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Test Bank for Financial Accounting- Tools for
Business Decision Making, 10th Edition by Kimmel
Complete A+
APPENDIX F
TIME VALUE OF MONEY
CHAPTER LEARNING OBJECTIVES
TRUE-FALSE STATEMENTS:
1. Interest is the difference between the amount borrowed and the principal.
Ans: F, LO: 1, Topic: Interest and Future Values, Subtopic: Nature of Interest, Bloom: K,
Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement
Analysis and Interpretation, AICPA PC: None, IMA: Reporting and Control
2. Compound interest is computed on the principal and any interest earned that has not been
paid or received.
Ans: T, LO: 1, Topic: Interest and Future Values, Subtopic: Compound Interest, Bloom: K,
Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement
Analysis and Interpretation, AICPA PC: None, IMA: Reporting and Control
3. The future value of a single amount is the value at a future date of a given amount
invested now, assuming compound interest.
Ans: T, LO: 1, Topic: Interest and Future Values, Subtopic: Future Value of a Single Amount,
Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC:
Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting and Control
4. When the periodic payments are not equal in each period, the future value can be
computed by using a future value of an annuity table.
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Ans: F, LO: 1, Topic: Interest and Future Values, Subtopic: Future Value of an Annuity, Bloom:
C, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement
Analysis and Interpretation, AICPA PC: None, IMA: Reporting and Control
5. The process of determining the present value is referred to as discounting the future
amount.
Ans: T, LO: 2, Topic: Present Values, Subtopic: Present Value Variables, Bloom: K, Difficulty:
Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and
Interpretation, AICPA PC: None, IMA: Reporting and Control
6. A higher discount rate produces a higher present value.
Ans: F, LO: 2, Topic: Present Values, Subtopic: Present Value of a Single Amount, Bloom: K,
Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement
Analysis and Interpretation, AICPA PC: None, IMA: Reporting and Control
7. In computing the present value of an annuity, it is not necessary to know the number of
discount periods.
Ans: F, LO: 2, Topic: Present Values, Subtopic: Present Value of an Annuity, Bloom: C,
Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement
Analysis and Interpretation, AICPA PC: None, IMA: Reporting and Control
8. The present value of a long-term note or bond is a function of two variables.
Ans: F, LO: 2, Topic: Present Values, Subtopic: Present Value of a Long-term Note or Bond,
Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC:
Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting and Control
9. The present value of an annuity is the value now of a series of future receipts or
payments, discounted assuming compound interest.
Ans: T, LO: 2, Topic: Present Values, Subtopic: Present Value of an Annuity, Bloom: K,
Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement
Analysis and Interpretation, AICPA PC: None, IMA: Reporting and Control
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10. The decision to make long-term capital investments is best evaluated without recognizing
the time value of money.
Ans: F, LO: 3, Topic: Capital Budgeting Situations, Subtopic: None, Bloom: K, Difficulty: Easy,
Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and
Interpretation, AICPA PC: None, IMA: Reporting and Control
11. In a capital budgeting decision, a positive net present value means the decision to invest
should be accepted.
Ans: T, LO: 3, Capital Budgeting Situations, Subtopic: None, Bloom: K, Difficulty: Easy, Min:
1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement Analysis and
Interpretation, AICPA PC: None, IMA: Reporting and Control
F-4 Test Bank for Kimmel, Financial Accounting: Tools for Business Decision Making, 10e
12. With Excel or a financial calculator, one can solve for any interest rate or for any number
of periods in a time value of money problem.
Ans: T, LO: 4, Topic: Using Technological Tools, Subtopic: None, Bloom: K, Difficulty: Easy,
Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Technology and Tools, AICPA
PC: None, IMA: Reporting and Control
MULTIPLE-CHOICE QUESTIONS
Note: Students will need future value and present value tables for some questions.
13. Compound interest is the return on principal
a. only.
b. for one or more periods.
c. plus interest for two or more periods.
d. for one period.
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Ans: c, LO: 1, Topic: Interest and Future Values, Subtopic: Compound Interest, Bloom: K,
Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement
Analysis and Interpretation, AICPA PC: None, IMA: Reporting and Control
14. The factor 1.08160 is taken from the 4% column and 2 periods row in a certain table.
From what table is this factor taken?
a. Future value of 1
b. Future value of an annuity of 1
c. Present value of 1
d. Present value of an annuity of 1
Ans: a, LO: 1, Topic: Interest and Future Values, Subtopic: Future Value of a Single Amount,
Bloom: C, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC:
Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting and Control
15. If $40,000 is put in a savings account paying interest of 4% compounded annually, what
amount will be in the account at the end of 5 years?
a. $32,878
b. $48,000
c. $48,620
d. $48,666
Ans: d, LO: 1, Topic: Interest and Future Values, Subtopic: Future Value of a Single Amount,
Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC:
Measurement Analysis and Interpretation, AICPA PC: None, IMA: Reporting and Control
Solution: Use Table 1: ($40,000 × 1.21665) Dep. × FV of 1, n = 5, i = 4)
16. The future value of 1 factor will always be
a. equal to 1.
b. greater than 1.
c. less than 1.
d. equal to the interest rate.
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