to replace one of its robotic welders in five years by making a one-time deposit of $20,000 today and four yearly contributions of $5,000 beginning at the end of year 1. The deposits will earn 10% interest. How much money will Madera have accumulated at the end of five years to replace the welder?

Answer:

Future value of $20,000 deposit	$20,000 x 1.6105 =	$32,210
Future value of $5,000 payments	$5,000 x 4.6410 =	23,205
Total accumulated		$55,415

[Question]

48. A company borrows money from the bank by promising to make six annual year-end payments of $25,000 each. How much is the company able to borrow if the interest rate is 9%?

Answer: $25,000 x 4.4859 = $112,147.50

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: B-P3
Topic: Factor
Topic: Present Value
Topic: Annuity

[Question]

49. A company borrows money from the bank by promising to make eight semiannual payments of $9,000 each. How much is the company able to borrow if the interest rate is 10% compounded annually?

Answer: $9,000 x 6.4632 = $58,168.80

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: B-P3
Topic: Factor
Topic: Present Value
Topic: Annuity

[Question]

50. When you reach retirement age, you will have one fund of $100,000 from which you are going to make annual withdrawals of $14,702. The fund will earn 6% per year. For how many years will you be able to draw an even amount of $14,702?

Answer: Nine years.

Feedback: $100,000/$14,702 = 6.8017, the present value of 1 annuity factor at 6% for nine periods.

[Question]

51. Big League Sports borrowed $883,212 and must make annual year-end payments of $120,000 each. If the applicable interest rate is 6%, how many years will it take Big League Sports to pay off the loan?

Answer: $883,212/$120,000 = 7.3601

This is the present value of an annuity factor at 6% for 10 periods. It will take 10 years to pay off the loan.

[Question]

52. Daley Co. lends $524,210 to Davis Corporation. The terms of the loan require that Davis repay the loan with six semiannual period-end payments of $100,000 each. What semiannual interest rate is Davis paying on the loan?

Answer: $524,210/$100,000 = 5.2421

This is the present value of an annuity factor for 6 periods at 4%.

Davis is paying a 4% semiannual rate, or 8% annual rate of interest.

[Question]

53. A company is beginning a savings plan. It will save $15,000 per year for the next 10 years. How much will the company have accumulated after the tenth year-end deposit, assuming the fund earns 10% interest?

Answer: $15,000 x 15.937 = $239,055

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: B-P4
Topic: Factor
Topic: Future Value
Topic: Annuity

[Question]

54. You hope to retire in 10 years. Regrettably you are only just now beginning to save money for this purpose. You expect to save $6,000 a year at an annual rate of 8%. How much will you have accumulated when you retire?

Answer:

$6,000 x 14.487 = $86,922

[Question]

55. A company is setting up a sinking fund to pay off $8,654,000 in bonds that are due in seven years. The fund will earn 7% interest, and the company intends to put away a series of equal year-end amounts for seven years. What amount must the company deposit annually?

Answer: $8,654,000/8.654 = $1,000,000 annually

Fill-in-the-Blank

[Question]

56. _____________ is a borrower's payment to the owner of an asset for its use.

Answer: Interest

Blooms Taxonomy: Remember
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 1 Easy
Learning Objective: B-C1
Topic: Interest

[Question]

57. The interest rate is also called the __________________ rate.

Answer: discount

Blooms Taxonomy: Remember
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 1 Easy
Learning Objective: B-C1
Topic: Interest

[Question]

58. To calculate present value of an amount, two factors are required: __________________ and ___________________.

Answer: interest rate (i); number of time periods (n)

Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: B-P1
Topic: Present Value

[Question]

59. An _____________ is a series of equal payments occurring at equal intervals.

Answer: annuity

Blooms Taxonomy: Remember
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 1 Easy
Learning Objective: B-P3
Topic: Annuity

[Question]

60. The future value of an ________________ annuity is the accumulated value of each annuity payment with interest as of the date of the final payment.

Answer: ordinary

Blooms Taxonomy: Remember
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 1 Easy
Learning Objective: B-P4
Topic: Ordinary Annuity

Test Bank

Tuesday, 1 November 2016

Financial Accounting Information for Decisions 7th Edition by Wild Test Bank

For This And Any Other test Bnaks, slotion Manuals, Quizess, Exams And Assignments Contact us At whiperhills@gmail.com

Appendix B

Short Answer Questions

Fill-in-the-Blank

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