CHAPTER 6ACCOUNTING AND THE TIME VALUE OF MONEY IFRS questions are available at the end of this chapter. TRUE-FALSE—Conceptual Answer F T F T T F F T T T F F F T T T F T F T No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. Description Time value of money. Definition of interest expense. Simple interest. Compound interest. Compound interest. Future value of an ordinary annuity. Present value of an annuity due. Compounding period interest rate. Definition of present value. Future value of a single sum. Determining present value. Present value of a single sum. Annuity due and interest. Annuity due and ordinary annuity. Annuity due and ordinary annuity. Number of compounding periods. Future value of an annuity due factor. Present value of an ordinary annuity. Future value of a deferred annuity. Determining present value of bonds. MULTIPLE CHOICE—Conceptual Answer a d b a c d b b a d c c b c c a No. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. S 35. S 36. Description Appropriate use of an annuity due table. Time value of money. Present value situations. Definition of interest. Interest variables. Identification of compounding approach. Future value factor. Understanding compound interest tables. Identification of correct compound interest table. Identification of correct compound interest table. Identification of correct compound interest table. Identification of correct compound interest table. Identification of correct compound interest table. Identification of present value of 1 table. Identification of correct compound interest table. Identification of correct compound interest table. 6-2 Test Bank for Intermediate Accounting, Fourteenth Edition MULTIPLE CHOICE—Conceptual (cont.) Answer a c a d d a d c a c b d d b c c b c b b b b c c d P S No. S P Description Present value of an annuity due table. Definition of an annuity due. Identification of compound interest concept. Identification of compound interest concept. Identification of number of compounding periods. Adjust the interest rate for time periods. Definition of present value. Compound interest concepts. Difference between ordinary annuity and annuity due. Future value of 1 and present value of 1 relationship. Identify future value of 1 concept. Determine best bonus option Identify future value of an ordinary annuity Identify future value of an ordinary annuity Future value of an annuity due factor. Determine the timing of rents of an annuity due. Factors of an ordinary annuity and an annuity due. Determine present value of an ordinary annuity. Identification of a future value of an ordinary annuity of 1. Present value of an ordinary annuity and an annuity due. Difference between an ordinary annuity and an annuity due. Present value of ordinary annuity and present value of annuity due relationship Identify present value of ordinary annuity concept. Determine least costly option. Definition of deferred annuities. 37. 38. P 39. P 40. 41. 42. 43. P 44. 45. 46. 47. 48. 49. 50. P 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. These questions also appear in the Problem-Solving Survival Guide. These questions also appear in the Study Guide. MULTIPLE CHOICE—Computational Answer a d d c b a b c c d a d b c c No. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74. 75. 76. Description Calculate the future value of 1. Calculate amount of interest paid. Interest compounded quarterly. Calculate present value of a future amount. Calculate a future value. Calculate a future value of an annuity due. Calculate a future value. Calculate a future value. Calculate present value of a future amount. Calculate present value of a future amount. Calculate present value of an annuity due. Calculate the future value of 1. Present value of a single sum. Present value of a single sum, unknown number of periods. Future value of a single sum. Accounting and the Time Value of Money 6-3 MULTIPLE CHOICE—Computational (cont.) Answer b b c d c a c a b c c d d b d d a b c d a b c d a a d c d a b b c a b b b c d a b d b b c b a No. 77. 78. 79. 80. 81. 82. 83. 84. 85. 86. 87. 88. 89. 90. 91. 92. 93. 94. 95. 96. 97. 98. 99. 100. 101. 102. 103. 104. 105. 106. 107. 108. 109. 110. 111. 112. 113. 114. 115. 116. 117. 118. 119. 120. 121. 122. 123. Description Present value of a single sum. Present value of a single sum, unknown number of periods. Future value of a single sum. Calculate the present value of 1. Calculate the future value of 1. Calculate the present value of 1. Calculate interest rate. Calculate number of years. Calculate the future value of 1. Calculate the present value of 1. Calculate the present value of 1. Calculate the present value of 1 and present value of an ordinary annuity. Calculate number if years. Calculate the amount of annual deposit. Calculate the amount of annual deposit. Calculate the amount of annual deposit. Present value of an ordinary annuity. Present value of an annuity due. Future value of an ordinary annuity. Future value of a annuity due. Present value of an ordinary annuity. Present value of an annuity due. Future value of an ordinary annuity. Future value of an annuity due. Calculate future value of an annuity due. Calculate future value of an ordinary annuity. Calculate future value of an annuity due. Calculate annual deposit for annuity due. Calculate cost of machine purchased on installment. Calculate present value of an ordinary annuity. Calculate present value of an annuity due. Calculate cost of machine purchased on installment. Calculate cost of machine purchased on installment. Calculate the annual rents of leased equipment. Calculate present value of an investment in equipment. Calculate proceeds from issuance of bonds. Calculate proceeds from issuance of bonds. Calculate present value of an ordinary annuity. Calculate interest rate. Calculate present value of an annuity due. Calculate effective interest rate. Calculate present value of an ordinary annuity. Calculate present value of an annuity due. Calculate annual interest rate. Calculate interest rate. Calculate annual lease payment. Calculate selling price of bonds. 6-4 Test Bank for Intermediate Accounting, Fourteenth Edition MULTIPLE CHOICE—CPA Adapted Answer c d c a b a a d b No. 124. 125. 126. 127. 128. 129. 130. 131. 132. Description Calculate interest expense of bonds. Identification of correct compound interest table. Calculate interest revenue of a zero-interest-bearing note. Appropriate use of an ordinary annuity table. Calculate annual deposit of annuity due. Calculate the present value of a note. Calculate the present value of a note. Determine the issue price of a bond. Determine the acquisition cost of a franchise. EXERCISES Item E6-133 E6-134 E6-135 E6-136 E6-137 E6-138 E6-139 E6-140 Description Present and future value concepts. Compute estimated goodwill. Present value of an investment in equipment. Future value of an annuity due. Present value of an annuity due. Compute the annual rent. Calculate the market price of a bond. Calculate the market price of a bond. PROBLEMS Item P6-141 P6-142 P6-143 P6-144 P6-145 P6-146 Description Present value and future value computations. Annuity with change in interest rate. Present value of ordinary annuity and annuity due. Finding the implied interest rate. Calculation of unknown rent and interest. Deferred annuity. CHAPTER LEARNING OBJECTIVES 1. 2. 3. 4. 5. 6. 7. 8. Identify accounting topics where the time value of money is relevant. Distinguish between simple and compound interest. Use appropriate compound interest tables. Identify variables fundamental to solving interest problems. Solve future and present value of 1 problems. Solve future value of ordinary and annuity due problems. Solve present value of ordinary and annuity due problems. Solve present value problems related to deferred annuities and bonds. 63. S MC 34. E P 140. 17. MC 115. MC 111. 70. 18. 12. 5. 32. 13. Learning Objective 4 MC 41. 109. Type MC Item 25. 27. 55. 60. 90. 142. 14. MC 62. 133. MC 95. MC 112. 45. MC 87. 69. 40. P Type Item Type Item Type MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC MC P Item 24. 68. 20. MC MC MC MC E E MC MC MC MC MC MC MC E E E 135. MC 120.Accounting and the Time Value of Money 6-5 SUMMARY OF LEARNING OBJECTIVES BY QUESTIONS Item 1. 59. MC 116. Note: Type TF TF TF TF TF TF TF TF TF MC MC MC TF TF TF TF TF TF MC MC MC MC TF Item 2. 101. 75. MC 114. 144. MC 83. Learning Objective 3 S MC 33. Learning Objective 2 TF 26. 124. 16. 43. MC 38. 139. 126. P 51. 61. 9. 11. MC 79. MC 99. MC 85. 103. Learning Objective 8 MC 123. MC 119. 141. 124. 6. 19. 71. Learning Objective 7 MC 110. 89. 106. 138. 105. P 44. 31. 108. Learning Objective 6 MC 92. 64. 57. MC 117. 53. MC 78. 102. 47. 53. 143. MC 42. P Type TF TF MC MC MC MC MC MC MC MC MC MC MC MC MC NC MC MC MC MC MC MC TF Item 21. 56. 65. MC 82. 88. 58. Learning Objective 5 MC 76. 107. 10. 67. Type MC MC 39. 145. MC 23. 125. 104. MC 81. S P MC 35. 73. 54. 91. 28. MC 93. MC 96. 66. 74. 141. 72. 7. 48. MC 121. MC 77. MC 146. 49. 127. MC 37. MC 97. 8. MC 94. 137. 46. MC 86. 128. MC 113. E P P P P TF = True-False MC = Multiple Choice . MC 118. 29. 3. 100. 30. MC 98. E = Exercise P = Problem MC MC 88. MC 84. E P 136. 4. MC 80. MC 36. Learning Objective 1 MC 22. 122. 52. 15. 134. 50. 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. Compound interest uses the accumulated balance at each year end to compute interest in the succeeding year. 4. 13. Simple interest is computed on principal and on any interest earned that has not been withdrawn. but one is an annuity due and one is an ordinary annuity. The rents that comprise an annuity due earn no interest during the period in which they are originally deposited. rather than simple interest. 11. The present value of an annuity due table is used when payments are made at the end of each period. the present value of the annuity due will be greater than the present value of the ordinary annuity. Compound interest. Interest is the excess cash received or repaid over and above the amount lent or borrowed. . The future value of a single sum is determined by multiplying the future value factor by its present value. Fourteenth Edition TRUE-FALSE—Conceptual 1. 2. Present value is the value now of a future sum or sums discounted assuming compound interest. 8. the future value of the annuity due will be greater than the future value of the ordinary annuity. 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. The future value of an ordinary annuity table is used when payments are invested at the beginning of each period. If two annuities have the same number of rents with the same dollar amount. must be used to properly evaluate longterm investment proposals. In determining present value. If two annuities have the same number of rents with the same dollar amount. 7. 6. but one is an annuity due and one is an ordinary annuity. 16. 3. The number of compounding periods will always be one less than the number of rents when computing the future value of an ordinary annuity. 12.6-6 Test Bank for Intermediate Accounting. 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. 5. 10. 9. 15. 14. a company moves backward in time using a process of accumulation. At the date of issue. 20. An investment in a checking account. 3. 19. b. Ans. 14. The present value of an ordinary annuity is the present value of a series of equal rents withdrawn at equal intervals. A ten-year 8% bond is issued on January 2 with interest payable semiannually on July 1 and January 1 yielding 9%. Leases. Which of the following situations does not base an accounting measure on present values? a. Prepaid insurance. 23. d. A capital lease is entered into with the initial lease payment due upon the signing of the lease agreement. 15. T F T F T MULTIPLE CHOICE—Conceptual 21. 18. 7. F F T T T Item 11. 13. 8. b. Sinking funds. c. 19. 2. F F F T T Item 16. F T F T T Item 6. 5. 20. Ans. A ten-year 8% bond is issued on January 2 with interest payable semiannually on July 1 and January 1 yielding 7%. 17. True False Answers—Conceptual Item 1. 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. 9. The future value of a deferred annuity is less than the future value of an annuity not deferred. c. d. d. Accounts receivable that are determined uncollectible. 10. 22.Accounting and the Time Value of Money 6-7 17. Ans. c. Pensions. What best describes the time value of money? a. A capital lease is entered into with the initial lease payment due one month subsequent to the signing of the lease agreement. Ans. b. 4. bond buyers determine the present value of the bonds’ cash flows using the market interest rate. 12. . The relationship between time and money. 18. The interest rate charged on a loan. 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. 26. Future value of an ordinary annuity of 1 d. d. Need more information. None of these Which table has a factor of 1. Present value of an ordinary annuity of 1 25. starting one year hence? a. Fourteenth Edition What is interest? a. Loan. c. . Future value of an annuity due of 1 c. b. d. Which of the following tables would show the smallest value for an interest rate of 5% for six periods? a. What is NOT a variable that is considered in interest computations? a. d. Future value of $1 for 10 periods at 8% per period. Daily. Present value of 1 c. b. 29. Principal.6-8 24. Annually. 28. Future value of an annuity due of 1 c. Future value of 1 b. Present value of an ordinary annuity of 1 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. Return on capital. Present value of $1 for 10 periods at 8% per period. Quarterly. Time. Future value of 1 b. Interest rate. c. 27. Future value of an ordinary annuity of 1 d. If you invest $50.000 to earn 8% interest. Monthly.00000 for 1 period at every interest rate? a. Present value of 1 c. 30. An equity investment. Test Bank for Intermediate Accounting. Future value of 1 or present value of 1 b. 31. Present value of an annuity due of 1 d. Assets. Present value of an ordinary annuity of 1 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. which of the following compounding approaches would return the lowest amount after one year? a. The factors are the same. Future value of an ordinary annuity of 1 d.000 today? a. c. d. Payment for the use of money. b. b. 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. Future value of an ordinary annuity of 1 b. c. Future amount of an ordinary annuity of 1 table. b.000 to be made at the end of each year. Future amount of an ordinary annuity of 1 table. Present value of an annuity due of 1 6-9 33.000 for the construction of a new parking lot in 4 years. Present value of an ordinary annuity of 1 c. The two companies entered into an installment sales contract at a rate of 8%. d. Inc. wants to deposit a lump sum to accumulate $50. Babbitt. Inc. Which table would show the largest factor for an interest rate of 8% for five periods? a. Future value of annuity of 1 c. Durant. Which of the following transactions would best use the present value of an annuity due of 1 table? a. Future value of an ordinary annuity of 1 b. c. Present value of an ordinary annuity of 1 c. Present value of an ordinary annuity of 1 table. b.94232 is taken from the column marked 2% and the row marked three periods in a certain interest table. c. Future value of an annuity due of 1 d. Future amount of 1 table. . Present value of 1 table. What type of compound interest table is appropriate for this situation? a. S 37. From what interest table is this figure taken? a. Which of the following tables would show the smallest factor for an interest rate of 10% for six periods? a. Present value of 1 d. Fernetti. Present value of an annuity due of 1 table. Present value of an annuity due of 1 The figure . rents a truck for 5 years with annual rental payments of $20.000 to be made at the beginning of each year. Present value of annuity of 1 Which of the following tables would show the largest value for an interest rate of 10% for 8 periods? a. borrows $20. b. rents a warehouse for 7 years with annual rental payments of $120. Future amount of 1 table. 34. d. S 36. The contract required 8 equal annual payments with the first payment due on June 1. On June 1. Edmiston Co. Pitts Company sold some equipment to Gannon Company. 2012.000 and has agreed to pay back the principal plus interest in three years.Accounting and the Time Value of Money 32. Inc. Future value of 1 b. S 35. c. Future value of an annuity due of 1 d. Future value of an ordinary annuity of 1 b. d. Present value of an ordinary annuity of 1 table. 2012. Richards Company sold some machinery to Fleming Company.10 P Test Bank for Intermediate Accounting. 2012. The contract required four equal annual payments with the first payment due on December 1. 2% for 32 periods. P Present value of an ordinary annuity Present value of an annuity due Future value of an ordinary annuity Future value of an annuity due 40. Present value of an ordinary annuity of 1 for four periods d. If compounding occurs quarterly. c. Future amount of 1 for four periods c. dividing the future value by the present value and looking for the quotient in the future value of 1 table. b. c. 8% for 32 periods. c. annuity due. 0 1 $1 2 $1 3 $1 4 $1 PV a. What present value concept is appropriate for this situation? a. 2012. dividing the future value by the present value and looking for the quotient in the present value of 1 table. b. d. the interest rate is determined by a. d. annuity in arrears. In the time diagram below. P 39. d.6 . If the number of periods is known. 2% for eight periods. . 8% for eight periods. Fourteenth Edition 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. b. On December 1. which concept is being depicted? 38. the date of the sale. d. b. Present value of an annuity due of 1 for four periods. Future amount of an annuity of 1 for four periods b. ordinary annuity. unearned receipt. An amount is deposited for eight years at 8%. c. dividing the present value by the future value and looking for the quotient in the future value of 1 table. 42. The two companies entered into an installment sales contract at a predetermined interest rate. multiplying the present value by the future value and looking for the product in the present value of 1 table. 41. then the table value is found at a. 000 payable after one year of employment.11 P 44. b. c. Present value of an annuity due. The present value of one equals one plus the future value factor for n+1 value Peter invests $100. c. What is the primary difference between an ordinary annuity and an annuity due? a. which option should Jerry choose? a. Annuity due only relates to present values.5% at his local bank. Insufficient information to determine. d. the higher the present value. the amount that must be invested now to produce a known future value. If a single sum is due on December 31. 48. b. The present value of one equals one plus future value factor for n-1 periods.000 in a 3-year certificate of deposit earning 3.000 today. b. Present value is a. The higher the discount rate. d.Accounting and the Time Value of Money 43. 2012. The interest rate. Future value of one. d. The process of accumulating interest on interest is referred to as discounting. 47. the value now of a future amount. Present value of an annuity due. d. 6 . c. c. $1. 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. the present value of that sum decreases as the date draws closer to December 31. 46. The firm offered Jerry either a signing bonus of $23. Future value of an ordinary annuity.000 payable after one year of employment. 45. d. d. all of these. b. c. Which time value concept would be used to determine the maturity value of the certificate? a.000 payable on the first day of work. c. . Present value of one. Ordinary annuity only relates to present values. Jerry recently was offered a position with a major accounting firm. c. b. The timing of the periodic payment. 49. always smaller than the future value. The options are equivalent. Assuming that the relevant interest rate is 10%. The present value of one equals the future value of one plus one. Future value of an ordinary annuity. d.000 payable on the first day of work or a signing bonus of $26. If money is worth 10% compounded annually. b. Present value of one.100 due one year from today is equivalent to $1. Future value of one. The signing bonus of $23. The signing bonus of $26. b. 2012. What is the relationship between the future value of one and the present value of one? a. which time value concept would be used to determine the monthly payment? a. The present value of one equals one divided by the future value of one. Which of the following statements is true? a. The investment will earn 6% compounded annually.00000 to the ordinary annuity table value for one less period. The factor for the present value of an annuity due is found by adding 1. Fourteenth Edition 50. Present value of one. $40.000 times the future value of a 5-year. $20. divided by 1. 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. $40. Rents occur at the beginning of each period of an ordinary annuity.000 divided by the present value of a 5-year.00000 from the ordinary annuity table value for one more period.10. At the end of five years. b.6 . b.000 times the present value of a 5-year. Sue Gray wants to invest a certain sum of money at the end of each year for five years. 54. 55.000 (including principal) from an investment fund at the end of each year for five years. 10% ordinary annuity of 1. b. Future value of one. c. Betty wants to know how much she should begin saving each month to fund her retirement. 10% ordinary annuity of 1. How should he compute his required initial investment at the beginning of the first year if the fund earns 10% compounded annually? a. i = 10% is equal to the factor for the future value of an ordinary annuity of 1 for n = 5. Present value of an ordinary. minus 1. $20. d. i = 10% a. 6% ordinary annuity of 1. $40. c. 6% ordinary annuity of 1. How should she compute her required annual investment? a. she will need a total of $40. The factor for the future value of an annuity due is found by subtracting 1.000 accumulated. If the interest rate is 10%.000 times the future value of a 5-year.000 times the present value of a 5-year. c. 53. multiplied by 1. b. c. Which of the following is true? a. c. d. 6% ordinary annuity of 1.000 divided by the future value of a 5-year. 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. Which statement is false? a.12 Test Bank for Intermediate Accounting. b. Rents occur at the beginning of each period of an annuity due. Future value of an ordinary annuity. P 51 52. $40. 10% ordinary annuity of 1. d. d. the factor for the future value of annuity due of 1 for n = 5.10. 6% ordinary annuity of 1.10. $20. Al Darby wants to withdraw $20. None of these. b. c.000 divided by the present value of a 5-year. d. $20.000 divided by the future value of a 5-year. . What kind of problem is this? a. Rents occur at the end of each period of an annuity due. plus 1. d.10. 10% ordinary annuity of 1. . the only difference is the price.10). 6 . 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. b.10). Present value of one. the future value of the annuity due is less than the future value of the ordinary annuity. The ordinary annuity factor equals one plus the annuity due factor for n+1 periods. Which time value concept would be used to determine the monthly payment? a. c. Location C. Location A and Location B. To compute the present value. b.000 and annual payments at the end of each of the next twenty years of $50.13 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.000. b.000 payments at the beginning of each of the next twenty-five years. c. d. The ordinary annuity factor is not related to the annuity due factor. Future value of an ordinary annuity. c.000. all of which would provide needed capacity. the accountant would use the present value factor in the 10% column for a. Future value of one. d. then a. d. d. nine periods and multiply by (1 – . The annuity due factor equals the ordinary annuity factor for n+1 periods minus one. 58. 57.000. What is the relationship between the present value factor of an ordinary annuity and the present value factor of an annuity due for the same interest rate? a. Assuming Stemway's borrowing costs are 8% per annum. eight periods. she borrowed the balance from the local savings and loan under a 30-year 6% mortgage loan requiring equal monthly installments at the end of each month. Location B may be acquired with a down payment of $100. the present value of the annuity due is greater than the present value of the ordinary annuity. c. Location A. which option is the least costly to the company? a. b. After providing a 20% down payment. Present value of an ordinary annuity. seven periods. eight periods and multiply by (1 + . the present value of the annuity due is less than the present value of the ordinary annuity. Stemway requires a new manufacturing facility. the future value of the annuity due is equal to the future value of the ordinary annuity. If an annuity due and an ordinary annuity have the same number of equal payments and the same interest rates. Management found three locations. 59. Location C requires $40. d.Accounting and the Time Value of Money 56. b. Location A may be purchased for $500. c. Paula purchased a house for $300. The annuity due factor equals one plus the ordinary annuity factor for n−1 periods. Location B. 60. 53. 48. The future value of a deferred annuity is the same as the future value of an annuity not deferred. 36.440. Present value of an Ordinary Annuity of 1. Item Ans. compounded semi-annually. 24. 46. c. a d b a c d 27. $56. $66. Multiple Choice Answers—Conceptual Item Ans. b b a d c c 33. d.000.14 Test Bank for Intermediate Accounting. 29. 32 periods at 1%.196. Item Ans. $65. 47. 43. 63. 55. b. c c b c b b 57.000 with First National Bank in an account earning interest at 6% per annum. d. How much interest will Charlie Corp. 54. Which of the following is false? a. b. 28. 52. 37. 26. 32 periods at 4%.000. 8 periods at 1%. b b c c d Solution to Multiple Choice question for which the answer is “none of these. Assume ABC Company deposits $50. Item Ans.912. 38.440 payment at the end of each of the next six years. we compute the present value of an ordinary annuity of 1 for the entire period and subtract the present value of the rents which were not received during the deferral period. 41. How much will ABC have in the account after five years if interest is reinvested? a. To compute the present value of a deferred annuity. 50. 31. MULTIPLE CHOICE—Computational 62. $184. $150. 61. A deferred annuity is an annuity in which the rents begin after a specified number of periods. 8 periods at 4%. 59. The manufacturer has offered to accept $34.440. 64. b. 34. Item Ans. If a savings account pays interest at 4% compounded quarterly. If the first rent is received at the end of the sixth period. $67. 56. Item Ans. Item Ans. d. 22. c. 40. 35. 42. . d. it means the ordinary annuity is deferred for six periods.000. 21. a c b d d b 51.” 30. 60. then the amount of $1 left on deposit for 8 years would be found in a table using a. 44. b. 23. $50.640. b c c a a c 39. 30. $34. Charlie Corp. c. pay over the term of the loan? a. 32. c. 58. 25. a d d a d c 45. Fourteenth Edition 61.6 . is purchasing new equipment with a cash cost of $150.000 for an assembly line. 49. 000 × 1.000 × 1.621 .Accounting and the Time Value of Money 6 .080 × 3 If $3. Each of the items 69 to 72 is based on 10% interest compounded annually.000 three years from today? a.000 × 1.080) + ($6.000 × 1.000 is invested each year for four years with the first investment to be made today? a.000 × 1.080 × 4 If $4. Given below are the future value factors for 1 at 8% for one to five periods. Periods 1 2 3 4 5 65. $4.000 × 1. Items 69 through 72 apply to the appropriate use of present value tables. $10.260 c.00 discounted at 10% for one to five periods.166 1.000 × 1.000 × 1. Future Value of 1 at 8% 1. $4.080 × 6 b.000 × 1.469 c. what amount will be available three years from today? a. $4. ($3.000 × 1.360 1. $10.000 × 1.000 is put in a savings account today.683 5 0.080 1. $10.260) + ($6.080 × 1.000 ÷ 1. Each of the items 65 to 68 is based on 8% interest compounded annually.000 ÷ 1. what amount will be available six years from now? a. 68.260 × 2 66.360 × 4 c.260 d.080 × 3 d. $4.260) + ($6. Present Value of $1 Discounted at 10% per Period Periods 1 0.166) + ($3.751 4 0.000 × 1.000 × 1. $3.909 2 0. $3. $6.260 b. $10.166) + ($6.000 b.166) + ($6.360) d. $3.000 × 1.15 Items 65 through 68 apply to the appropriate use of interest tables.166 × 3 d. ($6. 67.260 1.260 × 3 c.000 × 1.000 × 1.000 × 1.469 What amount should be deposited in a bank account today to grow to $10.080) + $6.260 b.000 is put in a savings account today.000 × 1.826 3 0.000 × 1.000 × 1.000 ÷ 1. ($6.260) What amount will be in a bank account three years from now if $6. Given below are the present value factors for $1. $6.080) + ($3. 71.000 ÷ 0.000 × 0. 5 years b.621 × 0. $5.000 ÷ 0.000 receipt is a. If the future receipt is discounted at an interest rate of 10%.000 in a future year. 75. 6 years c.000 × 0.000 three years from today? a. c.000 is deposited today? The future value of one at 6% for one period is 1. its present value is $102.826 b.000 in a savings account today. Fourteenth Edition 69.000 × 0. $4. $127.16 Test Bank for Intermediate Accounting. a. $4.200 d.751) b. 8 years 70.909 × 4 At the end of two years.751) d.000 × 0.000 × 0.632.000 × 0.500. $11.000 × 0.909 × 3 c.826) + ($3.000 ÷ 0. 73.000 + ($5.909) + ($3. Dunston Company will receive $200. $3.909) + ($5. $10. $3.826 × 2 c. $487. $5. $6.751 What amount should an individual have in a bank account today before withdrawal if $5.000 in 7 years.000 × 0.000 × 0.6 . $5.000 b. $11.826) + ($5.600 c. If the appropriate interest rate is 10%.909 × 6 b. what will be the balance in a savings account paying 6% annually if $10.000 × 0. the present value of the $250.909 d. ($3.000 × 0.909 × 2 What is the present value today of $6. $6.290. what amount of cash would be available two years from today? a. 72.000 to be received six years from today? a.000 × 0. d. If an individual put $4. In how many years is the $200. $6.000 ÷ 0.683 × 3 What amount should be deposited in a bank today to grow to $3.000 × 0.000 is needed each year for four years with the first withdrawal to be made today and each subsequent withdrawal at one-year intervals? (The balance in the bank account should be zero after the fourth withdrawal. $10. 74.500.826) + ($5. $4.683 × 4 c.236 Mordica Company will receive $250. $128.826 d.751 b. b. 7 years d. $4. $377.000 × 0.180. $3.000 × 0.751 × 2 c.683) d.000 × 0.909) + ($5.000 × 0. .06. $6.751) + ($5.000 received? a.) a.000 × 0. ($5.000 ÷ 0. 77. its present value is $189.497. $650. b. d. $1.337. John Jones won a lottery that will pay him $2. The investment will earn 6% for 5 years.156. b. c.976.Accounting and the Time Value of Money 76.000. the amount in the investment fund is a. c.000 in 7 years.000. What amount must be invested today in an investment that earns 6% interest. In 5 years. 82. $520. $535. $408.558. Bella requires $120. 8 years Altman Company will invest $500. b. $2. Assuming an appropriate interest rate is 5% compounded annually. b. $1. If the future receipt is discounted at an interest rate of 8%.134. 6 years c. $670. .17 Milner Company will invest $400. 81.000. 6 . the present value of the $800.116. $177. $400. $98.000. with no funds withdrawn.528. Angie invested $100.000. 7 years d. c.292. $24.208.000 in a future year.000 today. d.724. $155. b.600.000 received? a.145.000 in four years to purchase a new home. In 5 years. $753.115.000.000 today. Barber Company will receive $800. compounded annually? a.780. 78. with no funds withdrawn. d. $5.000 after twenty years. $95.000.420. 79. $410.306. $162.050. Barkley Company will receive $300. $151. 80.051.000 receipt is a. c. d. If the appropriate interest rate is 10%.000 she received from her grandmother today in a fund that is expected to earn 10% per annum. $145. d. To what amount should the investment grow in five years if interest is compounded semi-annually? a. c. 5 years b. b.890. The investment will earn 6% for 5 years.924. the amount in the investment fund is a. d. $669. $500. In how many years is the $300. $536. what is the present value of this amount? a. c.000. $161.051.000. c. 88.540.202.000 after forty years? Assume that the relevant interest rate for this type of investment is 6%. Jane wants to set aside funds to take an around the world cruise in four years. 8%. d. 18 years. $10. $2.6 . how much will she have to set aside today so that she will have sufficient funds available? a. . Ethan has $80. d.000.000? a.604.18 Test Bank for Intermediate Accounting. Jane wants to set aside funds to take an around the world cruise in four years. What would you pay for an investment that pays you $3. 6%. b. b. $93. Jane expects that she will need $10. $13. c. $138. 87.000 at the end of each year for the next ten years and then returns a maturity value of $300. 11 years. If she is able to earn 8% per annum on an investment. b.100.000 to invest today at an annual interest rate of 4%. $6. d. d. how much will she have to spend on her vacation? a.010.158.936.000 to invest today in an account expected to earn 6% per annum. $6. $7. Fourteenth Edition 83. d. c.660. 84. $291. $134. 20 years.000 investment today so that he will have $380.000 for her dream vacation. 7%. c.806. $311. $10. 85. Assuming that Jane has $8. $273. $144. 86. $34. What interest rate (the nearest percent) must Charlie earn on a $150.350. c. 16 years. b. b. $935. 9%.400.000 after 12 years? a.219.000 after ten years? Assume that the relevant interest rate for this type of investment is 8%.706. c. Approximately how many years will it take before the investment grows to $162.997. What would you pay for an investment that pays you $20. b.336. a. d. a.958. d. $72. 6 . $5. Jane expects that she will need $10. and also on each January 1st for the next five years (2013 – 2017). $2. how much will she need to set aside at the beginning of each year to accumulate sufficient funds? a.668. 9 years. Lucy and Fred want to begin saving for their baby's college education. $7.19 Anna has $30. c. If Pearson wants to earn 12% on the investment.471. If she is able to invest at 6%. $64. Garretson Corporation will receive $8. 93. $27. c.219. $24. 6 years. c.534. $11.664. b.000 for her dream vacation. $11. b.000 in eighteen years. d. 91. 94. . If she is able to earn 8% per annum on an investment. how many years will it be before she will accumulate the desired balance? a.618.891. $32.105. $24. d. $48. d. d. 2012). how much must be deposited at the end of each of the next eighteen years to fund the education? a. what is the most they should invest on January 1.922.000 receipts. c. They estimate that they will need $200. $10. If they are able to earn 6% per annum. $2.924.000 in eighteen years. $36. c. Pearson Corporation makes an investment today (January 1. Lucy and Fred want to begin saving for their baby's college education.000 today (January 1. how much must be deposited at the beginning of each of the next eighteen years to fund the education? a. b. If they are able to earn 5% per annum.Accounting and the Time Value of Money 89. They estimate that they will need $300.000 every December 31st for the next six years (2012 – 2017). $6. 7 years. c. They will receive $6.664.823.000 to invest. 2012? a. $6.712.838. assuming a 12% interest rate? a. b.629. 90. $54. b. 2012).604. $13.691.111.055. Jane wants to set aside funds to take an around the world cruise in four years. 92. b.350. 8 years. What is the present value of the six $8. She requires $50.000 for a down payment for a house. $25. d. 191. d. $69. $61. If Spencer will earn 12% on the investment. Hiller Corporation makes an investment today (January 1. What is the present value of the six $40.335. what amount will be in the investment fund on December 31. Fourteenth Edition 95. c. 2012? a.000 every December 31st for the next six years (2012 – 2017). $121. 97.671. $164. $123. what amount will be in the investment fund on December 31. c.072.456. 2017? a.670. Spencer Corporation will invest $15. c. $136. what amount will be in the investment fund on December 31.671 b.456.570 b.20 Test Bank for Intermediate Accounting.000 every January 1st for the next six years (2012 – 2017).728. $324. $164.450.608.560. d. d.456. If Linton will earn 12% on the investment. assuming a 12% interest rate? a. 96.560. c. 2017? a. $230. 2012).000 every December 31st for the next six years (2012 – 2017). b. d. d.144. 100.335. If Wagner will earn 12% on the investment. and also on each January 1st for the next five years (2013 – 2017). $136. If Renfro will earn 12% on the investment.240.000 today (January 1. $363.6 .000 every December 31st for the next six years (2012 – 2017). $205. what amount will be in the investment fund on December 31. Tipson Corporation will invest $15.608. $184. $184. 2017? a. c.072. $363. $324. 2017? a. $243. $121.191. $405. $454. d. b. b. $138. 98.760. b. Sonata Corporation will receive $20. Renfro Corporation will invest $50. what is the most they should invest on January 1. Vannoy Corporation will invest $30. They will receive $40. 2012). If Hiller wants to earn 12% on the investment.342. $69. $272.728. c.000 every January 1st for the next six years (2012 – 2017).000 receipts. . 99. $61. 600 d.932 $239.820 c. a.2397 4. with the last deposit being made on September 1.2469 Future Value of Ordinary Annuity 8. d. $37. $89.820 d. 104. Kline Company decided to begin accumulating a fund for asset replacement five years later. 2020 by making 8 equal annual deposits beginning May 1.63663 12. 2012 to a fund paying 8% interest compounded annually. $63.9847 6 periods 4. $106.606 c.606 b.000 at 9% each January 1 beginning in 2012.5731 5 periods 3. Present Value of Ordinary Annuity 5. 2012 and it earns 8%.925 Korman Company wishes to accumulate $400.2064 5. $34.92280 10. Present Value of Future Value of Ordinary Annuity Ordinary Annuity 4 periods 3.000 annual deposits each September 1 beginning in 2011. What is the required amount of each deposit? a. 2018? The fund pays interest at 8% compounded annually.000 $200.8897 5. on January 1. What will be the balance on September 1.21 On January 1. $260. 2017 (one year after the last deposit)? The following 9% interest factors may be used. c. .312 103. b. $68. 6 . what will the balance be on December 31. 2012. $69. $40.537 b.229 c.820 d.388 $218. $57. What will be the balance in the fund.48756 7 periods 8 periods 9 periods 102. The company plans to make five annual deposits of $40. $53.7466 6.4859 7.5233 a. $57. $75.000 by May 1. 2019? a.000 is deposited annually starting on January 1. 2018 in a fund which is accumulated by making $10.366 b.000 Use the following 8% interest factors for questions 102 through 105. within $10.466 If $6.Accounting and the Time Value of Money 101. a.631 c.214 b.000 at the beginning of each of the next five years. $58.723 c. The future value of an ordinary annuity of 1 for five periods is 6.22 Test Bank for Intermediate Accounting.000 is received today and the rate is 9%? Present Value of Ordinary Annuity at 9% Periods 14 7. $50. The present value of an ordinary annuity of 1 for five periods is 3. $22. $300.000 each beginning December 31.06069 16 8.667 A machine is purchased by making payments of $6. $22.99271. The future value of one for five periods at 8% is 1.79079. The future value of an ordinary annuity for five periods at 8% is 5.973 How much must be deposited on January 1.31256 a.093 d. $25. $49.10510.175 c. The appropriate rate of interest was 8%. What was the cost of the machine to Jenks? a. which is to be financed by making 8 annual payments of $8. $50.78615 15 8. $40.46933.019 d. Fourteenth Edition 105. The interest rate was 10%. 2012.250 How much must be invested now to receive $20. $45.6 .000 for 15 years if the first $20.794 b. $47. 2012 in a savings account paying 6% annually in order to make annual withdrawals of $25.8666. $14. a.000 d.000 b.927 c. $39. $45. The present value of an ordinary annuity for five periods at 8% is 3. What was the cost of the machine? a. $36. 107. What amount should be recorded as the cost of a machine purchased December 31.250 Jenks Company financed the purchase of a machine by making payments of $10. $175.835 b.000 d.294 b.745 106. .975 c.000 at the end of the years 2012 and 2013? The present value of one at 6% for one period is .000 d. 2013? The applicable interest rate is 8%. $161. 108. 109. $56.9434. $85.000 at the end of each of five years. $146. $35. The future value of 1 at 10% for 15 periods is 4.758 d. 113. Wine Corporation wishes to issue $3. $3.864 c. $44. Using the interest factors below.180.000. The bonds pay interest annually on January 1.23939. The market price of a $500.1446 111. d. The present value of 1 at 10% for 15 periods is .60608. The current yield rate on such bonds is 10%.034 b. $35. b. a. $401. Calculate the amount of the annual rent.17725. d.4632 0. Assume a 10% rate and earnings at year end.078 0. Lane wants a return of 10%.311.7101 6.970 On January 2.36492 20 8.000 for 15 years and to have a resale value of $50.204 $3.592 d. $32.000.238 Find the present value of an investment in plant and equipment if it is expected to provide annual earnings of $26. Present value of 1 at 8% for 10 periods Present value of 1 at 10% for 10 periods Present value of an ordinary annuity at 8% for 10 periods Present value of an ordinary annuity at 10% for 10 periods a. $247. It is to be leased for 20 years with rent received at the beginning of each year.631.728 c. 10-year bonds. The present value of an ordinary annuity at 10% for 15 periods is 7.000 at the end of that period. $197.000. c.635. 12% (pays interest semiannually) bond issue sold to yield an effective rate of 10% is a.3855 6. $562. 6 . c.Accounting and the Time Value of Money 110. $566. Present Value of Period Ordinary Annuity 19 8. . ten-year. 2012.000.000. $561.000 (par value) of its 8%. $209. compute the amount that Wine will realize from the sale (issuance) of the bonds. $936.018 $3. has a machine that cost $300.445. b.318. 112.64869 a.23 Lane Co.51356 21 8.758 b.000 $2. 990. What interest rate (to the nearest percent) was used to determine the amount of the payment? a.180. . $122. $142. b.884. Zebra Finance has offered to purchase the payment stream for $2. Jonas won a lottery that will pay him $200. 6%. b. 117.294. b. 6%. 7%. 8%.077. $57. $61. c.000. $15. d. d.6 .000.000 annual payments due at the beginning of each year.718. $1. 7%. $63. c. $1. the dealer will reduce the price by 10%. Fourteenth Edition 114. $112. What would you pay for an investment that pays you $20. 119.864.183. If Jeremy pays cash for the car. The lease term is five years with $16.000 at the end of each of the next twenty years. c. Jeremy is in the process of purchasing a car. 115. d.994. 116. $125. c. The list price of the car is $36.000 at the beginning of each year for the next ten years? Assume that the relevant interest rate for this type of investment is 10%. a.723. d. what is the present value of this amount? a. $135.080. Assuming an appropriate interest rate is 8% compounded annually. b. the dealer will provide financing where Jeremy must pay $7.892.786. c. $68. $1.487. 118. Compute the effective interest rate to the nearest percent that Jeremy would pay if he chooses to make the five annual payments? a.042. Janet.590. John won a lottery that will pay him $150. b. 5%.000 at the end of each year for the next twenty years? Assume that the relevant interest rate for this type of investment is 12%.890. d. 4%. James leases a ski chalet to his best friend. d.24 Test Bank for Intermediate Accounting. $32. $6.472.550. b. Otherwise.902. $129. c. 5%.540. What would you pay for an investment that pays you $15.000 at the end of each of the next twenty years.706 at the end of each of the next five years. What is the present value of the payments discounted at 8% per annum? a. a. What is the expected selling price of the bonds? a. 120. d.800 at the end of the next five years? a.266. 7%. $8. 62. The bonds mature in ten years. $10. will be paying? a. Jeremy Leasing purchases and then leases small aircraft to interested parties.070. 90. 113. 94. 121. what will be the annual rental if Jeremy wants to earn a return of 10%? a.5 million 12% bonds in a private placement on July 1. 63. $64.310.600.000. 115. 112. 108.764. 9%. c. Item Ans. c.244. 114.Accounting and the Time Value of Money 120. 68. 76. The manufacturer has offered to accept $45. is purchasing new equipment with a cash cost of $200. 5%. 67. 118. the market interest rate for similar types of bonds was 8%. 4%.476. 11%. Stech Co. $8.000 for the assembly line. 85. 73. 119. 6 . 101. 105.598.314. 97. 75. 110. 74. 82. 111. b. 8%. is issuing $6. 99. 6%.920 payments at the end of each of the next six years. 78. 109. Item Ans.992. Each $1. 104. Multiple Choice Answers—Computational Item Ans. $8.962. 88. What is the interest rate that Charlie Corp. d. 72. Item Ans. d c a c a b c c d 89. 95. 70. $70. 122. The cash purchase price for the car is $33. d b d d a b c d a 98. 121. b b c a b b b c d 116. 96.566. 83. 123. a b d b b c b a . b. d a d b c c b b c 80. 91.476. b.25 Ziggy is considering purchasing a new car. 103. 92. 102. b. d. 122. 93. Item Ans. 117. 87. $30. 10%.000 bond pays interest semi-annually on December 31 and June 30 of each year. 123. $13. 77. c. b c d a a d c d a 107. If the lease is for twenty years and annual lease payments are required to be made at the end of each year. 66. 2012. Item Ans. 81. 84. 86. 69. 106. d. Charlie Corp. What is the annual interest rate if Ziggy is required to make annual payments of $7. At the time of issuance. 65. Item Ans. a d d c b a b c c 71. The company is currently determining the required rental for a small aircraft that cost them $600. c. 79. 64. 100. $36. 2014 will include both principal and interest. 127. A capital lease is entered into with the initial lease payment due one month subsequent to the signing of the lease agreement. .75. Fourteenth Edition MULTIPLE CHOICE—CPA Adapted 124. sold to Cey Corp. A ten-year 8% bond is issued on January 2 with interest payable semiannually on January 2 and July 1 yielding 7%.559 b. Assuming interest at a 10% rate. A capital lease is entered into with the initial lease payment due upon the signing of the lease agreement.500 d.177 to yield 12%. 2012. Present value of annuity of 1 d. Future value of annuity of 1 b. $26. 2012.6 . Future value of 1 c. Gore Co. 2012. 2015.000 c. c.000 For which of the following transactions would the use of the present value of an ordinary annuity concept be appropriate in calculating the present value of the asset obtained or the liability owed at the date of incurrence? a. 125. d. A ten-year 8% bond is issued on January 2 with interest payable semiannually on January 2 and July 1 yielding 9%. The prevailing rate of interest for a note of this type at January 1.26 Test Bank for Intermediate Accounting. $16. $15. the cost of the machine would be the total payment multiplied by what time value of money factor? a. b.000 On May 1. 126. 2014. Present value of 1 On January 1.871 d. 2012? a. 2012 was 10%.000 zero-interest-bearing note due on January 1.000 of its 10% bonds for $531. $20. The total payment on May 1. Ball Co.000 c. $0 b. What amount of interest revenue should be included in Abel's 2013 income statement? a. $31. exchanged equipment for a $200. What amount should Gore report as interest expense for the six months ended June 30. $600. The present value of $1 at 10% for three periods is 0. a company purchased a new machine which it does not have to pay for until May 1. Interest is payable semiannually on January 1 and July 1. On January 1. $30. 231 8 5. b. $889. $1. 6 .474. sold goods to Flynn Company.5132 Present Value of Ordinary Annuity of 1 at 10% 4. $1.5645 . On December 30. c.250. Dolan plans to make four equal annual deposits in a fund that will earn interest at 10% compounded annually.8684 130. in exchange for a zero-interest-bearing note requiring eight payments of $70. 2012.972. d.156. the prevailing rate of interest for this type of note was 11%. 2012.61 4. 2012 balance sheet.840. b.522. Ott Co. $391.077.000 annually for seven years. Inc.586.000. 2012.3553 4. At date of issuance. On January 1. c. 2012. Information on present value factors is as follows: Period 6 7 Present Value of 1 at 10% .Accounting and the Time Value of Money 128. d. Present value factors are as follows: Present Value of Ordinary Present Value of Annuity of 1 at 11% Annuity Due of 1 at 11% Period 7 4. purchased a machine from Grant Corp.146 5. . The first payment was made on January 1.000.712 On AGH's December 31. b. $366.220. $329. and the others are due annually on December 30.000. Ott should record sales revenue in January 2012 of a.64 5.485. c. $978. 2012. 1.712 5. Flynn signed a zero-interestbearing note requiring payment of $90. $438. adopted a plan to accumulate funds for environmental improvements beginning July 1. $481. 2012. The first payment was made on December 30. d. The prevailing rate of interest for this type of note at date of issuance was 10%. 2016.300. $360.977. the net note payable to Grant is a. at an estimated cost of $5. AGH. The first deposit was made on July 1.000. $399. Future value factors are as follows: Future value of 1 at 10% for 5 periods Future value of ordinary annuity of 1 at 10% for 4 periods Future value of annuity due of 1 at 10% for 4 periods Dolan should make four annual deposits of a. $321.27 On January 15.11 129.840. Dolan Corp. $196.000 and a stated interest rate of 8% payable annually on January 1. 62.000 × 1. Ed Wynne signed an agreement to operate as a franchisee of Kwik Foods. On July 1.6 . c. On January 1.000. a d 132.000. 1.400. Inc. Haley Co. $2.260 × PV = $10. b a 130.000 was paid when the agreement was signed and the balance is payable in four equal annual payments of $40. 65.69 2. b DERIVATIONS — Computational No. c d 126. 1. 131.400. $3.59 1.000. Present value factors are as follows: At 8% At 10% Present value of 1 for 10 periods 0.000. 124.440 × 6) − $150.000 ÷ 1. c a 128.000 = $56.000 beginning July 1. 125. 2012. The bonds were priced to yield 10%. 63. ($34. 2012. d. b.91 132. $240. Wynne's credit rating indicates that he can borrow money at 14% for a loan of this type.260.710 6.463 0. Fourteenth Edition 131.640.000. Item Ans. PV = $10. 0. Of this amount.196.760..28 Test Bank for Intermediate Accounting. $270. 64. 129. Information on present and future value factors is as follows: Present value of 1 at 14% for 4 periods Future value of 1 at 14% for 4 periods Present value of an ordinary annuity of 1 at 14% for 4 periods Wynne should record the acquisition cost of the franchise on July 1. $174. $80.000. $2.34392 = $67. 2012 at a. Item Ans. 66.400.260 × $3.632.940. c. 127.145 The total issue price of the bonds was a. Multiple Choice Answers—CPA Adapted Item Ans. $2. Item Ans. Item Ans.000.000. 4 × 8 = 32 periods. for an initial franchise fee of $240. 4% ÷ 4 = 1%. . b.000.386 Present value of an ordinary annuity of 1 for 10 periods 6. Answer a d d c b Derivation $50.800. d. The agreement provides that the down payment is not refundable and no future services are required of the franchisor. issued ten-year bonds with a face amount of $3. 2013. 000 × .000 × 1. 91. $2.000 × 1.621 × 0. $4.39474.Accounting and the Time Value of Money 6 . $6.080. 77.158. 70. $150.000 × 1.37689 = $753.000.09722 = $291. 82.000 ÷ $30. ($20. $400. 84.000 × 0.000 ÷ $80.000 × (1.000 × 0.51316. 83.000 × (1.100.000 × .51316 is PV factor for 7 years. 73. PV = $4.73503 = $7.051.63017 is PV factor for 6 years.26248 = $10.66667 is FV factor for 9 years.000 = 0.62890 = $162. $300.000 × 6.909. $10. $100. 81.06)2 = $11. 75. $3.29 No. .000 × 0.000 = 1. 69.000 + ($5. $8.46319) = $273.080)6 or $4. $200.33823 = $669.000 × . 90.06) = $6.000 ÷ 28.000 × 0.90565 × 1. 87. $162.39474 is PV factor for 8%. $3. 85.080) + $6. 2.780. $102. 67.664.000 × .290.000 × 0.660.71008) + ($300.528. $120.000 × 1.292.000 × 1. 79. . $189.66667.000 × 0. 0.166) + ($6. 76. 74. $800. 72.051 ÷ $300.000 × .632 ÷ $200.000 = . $250.000 × 0.751.51316 = $128.826. 68. 0. 1.000 ÷ 0.260) + ($6. $500. $5.000 × 1.63017.751).469 × 1.000 × 1.826 × PV = $4.000 ÷ (30. 0.79209 = $95.350.826) + ($5.890.000.13279 = $10. 80.000 ÷ $380. 86. 89.025.000.51316 = $410. 71.000 = 2. 88.000 = 0. $10.000.000 × 1. $50.909) + ($5. Answer a b c c d a d b c c b b c d c a c a b c c d d b d Derivation ($6.115.236.105. 78.025 is FV factor for 18 years.33823 = $535. $10.59. $150.000 × 6. 103. 104. 97.000 × 9. 113.000.000 × .925 or $6.670. $40.204.7466 = $45.48756 – 1) = $68.11519 × 1. 115.36492 = $32.718.000 × 8.456. 95.000 × 8.09.034.000 × 7.000 × (7.000 × .78615 + 1) = $175. $8.835.000 (semiannual interest payment) ($30.000 × 4. 105. $500. b 114.60478 = $36.000 (annual interest payment) ($240.000 × 8. $50.000 × 4. $2.000 × 10.728.000.472.927.000 × 4.000 ÷ 11. 110.000 × 5.51356 × 1.63663 × 1.000 × 10.60478 = $184. 98.000 × .08) = $2. 109.99271 = $39.3855) = $2.000 × 0. 112.000 ÷ 9.668.000 × (0.11519 × 1.08 = $240.5233 – 1) = $260.000 × 0.335.311.723 or $20.019.11141 = $164.12 = $136.000 × 4. $10.191. 101.9434) + [$25. 94. Fourteenth Edition No. $15. (10.60608) + ($50.366.9434)2] = $45.055. R = $400.000 × 5. 93.10). ($25.37689) = $562. $40.06 = $30.11519 = $121.06069 × 1.1446) + ($3.10) = $6.838. $15. $6.000 = R × (8.9847 × 1.000 × 8.81815 = $1. $20.000 × 3. $8.63663 × 1.000 ÷ (4.30 Test Bank for Intermediate Accounting.12 = $272. $3.08) × R = $400.000 × 4.000 × (7. 13.760. R = $300.820. 100. $40. Answer d a b c d a b c d a a d c d a b b c a b b Derivation $10.50611 × 1.000.23939) = $209. 108. $6.631.11141 = $24.000 × 8. $30.59 is PV factor for 4%. c d . 106.973.11519 = $405.48756 = $34.728.000 × 12. 111.000 ÷ $200.000 × (12. 99.16987 = $25. 96.000 × .000 = 13. 102. $300.6 .932 or $40. 92. 107.79079 × 1.723.63663 = $106.46221) + ($500.000 × (3.09.08. ($26. $6. 117. $165.632.Accounting and the Time Value of Money 6 .000 = $196.000.600 ÷ $7.840. $15.994.266. 126.764. Answer a b d b b c b a Derivation $16.500.000 × . Conceptual.000.871. 132. 120.000 × 6.000 × .8684 × 1. ($40. $600.75902 = $135. 4.000.000 × 0. 128.000 × .31 No.706 = 4.11 = $978. 119.20438. 124.000 (present value of note) $150.30769. DERIVATIONS — CPA Adapted No. 121.000 × 2. 116.476.35540.11 × R = $5.000 ÷ 8.000 × 6.31214 = $68. ($6.08 = $240. 5.145) + ($3.386) = $2. $20. 131. 127.177 × .800.400.000 ÷ $45. 130.000 × (4.000. 125.51356 = $70.474.920 = 4.90) ÷ $7.000 = $329.20438 is PV factor for 6%.000 × 4.000 × 13. $3.45639) + ($390. $70.500.042.180.840 or ($70.30769 is PV factor for 5%. 118.972.800 = 4. R = $5.000 × .000.000 × 5.59033) = $8. ($36.000 × 7. Conceptual.1) = $481. $200. 123. Answer c d c a b a a d b Derivation $531. 129. 4.91) + $80.75 = $150.35540 is PV factor for 10%.46944 = $112.000 × 0.000 × 4.000. $33. 122.000 ($240. $90. $200.712 = $329.10 = $165. 4.000 ÷ 5.000 × 1.10 = $16.712) – $70.06 = $31. . . |. Present value of an annuity due of 1. (Tables needed. b.) Compute estimated goodwill if it is found by discounting excess earnings at 12% compounded quarterly. Fourteenth Edition EXERCISES Ex. Concept _____ 1.555. | | | | | Solution 6-133 1.000 are expected for 8 years.| ? $1 | | | _____ 4. a 3. Future value of 1. | $1 | $1 | $1 | $1 | ? f. $1 $1 $1 _____ 5. d 6.32 Test Bank for Intermediate Accounting. Future value of an annuity due of 1. ? Diagram of Concept $1 | | $1 | $1 | $1 | ? $1 Present value of 1. a.6 . b 5. On the right are six diagrams representing six different present and future value concepts stated on the left. c Ex. . Present value of an ordinary annuity of 1. | $1 | | | | ? e. f 4. Identify the diagrams with the concepts by writing the identifying letter of the diagram on the blank line at the left. Solution 6-134 Present value of $4.. 6-134—Compute estimated goodwill. _____ 3.... d.000 for 32 periods at 3% ($4. Excess annual earnings of $16. e 2. c. Assume n = 4 and i = 8%. | ? | $1 | $1 |. _____ 2. 6-133—Present and future value concepts.38877) = $81.| $1 $1 _____ 6.000 × 20.. Future value of an ordinary annuity of 1. 353 Present value of $50.09) = $99.) How much must be invested now to receive $25. 2012 and it earns 9%. Solution 6-135 Present value of $20. has machinery that cost $90.000 for 10 years and to have a resale value of $50. 6-137—Present value of an annuity due.000. 6-139—Calculate market price of a bond. .362.10 × 7.000 for 10 periods at 9% ($6. It is to be leased for 15 years with rent received at the beginning of each year.121 Present value of investment in equipment $149.000 for ten periods at 8% ($25. Ex.000 for 10 periods at 9% (6. Compute the amount of the annual rent. 6-135—Present value of an investment in equipment.000 is deposited annually starting on January 1. (Tables needed.24689) = $181.000. Ex.000 discounted for 10 periods at 9% (. 2021? Solution 6-136 Future value of an annuity due of $6.36669 = $10. (Tables needed.33 Find the present value of an investment in equipment if it is expected to provide annual savings of $20.000) = 21. (Tables needed. 6-138—Compute the annual rent. 6-136—Future value of an annuity due.36669 $90.000 is received today and the rate is 8%? Solution 6-137 Present value of an annuity due of $25. ten-year. Crone wants a return of 10%.) Determine the market price of a $300.474 Ex.19293 × 1. Ex.60608) = 8.000) = $128.41766 × $20.172.Accounting and the Time Value of Money Ex. Solution 6-138 Present value factor for an annuity due for 15 periods at 10% (1.000 × 15.000 × 7.000 at the end of that period.000 for ten years if the first $25. (Tables needed. how much will accumulate by December 31.) If $6.000 ÷ 8.(Tables needed.757.) Crone Co.42241 × $50.) 6 . Assume an interest rate of 9% and that savings are realized at year end. 10% (pays interest semiannually) bond issue sold to yield an effective rate of 12%. 6 .000 discounted for 20 periods at 6% ($300.56743 Present value of 1 for 10 periods at 5% . 2012 Lance Co.36009 Calculate the issue price of the bonds.000 × 7. Part (b) Tom wants to retire at the end of this year (2012).400 one year after completion of residency.46992) = Present value of $300.652 $538. Fourteenth Edition Solution 6-139 Present value of $15. .500 when she completes her residency.955 231.79079 Present value of an ordinary annuity of 1 for 5 periods at 12% 3.540 $265.60478 Present value of an ordinary annuity of 1 for 10 periods at 5% 7. 6-141—Present value and future value computations. which alternative should she choose? Your answer must be supported with calculations.000 × 11.62092 Present value of 1 for 5 periods at 12% . 6-140—Calculate market price of a bond.000 × . Solution 6-140 Present value of $500. Tom has come to you.000 × . two years from today. Joe's tells her that she may settle the account in one of two ways since she can't pay it all now: 1. to learn how much he should deposit on December 31. assuming the amount on deposit will earn 8% interest annually.000 and a stated interest rate of 12% payable semiannually on July 1 and January 1. The bonds were sold to yield 10%.61391) = Present value of $30. 2. On January 1.049 93. Present value table factors are: Present value of 1 for 5 periods at 10% . Part (c) Judy Thomas has a $1.55839 Present value of an ordinary annuity of 1 for 5 periods at 10% 3.607 PROBLEMS Pr. She has only $600 in her checking account and doesn't want her parents to know about this debt. His life expectancy is 20 years from his retirement.000 discounted for 10 periods at 5% ($500.000 at the end of each year for the next 20 years. three years from today.000 investment today would accumulate at 10% (compound interest) by the end of 6 years.72173 Present value of an ordinary annuity of 1 for 10 periods at 6% 7.000 for 10 periods at 5% ($30. Assuming that the cost of money is the only factor in Judy's decision and that the cost of money to her is 8%.31180) = Market price of the bond issue $172.800 overdue debt for medical books and supplies at Joe's Bookstore. issued five-year bonds with a face value of $500. Part (a) Compute the amount that a $30. his CPA.589 Ex.34 Test Bank for Intermediate Accounting.72173) = Issue price of the bonds $306. Pay $600 now and $1.61391 Present value of 1 for 10 periods at 6% . Pay $2.000 for 20 periods at 6% ($15. 2012 to be able to withdraw $50. 000 ordinary annuity discounted @ 8% for 20 years ($50.48656 6.000 at the end of each year and provides the lessor (Eller) with an 8% return on its investment.000 = $63.500 now = Present value of $600 now = Present value of Alternative 1 Alternative 2 Present value of $2. What was the account balance at the end of the tenth year? Solution 6-142 Years 1-6: Future value of annuity due of $8.74664 10 Periods 2.71008 .926 Pr.46319 14.147. At the end of the sixth year.000 for 4 periods at 10%: 4.77156) = $53.42888 16.382 = $92.000 × 1.15892 .99900 .48756 6.000 × 9.08) × $8.35 Part (a) Future value of $30.24689 6. Alternative 1 is preferable.908.6410 × $8.85734) = Present value of $1.128 + $92.500 discounted @ 8% for 2 years ($1.64549 7. the account balance was transferred to a bank paying 10%. Part (c) Alternative 1 Present value of $1.000 were made at the end of each year from the seventh through the tenth years. and annual deposits of $8. Part (b) Present value of a $50.400 × .81815) = $490.886 $1. 6-142—Annuity with change in interest rate.400 discounted @ 8% for 3 years ($2.382 for 4 periods at 10%: 1.4641 × $63. Jan Green established a savings account for her son's college education by making annual deposits of $8.286 600 $1. Jill Morris is presently leasing a small business computer from Eller Office Equipment Company.128 Sum in bank at end of tenth year: $37.905 Pr.33592 × 1.71008 7. You may use the following 8% interest factors: Future Value of 1 Present Value of 1 Future Value of Ordinary Annuity of 1 Present Value of Ordinary Annuity of 1 Present Value of Annuity Due of 1 9 Periods 1.382 Years 7-10: Future value of $63.Accounting and the Time Value of Money Solution 6-141 6 .000 compounded @ 10% for 6 years ($30.33164 . $1.13896 7. 6-143—Present value of an ordinary annuity due.500 × .798 = $129. The lease requires 10 annual payments of $8.000 at the beginning of each of six years to a savings account paying 8%.50025 12.79383) On the present value basis.000 for 6 periods at 8%: (7.000 = $37.798 Future value of ordinary annuity of $8.24689 11 Periods 2. Bates Company has. however.978. Bates Company has entered into two lease agreements. 6-144—Finding the implied interest rate.24689 = $53.) = $108.000 per year on a 6-year lease. Lease A — Lease A covers office equipment which could be purchased for $108. Fourteenth Edition Pr.) Instructions (a) Assuming the computer has a ten-year life and will have no salvage value at the expiration of the lease.000 = 4. Lease B — Calculation of the Implied Interest Rate: $24.407 Pr.144 Factor for Present Value of Ordinary Annuity for 5 yrs. Instructions Calculate the implied interest rate for the lease payments. Payments are due at the start of each year. $53.6048 factor implies a 12% interest rate.000 = 3.000 at 8% for 10 years is 7. = $108.681 $7. what was the original cost of the computer to Eller? (b) What amount would each payment be if the ten annual payments are to be made at the beginning of each period? Solution 6-143 (a) Present value of an ordinary annuity of $8.71008 × $8.6048 The 3. Solution 6-144 Lease A — Calculation of the Implied Interest Rate: $30. . 6-143 (cont.681 ÷ 7. Bates Company has chosen to lease the machine for $24. = $114.36 Test Bank for Intermediate Accounting. In each case the cash equivalent purchase price of the asset acquired is known and you wish to find the interest rate which is applicable to the lease payments.) = $114.24689.79075 factor implies a 10% interest rate (present value of an annuity due table).144 ÷ $30.000 per year.79075 The 4.000 × (factor for Present Value of Annuity Due for 6 yrs. payable at the end of each of the next 5 years. Lease B — Lease B applies to a machine which can be purchased for $114.000 = (b) Present value factor for an annuity due of $8. chosen to lease the equipment for $30.978 Factor for Present Value of Annuity Due for 6 yrs.978 ÷ $24.144.000 at 8% for 10 years is 6.6 .000 × (factor for Present Value of Ordinary Annuity for 5 yrs. 000 ÷ 8.20679 Present Value of an Ordinary Annuity 7.10782 7. and Buyer B.49506 Periods or Rents 9 10 11 Future Value of $1 1.10782 (present value of a 10-rent annuity due at 5%.61391 12. Carey Company owns a plot of land on which buried toxic wastes have been discovered.93743 18. On the same date.003 74.59374 2.215 Lease Receivable $525. 6-146—Deferred annuity.300 23.915 (Accrual) $50.38554 . Assuming that the appropriate rate of interest is 9%.14457 6.000 for the land now. Various Factors at 10% Periods or Rents 9 10 11 Future Value of $1 2.02656 . (b) How much interest revenue will Pine earn in 2012? Solution 6-145 (a) Calculation of rent: 7.000.57948 15.35795 2.294 Rent No.62889 1. Since it will require several years and a considerable sum of money before the property is fully detoxified and capable of generating revenues.003.72173 8. to whom should Carey sell the land? Show calculations.42410 . it leased this equipment to Sears Company for 5 years.35049 Future Value of an Ordinary Annuity 13.003 None Total Interest Revenue $ -026. Pine Leasing wants to earn 10% annually on its investment. 2012 and are made every 6 months until July 1.57789 . Carey wishes to sell the land now. . who is willing to make 20 annual payments of $75.Accounting and the Time Value of Money Pr. 2016. with the first payment to be made 5 years from today. (b) Interest Revenue during 2012: Cash Received $74.85312 Present Value of $1 .30641 Instructions (a) Calculate the amount of each rent.53117 Present Value of an Ordinary Annuity 5.72173 × 1. It has located two potential buyers: Buyer A.37 Pine Leasing Company purchased specialized equipment from Wayne Company on December 31.000 each. 1 2 None Date 1/1/12 7/1/12 12/31/12 Pr.64461 11.997 478.75902 6. 6-145—Calculation of unknown rent and interest.10782 = $74. the useful life of the equipment. The lease payments begin January 1.05 = 8. 2011 for $600. 6 .58468 14.71034 Various Factors at 5% Present Future Value of an Value of $1 Ordinary Annuity .55133 1. who is willing to pay $480.) $600. The present value of the purchase price is: Present value of ordinary annuity of $75. The present value of the purchase price is $480.70661 3.017 .23972 6.000 for 24 periods at 9% Less present value of ordinary annuity of $75.000.46689 × $75.6 .38 Test Bank for Intermediate Accounting. Buyer B.000 $485. 9.000 for 4 periods (deferred) at 9% Difference Multiplied by annual payments Present value of payments Conclusion: Carey should sell to Buyer B. Fourteenth Edition Solution 6-146 Buyer A. Under IAS 37 and the establishment of estimate provisions. 5. IFRS does not intend to issue detailed guidance on the selection of a discount rate when the time value of money is required to determine cash flows. Under IFRS. 3. 4. True 2. then the expected value method is used. Under IFRS. the rate implicit in the lease is generally used to discount minimum lease payments. True 3.39 IFRS QUESTIONS True / False 1. the discount rate should reflect risks for which future cash flow estimates have been adjusted. 2. Answers to True / False questions: 1. False 5. discounting is required where the time value of money is material. True .Accounting and the Time Value of Money 6 . True 4. if an estimate is being developed for a large number of items with varied outcomes. Under IFRS. a security deposit of $20. $122. The company recently signed a lease for a new office building. Should Martin borrow from the bank or use the manufacturer's payment plan to pay for the equipment? a. PV − OA9. i% = $300. b. b.000 Calculation: Total interest = Total payments—amount owed today $369.870 $36. Inspection of the10 period row reveals a rate of about 4%.000 is made. The company purchases equipment with a price of $300. Under the lease agreement. Fourteenth Edition Multiple Choice Questions: 1. $40. . Martin could borrow $300. Calculation: Future value of $20.40 Test Bank for Intermediate Accounting. The manufacturer has offered a payment plan that would allow Martin to make 10 equal annual payments of $36. Calculation: Martin should use the manufacturer's payment plan. b. What amount will the company receive at the time the lease expires? a. $51.000 × 2. c.892.875 Use the following information to answer questions 2 & 3. 2.000 @ 10% for 10 years ($20. How much total interest will Martin pay on this payment plan? a.59374) = $51.000 from its bank to finance the purchase at an annual rate of 6%.870.987) − $300. There is not enough information to answer this question.000 ÷ $36. $69. with the deposit to be returned at the expiration of the lease. for a lease period of 10 years. d. c.000 = $69.870 (10 × $36.11096.000. d. so Martin would be indifferent. with interest compounded at 10% per year. d. Use the manufacturer's payment plan.000 $30.6 .987 $120. Borrow from the bank. 3.875. c.000. $27. Martin Industries maintains its accounting records using IFRS.987.711. The rates for both the bank and manufacturer are the same. with the first payment due one year after the purchase. Underwood Company maintains its accounting records using IFRS.987 = 8. since it is about a 4% rate as compared to the bank's 6% rate. 000.000. 5%) PV = $2. 2) = $75. Since there is no stated interest rate on the note. Moore Industries manufactures exercise equipment. A credit to Sales Revenue for $75. $2. 2012. which of the following would be recorded by Barton to recognize this sale? a. a company who maintains its accounting records using IFRS. 2027. i) PV − OA = $110.301 5. d. At the time of issuance.970 + $462.760 The selling price of the bonds = $1.000 $1. What is the selling price of the bonds? a.690.000 (0. After a careful evaluation of the request.301 Discount on Notes Receivable 10.153.690. the market interest rate for similar financial instruments is 10%.000. Barton sells a $75. the controller uses the current market rate of 8% to derive the present value factor. the board of directors has decided to raise funds for the new plant by issuing $2.000 (15.000 × . due on March 1.000 Sales Revenue 64. b.Accounting and the Time Value of Money 4.730 $1. c. i) PV = $2.760 = $2. Recently the vice president of operations of the company has requested construction of a new plant to meet the increasing demand for the company's exercise equipment.85734 = $64.220. Based on this information and the incorporation of the time value of money. with interest payable each March 1 and September 1.153.000 order to Save-A Lot Furniture in exchange for a zero-interest-bearing note due from the customer in two years.699.37245) PV − OA = $1.000. d. A debit to Notes Receivable for $64. 6 . b. c. . A credit to Discount on Notes Receivable for $10.730. 5%) PV − OA = $110.000 of 11% bonds on March 1.000 (PVF30.970 Formula for the principal: PV = FV (PVFn.41 Barton Company.970 Calculations: Formula for the interest payments: PV − OA = R (PVF − OAn.699 $75.000 (PVF − OA30.690.776 $2. manufactures furniture.000.269. Rationale: Notes Receivable 75.000 × PV (8%.301.23138) PV = $462. A debit to Discount on Notes Receivable for $6. 6 .000 20% 170. c. Each cash flow estimate reflects Reegan's estimate of annual cash flows over the next 7 years. half required a full replacement at a cost of $3.000 $ 679.000 $132.000 $3. To the nearest dollar. The trade name is assumed to have no residual value after the 7 years.000 × 4% × 50% × $3. (Assume the cash flows occur at the end of each year.000 + $12.500. • • Jamison Company uses IFRS for its financial reporting.000 × PV Factor.42 Test Bank for Intermediate Accounting.000 $2.000 $264.000 Calculation: (2. b.000 50% 365. The trend over the past five years has been that 4% of the machines were defective in some way and had to be repaired.000 850. l = 6%) Present Value $679. It produces machines that sell globally. $3. what is the estimated fair value of the trade name? a.000 per unit and half were able to be repaired at an average cost of $300.000 units were sold during the year.000 850.790.000 × 5. Cash Flow Probability Expected Estimate × Assessment = Cash Flow $480.000 Reegan determines that the appropriate discount rate for this estimation is 6%.000 $679.436 Calculations: This exercise determines the present value of an ordinary annuity of expected cash flows as a fair value estimate.000 = $132. It has developed the following cash flow estimates related to the trade name based on internal information. but according to GAAP.000 30% $144.000 $120. c.) Probability Assessment 30% 50% 20% Cash Flow Estimate $480. To perform this impairment test. it is assessed for impairment on an annual basis. The trade name has a book value of $3. Reegan Company owns a trade name that was purchased in an acquisition of Hamilton Company. the company has the following data: 2.790. All sales are accompanied by a one-year warranty.000. Reegan must estimate the fair value of the trade name. Of this 4%.000) + (2.436 7.58238 = $3.000 730. At the end of the year.000 × 4% × 50% × $300) = $120. $240. Fourteenth Edition 6. b. (n = 7. d. d.000 .000 730.060. What is the expected value of the warranty cost provision? a.500. 46511 = $20.162 + $42.000 × 70% × 0. However. b.562 . The payments are $10.43 Maxim Company leased an office under a five-year contract. 6 .295 Calculation: PV $10. What is the provision for the lease under IFRS? a. which has been accounted for as an operating lease. b.000 at the end of the 20 years. c.55684) + ($375. The company's most recent interest rate for financing from a bank is 6%.37689) = $70. The property is leaded for 12 years and Techtronics has agreed that when the lease expires.000 × 3.500 $112. they have had no luck with this effort and the landlord will not allow the lease to be cancelled.572 $24. If you assume that these estimates are derived from best estimates of likely outcomes and the risk-free rate is 5%. the cleanup will be done at the end of the renewal period. There is a 70% chance that the lease will not be renewed and the cleanup will cost $180. If this option is exercised.000 per year and there are four years left on the lease. b. 9%) = $10.000. There is 30% chance that the lease will be renewed and the cleanup costs will be $375. $21. the viable company decided to sub-lease the office. 6%) = $6. Faced with the downturn in the economy. the viable company decided to sub-lease the office.000 per year and there are five years left on the lease. Faced with the downturn in the economy.562 $277. The company's most recent interest rate for financing from a bank is 9%. The lease has a renewal option for another 8 years. the expected present value of the cleanup provision is: a. The risk-free rate on government bonds is 5%. $50.000 $44. $238. d.Accounting and the Time Value of Money 8.791 9. which has been accounted for as an operating lease.000 × 30% × 0. However.000 × 3.500 $226. they have had no luck with this effort and the landlord will not allow the lease to be cancelled. The payments are $6.000 (5 years. d. c.575 Calculation: ($180. the pollution will be remediated before transfer back to its owner.897 $43.000 (4 years. c. What is the provision for the lease under IFRS? a.400 = $112.519 $38. The risk-free rate on government bonds is 4%. d.791 Calculation: PV $6.897 10 Techtronics.88965 = $38.000 $20.780 $22. a technology company that uses IFRS for its financial reporting. has been found to have polluted the property surrounding its plant. Dolphin Company leased an office under a six-year contract. a 5. a 3.44 Test Bank for Intermediate Accounting. a 2. d 7. b . Fourteenth Edition Answers to Multiple Choice.6 . b 8. c 6. 1. d 9. b 4. c 10.