ACC 303 WEEK 10 QUIZ 7
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ACC 303 WEEK 10 QUIZ 7
ACC 303 Week 10 Quiz 7 – STR NEW
ACC 303 Week 10 Quiz 7
All Questions Included.
TRUE-FALSE—Conceptual
1. The time value of money refers to the
fact that a dollar received today is worth less than a dollar promised at some
time in the future.
2. Interest is the excess cash received
or repaid over and above the amount lent or borrowed.
3. Simple interest is computed on
principal and on any interest earned that has not been withdrawn.
4. Compound interest, rather than simple
interest, must be used to properly evaluate long- term investment proposals.
5. Compound interest uses the
accumulated balance at each year end to compute interest in the succeeding
year.
6. The future value of an ordinary
annuity table is used when payments are invested at the beginning of each
period.
7. The present value of an annuity due
table is used when payments are made at the end of each period.
8. If the compounding period is less
than one year, the annual interest rate must be converted to the compounding
period interest rate by dividing the annual rate by the number of compounding
periods per year.
9. Present value is the value now of a
future sum or sums discounted assuming compound interest.
10. The future value of a single sum is
determined by multiplying the future value factor by its present value.
11. In determining present value, a
company moves backward in time using a process of accumulation.
12. The unknown present value is always
a larger amount than the known future value because dollars received currently
are worth more than dollars to be received in the future.
13. The rents that comprise an annuity
due earn no interest during the period in which they are originally deposited.
14. If two annuities have the same
number of rents with the same dollar amount, but one is an annuity due and one
is an ordinary annuity, the future value of the annuity due will be greater
than the future value of the ordinary annuity.
15. If two annuities have the same
number of rents with the same dollar amount, but one is an annuity due and one
is an ordinary annuity, the present value of the annuity due will be greater
than the present value of the ordinary annuity.
16. The number of compounding periods
will always be one less than the number of rents when computing the future
value of an ordinary annuity.
17. The future value of an annuity due
factor is found by multiplying the future value of an ordinary annuity factor
by 1 minus the interest rate.
18. The present value of an ordinary
annuity is the present value of a series of equal rents withdrawn at equal
intervals.
19. The future value of a deferred
annuity is less than the future value of an annuity not deferred.
20. At the date of issue, bond buyers
determine the present value of the bonds’ cash flows using the market interest
rate.
MULTIPLE CHOICE—Conceptual
21. Which of the
following transactions would require the use of the present value of an annuity
due concept in order to calculate the present value of the asset
obtained or liability owed at the date of incurrence?
a. A capital lease is entered into
with the initial lease payment due upon the signing of the lease agreement.
b. A capital lease is entered into
with the initial lease payment due one month subse-quent to the signing of the
lease agreement.
c. A ten-year 8% bond is issued on
January 2 with interest payable semiannually on July 1 and January 1 yielding
7%.
d. A ten-year 8% bond is issued on
January 2 with interest payable semiannually on July 1 and January 1 yielding
9%.
22. What best
describes the time value of money?
a. The interest rate charged on a
loan.
b. Accounts receivable that are
determined uncollectible.
c. An investment in a checking
account.
d. The relationship between time
and money.
23. Which of the
following situations does NOT base an accounting measure on present values?
a. Pensions.
b. Prepaid insurance.
c. Leases.
d. Sinking funds.
24. What is interest?
a. Payment for the use of money.
b. An equity investment.
c. Return on capital.
d. Loan.
25. What is NOT a
variable that is considered in interest computations?
a. Principal.
b. Interest rate.
c. Assets.
d. Time.
26. If you invest
$50,000 to earn 8% interest, which of the following compounding approaches
would return the lowest amount after one year?
a. Daily.
b. Monthly.
c. Quarterly.
d. Annually.
27. Which factor would
be greater — the present value of $1 for 10 periods at 8% per period or the
future value of $1 for 10 periods at 8% per period?
a. Present value of $1 for 10
periods at 8% per period.
b. Future value of $1 for 10
periods at 8% per period.
c. The factors are the same.
d. Need more information.
28. Which of the
following tables would show the smallest value for an interest rate of 5% for
six periods?
a. Future value of 1
b. Present value of 1
c. Future value of an ordinary
annuity of 1
d. Present value of an ordinary
annuity of 1
29. Which table would
you use to determine how much you would need to have deposited three years ago
at 10% compounded annually in order to have $1,000 today?
a. Future value of 1 or present
value of 1
b. Future value of an annuity due
of 1
c. Future value of an ordinary
annuity of 1
d. Present value of an ordinary
annuity of 1
30. Which table would
you use to determine how much must be deposited now in order to provide for 5
annual withdrawals at the beginning of each year, starting one year hence?
a. Future value of an ordinary
annuity of 1
b. Future value of an annuity due
of 1
c. Present value of an annuity due
of 1
d. None of these
31. Which table has a
factor of 1.00000 for 1 period at every interest rate?
a. Future value of 1
b. Present value of 1
c. Future value of an ordinary
annuity of 1
d. Present value of an ordinary
annuity of 1
32. Which table would
show the largest factor for an interest rate of 8% for five periods?
a. Future value of an ordinary
annuity of 1
b. Present value of an ordinary
annuity of 1
c. Future value of an annuity due
of 1
d. Present value of an annuity due
of 1
33. Which of the
following tables would show the smallest factor for an interest rate of 10% for
six periods?
a. Future value of an ordinary
annuity of 1
b. Present value of an ordinary
annuity of 1
c. Future value of an annuity due
of 1
d. Present value of an annuity due
of 1
34. The figure .94232
is taken from the column marked 2% and the row marked three periods in a
certain interest table. From what interest table is this figure taken?
a. Future value of 1
b. Future value of annuity of 1
c. Present value of 1
d. Present value of annuity of 1
S35. Which of the following tables would
show the largest value for an interest rate of 10% for 8 periods?
a. Future amount of 1 table.
b. Present value of 1 table.
c. Future amount of an ordinary
annuity of 1 table.
d. Present value of an ordinary
annuity of 1 table.
S36. On June 1, 2010, Pitts Company sold
some equipment to Gannon Company. The two companies entered into an installment
sales contract at a rate of 8%. The contract required 8 equal annual payments
with the first payment due on June 1, 2010. What type of compound interest
table is appropriate for this situation?
a. Present value of an annuity due
of 1 table.
b. Present value of an ordinary
annuity of 1 table.
c. Future amount of an ordinary
annuity of 1 table.
d. Future amount of 1 table.
S37. Which of the following transactions
would best use the present value of an annuity due of 1 table?
a. Fernetti, Inc. rents a truck
for 5 years with annual rental payments of $20,000 to be made at the beginning
of each year.
b. Edmiston Co. rents a warehouse
for 7 years with annual rental payments of $120,000 to be made at the end of
each year.
c. Durant, Inc. borrows $20,000
and has agreed to pay back the principal plus interest in three years.
d. Babbitt, Inc. wants to deposit
a lump sum to accumulate $50,000 for the construction of a new parking lot in 4
years.
P38. A series of equal receipts at equal
intervals of time when each receipt is received at the beginning of each time
period is called an
a. ordinary annuity.
b. annuity in arrears.
c. annuity due.
d. unearned receipt.
P39. In the time diagram below, which
concept is being depicted?
|
0
|
1
$1
|
2
$1
|
3
$1
|
4
$1
|
|||||
a. Present value of an ordinary
annuity
b. Present value of an annuity due
c. Future value of an ordinary
annuity
d. Future value of an annuity due
P40. On December 1, 2010, Richards
Company sold some machinery to Fleming Company. The two companies entered into
an installment sales contract at a predetermined interest rate. The contract
required four equal annual payments with the first payment due on December 1,
2010, the date of the sale. What present value concept is appropriate for this
situation?
a. Future amount of an annuity of
1 for four periods
b. Future amount of 1 for four
periods
c. Present value of an ordinary
annuity of 1 for four periods
d. Present value of an annuity due
of 1 for four periods.
41. An amount is
deposited for eight years at 8%. If compounding occurs quarterly, then the
table value is found at
a. 8% for eight periods.
b. 2% for eight periods.
c. 8% for 32 periods.
d. 2% for 32 periods.
42. If the number of
periods is known, the interest rate is determined by
a. dividing the future value by
the present value and looking for the quotient in the future value of 1 table.
b. dividing the future value by
the present value and looking for the quotient in the present value of 1 table.
c. dividing the present value by
the future value and looking for the quotient in the future value of 1 table.
d. multiplying the present value
by the future value and looking for the product in the present value of 1
table.
43. Present value is
a. the value now of a future
amount.
b. the amount that must be
invested now to produce a known future value.
c. always smaller than the future
value.
d. all of these.
P44. Which of the following statements is
true?
a. The higher the discount rate,
the higher the present value.
b. The process of accumulating
interest on interest is referred to as discounting.
c. If money is worth 10%
compounded annually, $1,100 due one year from today is equivalent to $1,000
today.
d. If a single sum is due on
December 31, 2010, the present value of that sum decreases as the date draws
closer to December 31, 2010.
45. What is the
primary difference between an ordinary annuity and an annuity due?
a. The timing of the periodic
payment.
b. The interest rate.
c. Annuity due only relates to
present values.
d. Ordinary annuity only relates
to present values.
46. What is the
relationship between the future value of one and the present value of one?
a. The present value of one equals
the future value of one plus one.
b. The present value of one equals
one plus future value factor for n-1 periods.
c. The present value of one equals
one divided by the future value of one.
d. The present value of one equals
one plus the future value factor for n+1 value
47. Peter invests
$100,000 in a 3-year certificate of deposit earning 3.5% at his local bank.
Which time value concept would be used to determine the maturity value of the
certificate?
a. Present value of one.
b. Future value of one.
c. Present value of an annuity
due.
d. Future value of an ordinary
annuity.
48. Jerry recently was
offered a position with a major accounting firm. The firm offered Jerry either a
signing bonus of $23,000 payable on the first day of work or a signing bonus of
$26,000 payable after one year of employment. Assuming that the relevant
interest rate is 10%, which option should Jerry choose?
a. The options are equivalent.
b. Insufficient information to
determine.
c. The signing bonus of $23,000
payable on the first day of work.
d. The signing bonus of $26,000
payable after one year of employment.
49. If Jethro wanted
to save a set amount each month in order to buy a new pick-up truck when the
new models are next available, which time value concept would be used to
determine the monthly payment?
a. Present value of one.
b. Future value of one.
c. Present value of an annuity
due.
d. Future value of an ordinary
annuity.
50. Betty wants to
know how much she should begin saving each month to fund her retirement. What
kind of problem is this?
a. Present value of one.
b. Future value of an ordinary
annuity.
c. Present value of an ordinary.
d. Future value of one.
P51 If the interest rate is 10%,
the factor for the future value of annuity due of 1 for n = 5, i = 10% is equal
to the factor for the future value of an ordinary annuity of 1 for n = 5, i =
10%
a. plus 1.10.
b. minus 1.10.
c. multiplied by 1.10.
d. divided by 1.10.
52. Which of the
following is true?
a. Rents occur at the beginning of
each period of an ordinary annuity.
b. Rents occur at the end of each
period of an annuity due.
c. Rents occur at the beginning of
each period of an annuity due.
d. None of these.
53. Which statement
is false?
a. The factor for the future value
of an annuity due is found by multiplying the ordinary annuity table value by
one plus the interest rate.
b. The factor for the present
value of an annuity due is found by multiplying the ordinary annuity table
value by one minus the interest rate.
c. The factor for the future value
of an annuity due is found by subtracting 1.00000 from the ordinary annuity
table value for one more period.
d. The factor for the present
value of an annuity due is found by adding 1.00000 to the ordinary annuity
table value for one less period.
54. Al Darby wants to
withdraw $20,000 (including principal) from an investment fund at the end of
each year for five years. How should he compute his required initial investment
at the beginning of the first year if the fund earns 10% compounded annually?
a. $20,000 times the future value
of a 5-year, 10% ordinary annuity of 1.
b. $20,000 divided by the future
value of a 5-year, 10% ordinary annuity of 1.
c. $20,000 times the present value
of a 5-year, 10% ordinary annuity of 1.
d. $20,000 divided by the present
value of a 5-year, 10% ordinary annuity of 1.
55. Sue Gray wants to
invest a certain sum of money at the end of each year for five years. The
investment will earn 6% compounded annually. At the end of five years, she will
need a total of $40,000 accumulated. How should she compute her required annual
invest-ment?
a. $40,000 times the future value
of a 5-year, 6% ordinary annuity of 1.
b. $40,000 divided by the future
value of a 5-year, 6% ordinary annuity of 1.
c. $40,000 times the present value
of a 5-year, 6% ordinary annuity of 1.
d. $40,000 divided by the present
value of a 5-year, 6% ordinary annuity of 1.
56. An accountant
wishes to find the present value of an annuity of $1 payable at the beginning
of each period at 10% for eight periods. The accountant has only one present
value table which shows the present value of an annuity of $1 payable at the
end of each period. To compute the present value, the accountant would use the
present value factor in the 10% column for
a. seven periods.
b. eight periods and multiply by
(1 + .10).
c. eight periods.
d. nine periods and multiply by (1
– .10).
57. If an annuity due
and an ordinary annuity have the same number of equal payments and the same
interest rates, then
a. the present value of the
annuity due is less than the present value of the ordinary annuity.
b. the present value of the
annuity due is greater than the present value of the ordinary annuity.
c. the future value of the annuity
due is equal to the future value of the ordinary annuity.
d. the future value of the annuity
due is less than the future value of the ordinary annuity.
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