Intermediate Accounting 1: Units 5-7
time value of money - ANS-a dollar today is worth more than a dollar tomorrow
Level 1 fair value measures are - ANS-the least subjective because they are based on
quoted prices
Level 3 fair value measures are - ANS-the most subjective because they are based on
unobservable inputs, such as a company's own data or assumptions related to the
expected future cash flows associated with the asset or liability.
interest - ANS-payment made for the use of borrowed money
simple interest - ANS-interest paid only on the principal
compound interest - ANS-interest earned on both the principal amount and any interest
already earned
To convert the "annual interest rate" into the "compounding period interest rate -
ANS-divide the annual rate by the number of compounding periods per year.
determine the number of periods by - ANS-multiplying the number of years involved by
the number of compounding periods per year
The present value is always a _______ amount than the known future value, due to
earned and accumulated interest. - ANS-smaller
Use _____ to determine future value - ANS-accumulation
Use _____ to determine present value - ANS-discounting
to find the present value of an annuity due factor - ANS-multiply the present value of an
ordinary annuity factor by 1 plus the interest rate (that is, 1 + i).
If an annuity due and an ordinary annuity have the same number of equal payments
and the same interest rates, what is true regarding the present values of each? -
ANS-The present value of the annuity due is greater than the present value of the
, ordinary annuity because payments are made sooner with an annuity due (at the
beginning of the period) than with an ordinary annuity (at the end of the period).
ordinary annuity payments made at - ANS-the end of a period
annuity due payments made at - ANS-the beginning of a period
For which accounting topic are present value-based accounting measurements
relevant? - ANS-Environmental Liabilities
Which four variables are fundamental to all compound interest problems? - ANS-Rate of
interest, number of time periods, future value, and present value
Equipment is exchanged for a noninterest-bearing note. Payment of $20,000 on the
note is to be made in one year. The market rate of notes of similar risk is 5%. Assuming
an annual interest rate of 5% is appropriate, the present value of the principal is
$20,000 × 0.95238 = $19,048. Assuming that a semiannual interest rate of 2.5% is
appropriate, the present value of the principal is ($20,000/2) × 1.92742 = $19,274.
What is the cost that should be recorded with the purchase of this equipment? -
ANS-$19,048 present value
A company issues a five-year zero-interest-bearing note for a new lathe it purchased for
$25,000. The market rate of interest at the time the note was issued is 4%. Assuming
an annual interest rate of 4% for five years is appropriate, the present value of the
principal is $25,000 × 0.82193 = $20,548. Assuming an annual interest rate of 5% for 4
years is appropriate, the present value of the principal is $25,000 × 0.82270 = $20,568.
Which amount should be recorded for the cost of the lathe? - ANS-$20548, present
value
original maturity date of 90 days or less - ANS-cash equivalent
US Treasury Bills - ANS-cash equivalent
commercial paper - ANS-cash equivalent
Money market funds - ANS-cash equivalent
time value of money - ANS-a dollar today is worth more than a dollar tomorrow
Level 1 fair value measures are - ANS-the least subjective because they are based on
quoted prices
Level 3 fair value measures are - ANS-the most subjective because they are based on
unobservable inputs, such as a company's own data or assumptions related to the
expected future cash flows associated with the asset or liability.
interest - ANS-payment made for the use of borrowed money
simple interest - ANS-interest paid only on the principal
compound interest - ANS-interest earned on both the principal amount and any interest
already earned
To convert the "annual interest rate" into the "compounding period interest rate -
ANS-divide the annual rate by the number of compounding periods per year.
determine the number of periods by - ANS-multiplying the number of years involved by
the number of compounding periods per year
The present value is always a _______ amount than the known future value, due to
earned and accumulated interest. - ANS-smaller
Use _____ to determine future value - ANS-accumulation
Use _____ to determine present value - ANS-discounting
to find the present value of an annuity due factor - ANS-multiply the present value of an
ordinary annuity factor by 1 plus the interest rate (that is, 1 + i).
If an annuity due and an ordinary annuity have the same number of equal payments
and the same interest rates, what is true regarding the present values of each? -
ANS-The present value of the annuity due is greater than the present value of the
, ordinary annuity because payments are made sooner with an annuity due (at the
beginning of the period) than with an ordinary annuity (at the end of the period).
ordinary annuity payments made at - ANS-the end of a period
annuity due payments made at - ANS-the beginning of a period
For which accounting topic are present value-based accounting measurements
relevant? - ANS-Environmental Liabilities
Which four variables are fundamental to all compound interest problems? - ANS-Rate of
interest, number of time periods, future value, and present value
Equipment is exchanged for a noninterest-bearing note. Payment of $20,000 on the
note is to be made in one year. The market rate of notes of similar risk is 5%. Assuming
an annual interest rate of 5% is appropriate, the present value of the principal is
$20,000 × 0.95238 = $19,048. Assuming that a semiannual interest rate of 2.5% is
appropriate, the present value of the principal is ($20,000/2) × 1.92742 = $19,274.
What is the cost that should be recorded with the purchase of this equipment? -
ANS-$19,048 present value
A company issues a five-year zero-interest-bearing note for a new lathe it purchased for
$25,000. The market rate of interest at the time the note was issued is 4%. Assuming
an annual interest rate of 4% for five years is appropriate, the present value of the
principal is $25,000 × 0.82193 = $20,548. Assuming an annual interest rate of 5% for 4
years is appropriate, the present value of the principal is $25,000 × 0.82270 = $20,568.
Which amount should be recorded for the cost of the lathe? - ANS-$20548, present
value
original maturity date of 90 days or less - ANS-cash equivalent
US Treasury Bills - ANS-cash equivalent
commercial paper - ANS-cash equivalent
Money market funds - ANS-cash equivalent
