INTERMEDIATE ACCOUNTING TEST
GUIDE QUESTIONS AND ANSWERS
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 semi-annually on
July 1 and January 1 yielding 7%.
d. A ten-year 8% bond is issued on January 2 with interest payable semi-annually on
July 1 and January 1 yielding 9%. - Answer-A
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. - Answer-D
Which of the following situations does not base an accounting measure on present
values?
a. Pensions.
b. Prepaid insurance.
c. Leases.
d. Sinking funds. - Answer-B
What is interest?
a. Payment for the use of money.
b. An equity investment
.c. Return on capital
.d. Loan. - Answer-A
What is NOT a variable that is considered in interest computations?
a. Principal
.b. Interest rate.
c. Assets
.d. Time. - Answer-C
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. - Answer-D
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. - Answer-B
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 - Answer-B
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 - Answer-A
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 - Answer-D
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 - Answer-C
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 - Answer-C
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 - Answer-B
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 - Answer-C
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. - Answer-C
On June 1, 2012, 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, 2012. 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. - Answer-A
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. - Answer-A
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. - Answer-C
In the time diagram below, which concept is being depicted?01$12$13$14$1PV
GUIDE QUESTIONS AND ANSWERS
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 semi-annually on
July 1 and January 1 yielding 7%.
d. A ten-year 8% bond is issued on January 2 with interest payable semi-annually on
July 1 and January 1 yielding 9%. - Answer-A
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. - Answer-D
Which of the following situations does not base an accounting measure on present
values?
a. Pensions.
b. Prepaid insurance.
c. Leases.
d. Sinking funds. - Answer-B
What is interest?
a. Payment for the use of money.
b. An equity investment
.c. Return on capital
.d. Loan. - Answer-A
What is NOT a variable that is considered in interest computations?
a. Principal
.b. Interest rate.
c. Assets
.d. Time. - Answer-C
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. - Answer-D
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. - Answer-B
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 - Answer-B
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 - Answer-A
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 - Answer-D
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 - Answer-C
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 - Answer-C
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 - Answer-B
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 - Answer-C
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. - Answer-C
On June 1, 2012, 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, 2012. 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. - Answer-A
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. - Answer-A
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. - Answer-C
In the time diagram below, which concept is being depicted?01$12$13$14$1PV
