,TESTBANK FOR Accounting Tools for Business Decision Making, 7th Edition
by Paul D. Kimmel
Hello all ,
We have all what you need with best price
Our email :
Our website :
testbanks-store.com
, APPENDIX G
TIME VALUE OF MONEY
SUMMARY OF QUESTIONS BY OBJECTIVES AND BLOOM’S TAXONOMY
Item LO BT Item LO BT Item LO BT Item LO BT Item LO BT
True-False Statements
1. 1 K 4. 1 C 7. 2 C 10. 3 K
2. 1 K 5. 2 K 8. 2 K 11. 3 K
3. 1 K 6. 2 K 9. 2 K 12. 4 K
Multiple Choice Questions
13. 1 K 20. 1 K 27. 2 AP 34. 2 C 41. 2 AP
14. 1 C 21. 1 AP 28. 2 AP 35. 2 AP 42. 2 AP
15. 1 AP 22. 1 K 29. 2 AP 36.3
36. 2 AP 43. 3 C
16. 1 K 23. 2 K 30. 2 C 6
37. 2 AP 44. 4 C
17. 1 K 232
24. 2 C 31. 2 AP 38. 2 AP
18. 1 C 4
25. 2 C 32. 2 AP 39. 2 C
19. 1 AP 26. 2 AP 33. 2 AP 40. 2 AP
Exercises
45. 1 AP 51. 1 AP 57. 2 AP 63. 2 AP 69. 2 AP
46. 1 AP 52. 1 AP 58. 2 AP 64. 2 AP 70. 2 AP
47. 1 AP 53. 1 AP 59. 2 AP 65. 2 AP 71. 3 AP
48. 1 AP 54. 1 AP 60. 2 AP 66. 2 AP 72.
72. 4 AP
47
49. 1 AP 55. 1 AP 61. 2 AP 67. 2 AN
50. 1 AP 56.\ 2 AP 6
62. 2 AP 68. 2 AP
Completion Statements
73. 1 K 74. 1 K 75. 2 K 76. 3 K
,G-2 Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE
Item Type Item Type Item Type Item Type Item Type Item Type Item Type
Learning Objective 1
1. TF 13. MC 17. MC 21. MC 47. Ex 51. Ex 55. Ex
2. TF 14. MC 18. MC 22. MC 48. Ex 52. Ex 73. C
3. TF 15. MC 19. MC 45. Ex 49. Ex 53. Ex 74. C
4. TF 16. MC 20. MC 46. Ex 50. Ex 54. Ex
Learning Objective 2
5. TF 24. MC 30. MC 36. MC 42. MC 61. Ex 67. Ex
6. TF 25. MC 31. MC 37. MC 56. Ex 62. Ex 68. Ex
7. TF 26. MC 32. MC 38. MC 57. Ex 63. Ex 69. Ex
8. TF 27. MC 33. MC 39. MC 58. Ex 64. Ex 70. Ex
9. TF 28. MC 34. MC 40. MC 59. Ex 65. Ex 75. C
23. MC 29. MC 35. MC 41. MC 60. Ex 66. Ex 76. C
Learning Objective 3
10. TF 70. 11 43. MC 71. Ex
Learning Objective 4
12. TF 44. MC 72. Ex
Note: TF = True-False C = Completion
MC = Multiple Choice Ex = Exercise
The chapter also contains one set of five Matching questions.
, Time Value of Money G-3
CHAPTER LEARNING OBJECTIVES
1. Compute interest and future values. Simple interest is computed on the principal only, while
compound interest is computed on the principal and any interest earned that has not been
withdrawn.
To solve for future value of a single amount, prepare a time diagram of the problem. Identify
the principal amount, the number of compounding periods, and the interest rate. Using the
future value of 1 table, multiply the principal amount by the future value factor specified at the
intersection of the number of periods and the interest rate.
To solve for future value of an annuity, prepare a time diagram of the problem. Identify the
amount of the periodic payments (receipts), the number of payments, and the interest rate.
Using the future value of an annuity of 1 table, multiply the amount of the payments by the
future value factor specified at the intersection of the number of periods and the interest rate.
2. Compute present value. The following three variables are fundamental to solving present
value problems: (1) the future amount, (2) the number of periods, and (3) the interest rate (the
discount rate).
To solve for present value of a single amount, prepare a time diagram of the problem. Identify
the future amount, the number of discounting periods, and the discount (interest) rate. Using
the present value of a single amount table, multiply the future amount by the present value
factor specified at the intersection of the number of periods and the discount rate.
To solve for present value of an annuity, prepare a time diagram of the problem. Identify the
amount of future periodic receipts or payment (annuities), the number of discounting periods,
and the discount (interest) rate. Using the present value of an annuity of 1 table, multiply the
amount of the annuity by the present value factor specified at the intersection of the number of
periods and the interest rate.
To compute the present value of notes and bonds, determine the present value of the principal
amount: Multiply the principal amount (a single future amount) by the present value factor
(from the present value of 1 table) intersecting at the number of periods (number of interest
payments) and the discount rate. To determine the present value of the series of interest
payments: Multiply the amount of the interest payment by the present value factor (from the
present value of an annuity of 1 table) intersecting at the number of periods (number of
interest payments) and the discount rate. Add the present value of the principal amount to the
present value of the interest payments to arrive at the present value of the note or bond.
3. Compute the present value in capital budgeting situations. Compute the present values of
all cash inflows and all cash outflows related to the capital budgeting proposal (an investment-
type decision). If the net present value is positive, accept the proposal (make the investment).
If the net present value is negative, reject the proposal (do not make the investment).
4. Use a financial calculator to solve time value of money problems. Financial calculators
can be used to solve the same and additional problems as those solved with time value of
money tables. Enter into the financial calculator the amounts for all of the known elements of a
time value of money problem (periods, interest rate, payments, future or present value), and it
solves for the unknown element. Particularly useful situations involve interest rates and
compounding periods not presented in the tables.
,G-4 Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
TRUE-FALSE STATEMENTS
1. Interest is the difference between the amount borrowed and the principal.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC:
Project Management, IMA: Investment Decision
2. Compound interest is computed on the principal and any interest earned that has not been
paid or received.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC:
Project Management, IMA: Investment Decision
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, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC:
Project Management, IMA: Investment Decision
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.
Ans: F, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC:
Project Management, IMA: Investment Decision
5. The process of determining the present value is referred to as discounting the future
amount.
Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC:
Project Management, IMA: Investment Decision
6. A higher discount rate produces a higher present value.
Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC:
Project Management, IMA: Investment Decision
7. In computing the present value of an annuity, it is not necessary to know the number of
discount periods.
Ans: F, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC:
Project Management, IMA: Investment Decision
8. The present value of a long-term note or bond is a function of two variables.
Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC:
Project Management, IMA: Investment Decision
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, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC:
Project Management, IMA: Decision Analysis
10. The decision to make long-term capital investments is best evaluated without recognizing
the time value of money.
Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC:
Project Management, IMA: Investment Decision
11. In a capital budgeting decision, a positive net present value means the decision to invest
should be accepted.
Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC:
Project Management, IMA: Investment Decision
12. With a financial calculator, one can solve for any interest rate or for any number of periods
in a time value of money problem.
, Time Value of Money G-5
Ans: T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC:
Project Management, IMA: Decision Analysis
Answers to True-False Statements
Item Ans. Item Ans. Item Ans. Item Ans.
1. F 4. F 7. F 10. F
2. T 5. T 8. F 11. T
3. T 6. F 9. T 12. T
,G-6 Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
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.
Ans: c, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC:
Project Management, IMA: Investment Decision
14. The factor 1.0609 is taken from the 3% 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, Bloom: C, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC: Problem
Solving/Decision Making, IMA: Investment Decision
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, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC: Problem
Solving/Decision Making, IMA: Quantitative Methods
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.
Ans: b, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC:
Project Management, IMA: Investment Decision
17. All of the following are necessary to compute the future value of a single amount except
the
a. interest rate.
b. number of periods.
c. principal.
d. maturity value.
Ans: d, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC:
Project Management, IMA: Investment Decision
18. Which table has a factor of 1.00000 for 1 period at every interest rate?
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
, Time Value of Money G-7
Ans: b, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC:
Project Management, IMA: Investment Decision
19. McGoff Company deposits $20,000 in a fund at the end of each year for 5 years. The fund
pays interest of 4% compounded annually. The balance in the fund at the end of 5 years is
computed by multiplying
a. $20,000 by the future value of 1 factor.
b. $100,000 by 1.04.
c. $100,000 by 1.20.
d. $20,000 by the future value of an annuity factor.
Ans: d, LO: 1, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC: Problem
Solving/Decision Making, IMA: Investment Decision
20. The future value of an annuity factor for 2 periods is equal to
a. 1 plus the interest rate.
b. 2 plus the interest rate.
c. 2 minus the interest rate.
d. 2.
Ans: b, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC:
Project Management, IMA: Investment Decision
21. If $30,000 is deposited in a savings account at the end of each year and the account pays
interest of 5% compounded annually, what will be the balance of the account at the end of
10 years?
a. $48,867
b. $315,000
c. $377,337
d. $450,000
Ans: c, LO: 1, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC: Problem
Solving/Decision Making, IMA: Quantitative Methods
22. Which of the following is not necessary to know in computing the future value of an
annuity?
a. Amount of the periodic payments
b. Interest rate
c. Number of compounding periods
d. Year the payments begin
Ans: d, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC:
Project Management, IMA: Quantitative Methods
23. In present value calculations, the process of determining the present value is called
a. allocating.
b. pricing.
c. negotiating.
d. discounting.
Ans: d, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC:
Project Management, IMA: Quantitative Methods
24. Present value is based on
a. the dollar amount to be received.
b. the length of time until the amount is received.
c. the interest rate.
d. All of these answers are correct.
, G-8 Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
Ans: d, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC:
Project Management, IMA: Quantitative Methods
25. Which of the following accounting problems does not involve a present value calculation?
a. The determination of the market price of a bond.
b. The determination of the declining-balance depreciation expense.
c. The determination of the amount to report for long-term notes payable.
d. The determination of the amount to report for lease liability.
Ans: b, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC:
Project Management, IMA: Quantitative Methods
26. If you are able to earn an 8% rate of return, what amount would you need to invest to have
$30,000 one year from now?
a. $27,747
b. $27,778
c. $27,273
d. $29,700
Ans: b, LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC: Problem
Solving/Decision Making, IMA: Quantitative Methods
27. If you are able to earn a 15% rate of return, what amount would you need to invest to have
$15,000 one year from now?
a. $14,852
b. $13,125
c. $12,750
d. $13,044
Ans: d, LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC: Problem
Solving/Decision Making, IMA: Quantitative Methods
28. If the single amount of $2,000 is to be received in 2 years and discounted at 11%, its
present value is
a. $1,818.
b. $1,623.
c. $1,802.
d. $2,754.
Ans: b, LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC: Problem
Solving/Decision Making, IMA: Quantitative Methods
29. If the single amount of $3,000 is to be received in 3 years and discounted at 6%, its
present value is
a. $2,519.
b. $2,830.
c. $2,600.
d. $2,820.
Ans: a, LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC: Problem
Solving/Decision Making, IMA: Quantitative Methods
30. Which of the following discount rates will produce the smallest present value?
a. 8%
b. 9%
c. 10%
d. 4%
Ans: c, LO: 2, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC: Problem
Solving/Decision Making, IMA: Quantitative Method
by Paul D. Kimmel
Hello all ,
We have all what you need with best price
Our email :
Our website :
testbanks-store.com
, APPENDIX G
TIME VALUE OF MONEY
SUMMARY OF QUESTIONS BY OBJECTIVES AND BLOOM’S TAXONOMY
Item LO BT Item LO BT Item LO BT Item LO BT Item LO BT
True-False Statements
1. 1 K 4. 1 C 7. 2 C 10. 3 K
2. 1 K 5. 2 K 8. 2 K 11. 3 K
3. 1 K 6. 2 K 9. 2 K 12. 4 K
Multiple Choice Questions
13. 1 K 20. 1 K 27. 2 AP 34. 2 C 41. 2 AP
14. 1 C 21. 1 AP 28. 2 AP 35. 2 AP 42. 2 AP
15. 1 AP 22. 1 K 29. 2 AP 36.3
36. 2 AP 43. 3 C
16. 1 K 23. 2 K 30. 2 C 6
37. 2 AP 44. 4 C
17. 1 K 232
24. 2 C 31. 2 AP 38. 2 AP
18. 1 C 4
25. 2 C 32. 2 AP 39. 2 C
19. 1 AP 26. 2 AP 33. 2 AP 40. 2 AP
Exercises
45. 1 AP 51. 1 AP 57. 2 AP 63. 2 AP 69. 2 AP
46. 1 AP 52. 1 AP 58. 2 AP 64. 2 AP 70. 2 AP
47. 1 AP 53. 1 AP 59. 2 AP 65. 2 AP 71. 3 AP
48. 1 AP 54. 1 AP 60. 2 AP 66. 2 AP 72.
72. 4 AP
47
49. 1 AP 55. 1 AP 61. 2 AP 67. 2 AN
50. 1 AP 56.\ 2 AP 6
62. 2 AP 68. 2 AP
Completion Statements
73. 1 K 74. 1 K 75. 2 K 76. 3 K
,G-2 Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE
Item Type Item Type Item Type Item Type Item Type Item Type Item Type
Learning Objective 1
1. TF 13. MC 17. MC 21. MC 47. Ex 51. Ex 55. Ex
2. TF 14. MC 18. MC 22. MC 48. Ex 52. Ex 73. C
3. TF 15. MC 19. MC 45. Ex 49. Ex 53. Ex 74. C
4. TF 16. MC 20. MC 46. Ex 50. Ex 54. Ex
Learning Objective 2
5. TF 24. MC 30. MC 36. MC 42. MC 61. Ex 67. Ex
6. TF 25. MC 31. MC 37. MC 56. Ex 62. Ex 68. Ex
7. TF 26. MC 32. MC 38. MC 57. Ex 63. Ex 69. Ex
8. TF 27. MC 33. MC 39. MC 58. Ex 64. Ex 70. Ex
9. TF 28. MC 34. MC 40. MC 59. Ex 65. Ex 75. C
23. MC 29. MC 35. MC 41. MC 60. Ex 66. Ex 76. C
Learning Objective 3
10. TF 70. 11 43. MC 71. Ex
Learning Objective 4
12. TF 44. MC 72. Ex
Note: TF = True-False C = Completion
MC = Multiple Choice Ex = Exercise
The chapter also contains one set of five Matching questions.
, Time Value of Money G-3
CHAPTER LEARNING OBJECTIVES
1. Compute interest and future values. Simple interest is computed on the principal only, while
compound interest is computed on the principal and any interest earned that has not been
withdrawn.
To solve for future value of a single amount, prepare a time diagram of the problem. Identify
the principal amount, the number of compounding periods, and the interest rate. Using the
future value of 1 table, multiply the principal amount by the future value factor specified at the
intersection of the number of periods and the interest rate.
To solve for future value of an annuity, prepare a time diagram of the problem. Identify the
amount of the periodic payments (receipts), the number of payments, and the interest rate.
Using the future value of an annuity of 1 table, multiply the amount of the payments by the
future value factor specified at the intersection of the number of periods and the interest rate.
2. Compute present value. The following three variables are fundamental to solving present
value problems: (1) the future amount, (2) the number of periods, and (3) the interest rate (the
discount rate).
To solve for present value of a single amount, prepare a time diagram of the problem. Identify
the future amount, the number of discounting periods, and the discount (interest) rate. Using
the present value of a single amount table, multiply the future amount by the present value
factor specified at the intersection of the number of periods and the discount rate.
To solve for present value of an annuity, prepare a time diagram of the problem. Identify the
amount of future periodic receipts or payment (annuities), the number of discounting periods,
and the discount (interest) rate. Using the present value of an annuity of 1 table, multiply the
amount of the annuity by the present value factor specified at the intersection of the number of
periods and the interest rate.
To compute the present value of notes and bonds, determine the present value of the principal
amount: Multiply the principal amount (a single future amount) by the present value factor
(from the present value of 1 table) intersecting at the number of periods (number of interest
payments) and the discount rate. To determine the present value of the series of interest
payments: Multiply the amount of the interest payment by the present value factor (from the
present value of an annuity of 1 table) intersecting at the number of periods (number of
interest payments) and the discount rate. Add the present value of the principal amount to the
present value of the interest payments to arrive at the present value of the note or bond.
3. Compute the present value in capital budgeting situations. Compute the present values of
all cash inflows and all cash outflows related to the capital budgeting proposal (an investment-
type decision). If the net present value is positive, accept the proposal (make the investment).
If the net present value is negative, reject the proposal (do not make the investment).
4. Use a financial calculator to solve time value of money problems. Financial calculators
can be used to solve the same and additional problems as those solved with time value of
money tables. Enter into the financial calculator the amounts for all of the known elements of a
time value of money problem (periods, interest rate, payments, future or present value), and it
solves for the unknown element. Particularly useful situations involve interest rates and
compounding periods not presented in the tables.
,G-4 Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
TRUE-FALSE STATEMENTS
1. Interest is the difference between the amount borrowed and the principal.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC:
Project Management, IMA: Investment Decision
2. Compound interest is computed on the principal and any interest earned that has not been
paid or received.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC:
Project Management, IMA: Investment Decision
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, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC:
Project Management, IMA: Investment Decision
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.
Ans: F, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC:
Project Management, IMA: Investment Decision
5. The process of determining the present value is referred to as discounting the future
amount.
Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC:
Project Management, IMA: Investment Decision
6. A higher discount rate produces a higher present value.
Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC:
Project Management, IMA: Investment Decision
7. In computing the present value of an annuity, it is not necessary to know the number of
discount periods.
Ans: F, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC:
Project Management, IMA: Investment Decision
8. The present value of a long-term note or bond is a function of two variables.
Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC:
Project Management, IMA: Investment Decision
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, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC:
Project Management, IMA: Decision Analysis
10. The decision to make long-term capital investments is best evaluated without recognizing
the time value of money.
Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC:
Project Management, IMA: Investment Decision
11. In a capital budgeting decision, a positive net present value means the decision to invest
should be accepted.
Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC:
Project Management, IMA: Investment Decision
12. With a financial calculator, one can solve for any interest rate or for any number of periods
in a time value of money problem.
, Time Value of Money G-5
Ans: T, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC:
Project Management, IMA: Decision Analysis
Answers to True-False Statements
Item Ans. Item Ans. Item Ans. Item Ans.
1. F 4. F 7. F 10. F
2. T 5. T 8. F 11. T
3. T 6. F 9. T 12. T
,G-6 Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
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.
Ans: c, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC:
Project Management, IMA: Investment Decision
14. The factor 1.0609 is taken from the 3% 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, Bloom: C, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC: Problem
Solving/Decision Making, IMA: Investment Decision
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, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC: Problem
Solving/Decision Making, IMA: Quantitative Methods
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.
Ans: b, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC:
Project Management, IMA: Investment Decision
17. All of the following are necessary to compute the future value of a single amount except
the
a. interest rate.
b. number of periods.
c. principal.
d. maturity value.
Ans: d, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC:
Project Management, IMA: Investment Decision
18. Which table has a factor of 1.00000 for 1 period at every interest rate?
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
, Time Value of Money G-7
Ans: b, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC:
Project Management, IMA: Investment Decision
19. McGoff Company deposits $20,000 in a fund at the end of each year for 5 years. The fund
pays interest of 4% compounded annually. The balance in the fund at the end of 5 years is
computed by multiplying
a. $20,000 by the future value of 1 factor.
b. $100,000 by 1.04.
c. $100,000 by 1.20.
d. $20,000 by the future value of an annuity factor.
Ans: d, LO: 1, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC: Problem
Solving/Decision Making, IMA: Investment Decision
20. The future value of an annuity factor for 2 periods is equal to
a. 1 plus the interest rate.
b. 2 plus the interest rate.
c. 2 minus the interest rate.
d. 2.
Ans: b, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC:
Project Management, IMA: Investment Decision
21. If $30,000 is deposited in a savings account at the end of each year and the account pays
interest of 5% compounded annually, what will be the balance of the account at the end of
10 years?
a. $48,867
b. $315,000
c. $377,337
d. $450,000
Ans: c, LO: 1, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC: Problem
Solving/Decision Making, IMA: Quantitative Methods
22. Which of the following is not necessary to know in computing the future value of an
annuity?
a. Amount of the periodic payments
b. Interest rate
c. Number of compounding periods
d. Year the payments begin
Ans: d, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC:
Project Management, IMA: Quantitative Methods
23. In present value calculations, the process of determining the present value is called
a. allocating.
b. pricing.
c. negotiating.
d. discounting.
Ans: d, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC:
Project Management, IMA: Quantitative Methods
24. Present value is based on
a. the dollar amount to be received.
b. the length of time until the amount is received.
c. the interest rate.
d. All of these answers are correct.
, G-8 Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
Ans: d, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC:
Project Management, IMA: Quantitative Methods
25. Which of the following accounting problems does not involve a present value calculation?
a. The determination of the market price of a bond.
b. The determination of the declining-balance depreciation expense.
c. The determination of the amount to report for long-term notes payable.
d. The determination of the amount to report for lease liability.
Ans: b, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC:
Project Management, IMA: Quantitative Methods
26. If you are able to earn an 8% rate of return, what amount would you need to invest to have
$30,000 one year from now?
a. $27,747
b. $27,778
c. $27,273
d. $29,700
Ans: b, LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC: Problem
Solving/Decision Making, IMA: Quantitative Methods
27. If you are able to earn a 15% rate of return, what amount would you need to invest to have
$15,000 one year from now?
a. $14,852
b. $13,125
c. $12,750
d. $13,044
Ans: d, LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC: Problem
Solving/Decision Making, IMA: Quantitative Methods
28. If the single amount of $2,000 is to be received in 2 years and discounted at 11%, its
present value is
a. $1,818.
b. $1,623.
c. $1,802.
d. $2,754.
Ans: b, LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC: Problem
Solving/Decision Making, IMA: Quantitative Methods
29. If the single amount of $3,000 is to be received in 3 years and discounted at 6%, its
present value is
a. $2,519.
b. $2,830.
c. $2,600.
d. $2,820.
Ans: a, LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC: Problem
Solving/Decision Making, IMA: Quantitative Methods
30. Which of the following discount rates will produce the smallest present value?
a. 8%
b. 9%
c. 10%
d. 4%
Ans: c, LO: 2, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Resource Management, AICPA FC: Measurement, AICPA PC: Problem
Solving/Decision Making, IMA: Quantitative Method
