ACC 300: EXAM 2 QUESTIONS WITH VERIFIED
SOLUTIONS
On January 1, Gino signs a note payable for $10,000. The note has an interest rate of 3%.
If Gino repays $10,300 at the end of year 1, the interest is ______ interest.
simple
The difference between $100 invested now and $105 at the end of year 1 represents the
time value of money
The amount of money paid or received in excess of the amount of money borrowed or lent
is referred to as what?
interest
Interest on the initial investment plus interest calculated on the previously earned interest
is called _________ interest.
compound
__________ interest is calculated by multiplying an initial investment times the applicable
interest rate and the period of time the money is used, whereas __________ interest
involves earning interest on the interest.
simple; compound
The rate at which money actually grows during a year is called the ______ rate.
effective
On January 1, Susan signs a 1-year note payable for $1000 with 5% simple interest. The
simple interest paid on this loan at year-end is $
50
The amount of money that a dollar will grow to at some point in the future is known as the
future value
Simple interest is computed by multiplying which of the following?
applicable interest rate; initial investment; period of time
Which concept means that money can be invested today to earn interest and grow to a
larger amount in the future?
time value of money
, The type of interest that includes interest on the initial investment plus interest on the
accumulated interest in previous periods is referred to as _________ interest.
compound
______ interest rate is the amount at which money will actually grow per year with
compounding interest.
effective
Joshua would like to deposit $12,000 in a savings account today. He is interested in
knowing what that investment will be worth when he retires at age 62. Joshua is interested
in calculating what amount?
future value
$1,000 invested today at 10% compounded annually will grow to $1,210 at the end of two
years. What is the $1,210 value referred to as?
future value
present value
FV divided by (1 + i)^n
Money and claims to receive money in amounts that are fixed or determinable are called
monetary assets
Most monetary liabilities are valued at the ________ value of _________ cash flows.
present; future
Which of the following is not a monetary liability?
unearned revenue
wages payable
notes payable
accounts payable
unearned revenue
Which of the following situations would involve the calculation of the future value of an
ordinary annuity?
-Depositing an amount to a savings account each month that will grow to purchase a car in
5 years.
-Determining the value of a liability that must be reported on the balance sheet today.
-Determining a single amount borrowed today, which will be repaid in 3 years.
SOLUTIONS
On January 1, Gino signs a note payable for $10,000. The note has an interest rate of 3%.
If Gino repays $10,300 at the end of year 1, the interest is ______ interest.
simple
The difference between $100 invested now and $105 at the end of year 1 represents the
time value of money
The amount of money paid or received in excess of the amount of money borrowed or lent
is referred to as what?
interest
Interest on the initial investment plus interest calculated on the previously earned interest
is called _________ interest.
compound
__________ interest is calculated by multiplying an initial investment times the applicable
interest rate and the period of time the money is used, whereas __________ interest
involves earning interest on the interest.
simple; compound
The rate at which money actually grows during a year is called the ______ rate.
effective
On January 1, Susan signs a 1-year note payable for $1000 with 5% simple interest. The
simple interest paid on this loan at year-end is $
50
The amount of money that a dollar will grow to at some point in the future is known as the
future value
Simple interest is computed by multiplying which of the following?
applicable interest rate; initial investment; period of time
Which concept means that money can be invested today to earn interest and grow to a
larger amount in the future?
time value of money
, The type of interest that includes interest on the initial investment plus interest on the
accumulated interest in previous periods is referred to as _________ interest.
compound
______ interest rate is the amount at which money will actually grow per year with
compounding interest.
effective
Joshua would like to deposit $12,000 in a savings account today. He is interested in
knowing what that investment will be worth when he retires at age 62. Joshua is interested
in calculating what amount?
future value
$1,000 invested today at 10% compounded annually will grow to $1,210 at the end of two
years. What is the $1,210 value referred to as?
future value
present value
FV divided by (1 + i)^n
Money and claims to receive money in amounts that are fixed or determinable are called
monetary assets
Most monetary liabilities are valued at the ________ value of _________ cash flows.
present; future
Which of the following is not a monetary liability?
unearned revenue
wages payable
notes payable
accounts payable
unearned revenue
Which of the following situations would involve the calculation of the future value of an
ordinary annuity?
-Depositing an amount to a savings account each month that will grow to purchase a car in
5 years.
-Determining the value of a liability that must be reported on the balance sheet today.
-Determining a single amount borrowed today, which will be repaid in 3 years.
