, TESTBANK for Financial Accounting with
International Financial Reporting Standards,
5th Edition by Jerry J. Weygandt
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, APPENDIX E
TIME VALUE OF MONEY
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been withdrawn.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.
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 (receipts), 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 payments
and the interest rate.
2. Compute present values. 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 payments (annuities), the number of payments
(receipts), 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 payments and the interest rate.
To compute the present value of notes and bonds, determine the present value of the
principal amount and the present value of the interest payments. 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. 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.
© John Wiley & Sons, Inc. or the author, all rights reserved.
Weygandt Financial Accounting IFRS 5e Test Bank (For Instructor Use Only)
,E-2
TRUE-FALSE STATEMENTS
1. Interest is the difference between the amount borrowed and the principal.
Answer: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
2. Compound interest is computed on the principal and any interest earned that has not
been paid or withdrawn.
Answer: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
3. The future value of a single amount is the value at a future date of a given amount
invested now, assuming compound interest.
Answer: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
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.
Answer: F, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
5. The process of determining the present value is referred to as discounting the future
amount.
Answer: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
6. A higher discount rate produces a higher present value.
Answer: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
7. In computing the present value of an annuity, it is not necessary to know the number of
discount periods.
Answer: F, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
8. Many companies calculate the future value of the cash flows involved in an investment in
evaluating long-term capital investments.
Answer: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
9. Financial calculators can be used to solve the same problems as those solved with time
value of money tables.
Answer: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
10. With a financial calculator, one can solve for any interest rate or for any number of periods
in a time value of money problem.
Answer: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
© John Wiley & Sons, Inc. or the author, all rights reserved.
Weygandt Financial Accounting IFRS 5e Test Bank (For Instructor Use Only)
, Time Value of Money E-3
MULTIPLE CHOICE QUESTIONS
Note: Students will need future value and present value tables for some questions.
11. 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.
Answer: c, LO1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis, AICPA
PC: None, IMA: Reporting & Control: Financial Recordkeeping
12. 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
Answer: a, LO1, Bloom: AP, Difficulty: Medium, Min: 1,5, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
13. If €40,000 is deposited 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
Answer: d, LO1, Bloom: AP, Difficulty: Medium, Min: 1,5, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
14. 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.
Answer: b, LO1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
15. 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.
Answer: d, LO1, Bloom: AN, Difficulty: Medium, Min: 1,5, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
16. 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
© John Wiley & Sons, Inc. or the author, all rights reserved.
Weygandt Financial Accounting IFRS 5e Test Bank (For Instructor Use Only)
,E-4
c. Present value of 1
d. Present value of an annuity of 1
Answer: b, LO1, Bloom: AN, Difficulty: Medium, Min: 1,5, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
17. 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.
Answer: d, LO1, Bloom: AP, Difficulty: Medium, Min: 1,5, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
18. 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.
Answer: b, LO1, Bloom: AN, Difficulty: Medium, Min: 1,5, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
19. If $40,000 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. $65,156
b. $420,000
c. $503,116
d. $600,000
Answer: c, LO1, Bloom: AP, Difficulty: Medium, Min: 1,5, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
20. 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
Answer: d, LO1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis, AICPA
PC: None, IMA: Reporting & Control: Financial Recordkeeping
21. In present value calculations, the process of determining the present value is called
a. allocating.
b. pricing.
c. negotiating.
d. discounting.
Answer: d, LO2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis, AICPA
PC: None, IMA: Reporting & Control: Financial Recordkeeping
© John Wiley & Sons, Inc. or the author, all rights reserved.
Weygandt Financial Accounting IFRS 5e Test Bank (For Instructor Use Only)
, Time Value of Money E-5
22. 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 the answer choices are correct.
Answer: d, LO2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis, AICPA
PC: None, IMA: Reporting & Control: Financial Recordkeeping
23. 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 non-current notes payable.
d. The determination of the amount to report for lease liability.
Answer: b, LO2, Bloom: AN, Difficulty: Medium, Min: 1,5, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
24. If you can earn an 8% rate of return, what amount would you need to invest to have
€60,000 one year from now?
a. €55,494
b. €55,556
c. €54,546
d. €59,400
Answer: b, LO2, Bloom: AP, Difficulty: Medium, Min: 1,5, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
25. If you can earn a 15% rate of return, what amount would you need to invest to have
€25,000 one year from now?
a. €24,753
b. €21,875
c. €21,250
d. €21,740
Answer: d, LO2, Bloom: AP, Difficulty: Medium, Min: 1,5, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
26. If the single amount of €10,000 to be received in 2 years is discounted at 11%, its present
value is
a. €9,090.
b. €8,116.
c. €9,010.
d. €13,770.
Answer: b, LO2, Bloom: AP, Difficulty: Medium, Min: 1,5, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
27. If the single amount of €5,000 is to be received in 3 years and discounted at 6%, its
present value is
a. €4,198.
b. €4,716.
c. €4,333.
© John Wiley & Sons, Inc. or the author, all rights reserved.
Weygandt Financial Accounting IFRS 5e Test Bank (For Instructor Use Only)
,E-6
d. €4,700.
Answer: a, LO2, Bloom: AP, Difficulty: Medium, Min: 1,5, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
28. Which of the following discount rates will produce the smallest present value?
a. 8%
b. 9%
c. 10%
d. 4%
Answer: c, LO2, Bloom: AN, Difficulty: Medium, Min: 1,5, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
29. Suppose you have a winning lottery ticket and you have the option of accepting
€5,000,000 three years from now or taking the present value of the €5,000,000 now. The
sponsor of the prize uses a 6% discount rate. If you elect to receive the present value of
the prize now, the amount you will receive is
a. €4,198,100.
b. €4,319,200.
c. €4,450,000.
d. €5,000,000.
Answer: a, LO2, Bloom: AP, Difficulty: Medium, Min: 1,5, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
30. The amount you must deposit now in your savings account, paying 6% interest to
accumulate €8,000 for a down payment 5 years from now on a new car is
a. €1,600.
b. €5,978.
c. €5,969.
d. €5,600.
Answer: b, LO2, Bloom: AP, Difficulty: Medium, Min: 1,5, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
31. The amount you must deposit now in your savings account, paying 5% interest to
accumulate €15,000 for your first tuition payment when you start college in 3 years is
a. €12,750.
b. €11,745.
c. €12,957.
d. €13,290.
Answer: c, LO2, Bloom: AP, Difficulty: Medium, Min: 1,5, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
32. The present value of €10,000 to be received in 5 years will be smaller if the discount rate is
a. increased.
b. decreased.
c. not changed.
d. equal to the stated rate of interest.
Answer: a, LO2, Bloom: AN, Difficulty: Medium, Min: 1,5, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
33. Dexter Company is considering purchasing equipment. The equipment will produce the
following cash flows:
Year 1 €150,000
© John Wiley & Sons, Inc. or the author, all rights reserved.
Weygandt Financial Accounting IFRS 5e Test Bank (For Instructor Use Only)
, Time Value of Money E-7
Year 2 €250,000
Dexter requires a minimum rate of return of 10%. What is the maximum price Dexter
should pay for this equipment?
a. €342,975
b. €206,613
c. €400,000
d. €200,000
Answer: a, LO2, Bloom: AP, Difficulty: Medium, Min: 1,5, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
34. If Sloane Joyner invests $14,019.75 now and she will receive $40,000 at the end of 11
years, what annual rate of interest will she be earning on her investment?
a. 8%
b. 8.5%
c. 9%
d. 10%
Answer: d, LO2, Bloom: E, Difficulty: Hard, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis, AICPA
PC: None, IMA: Reporting & Control: Financial Recordkeeping
35. Suzy Douglas has been offered an investing opportunity that requires an immediate
deposit of €110,310 and will earn 8% per year. At the end of the investment’s life, it will
return €300,000 to Suzy. How many years must Suzy wait to receive the €300,000?
a. 10
b. 11
c. 12
d. 13
Answer: d, LO2, Bloom: E, Difficulty: Hard, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis, AICPA
PC: None, IMA: Reporting & Control: Financial Recordkeeping
36. Peter Johnson invests $71,033.60 now for a series of $10,000 annual returns beginning
one year from now. Peter will earn 10% on the initial investment. How many annual
payments will Peter receive?
a. 10
b. 12
c. 13
d. 15
Answer: c, LO2, Bloom: E, Difficulty: Hard, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis, AICPA
PC: None, IMA: Reporting & Control: Financial Recordkeeping
37. To compute the present value of an annuity, it is necessary to know the
a. discount rate.
b. number of discount periods and the amount of the periodic payments/receipts.
c. both the discount rate and the number of discount periods and the amount of the
periodic payments/receipts.
d. other information in addition to the discount rate and the number of discount periods
and the amount of the periodic payments/receipts.
Answer: c, LO2, Bloom: AN, Difficulty: Medium, Min: 1,5, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
38. A €10,000, 6%, 5-year note payable that pays interest quarterly would be discounted back
to its present value by using tables that would indicate which one of the following period-
interest combinations?
a. 5 interest periods, 6% interest
b. 20 interest periods, 6% interest
© John Wiley & Sons, Inc. or the author, all rights reserved.
Weygandt Financial Accounting IFRS 5e Test Bank (For Instructor Use Only)
, E-8
c. 20 interest periods, 1.5% interest
d. 5 interest periods, 1.5% interest
Answer: c, LO2, Bloom: AP, Difficulty: Medium, Min: 1,5, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
39. Hazel Company has just purchased equipment that requires annual payments of $80,000
to be paid at the end of each of the next 4 years. The appropriate discount rate is 15%.
What is the present value of the payments?
a. $228,398
b. $320,000
c. $93,950
d. $300,270
Answer: a, LO2, Bloom: AP, Difficulty: Medium, Min: 1,5, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
40. Perdue Company has purchased equipment that requires annual payments of $50,000 to
be paid at the end of each of the next 6 years. The appropriate discount rate is 12%. What
amount will be used to record the equipment?
a. $300,000
b. $205,570
c. $276,286
d. $192,750
Answer: b, LO2, Bloom: AP, Difficulty: Medium, Min: 1,5, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
41. If a bond has a stated rate of interest of 6%, but the market rate of interest is 8%, the bond
a. will sell at a discount.
b. will sell at a premium.
c. may sell at either a premium or a discount.
d. will sell at its face value.
Answer: a, LO2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
42. When determining the proceeds received when issuing a bond, the factor applied to the
amount of the interest payments is determined from the table of the
a. present value of 1.
b. present value of an annuity.
c. future value of 1.
d. future value of an annuity.
Answer: b, LO2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
43. When determining the proceeds received when issuing a bond, the factor applied to the
amount of the bond principal is determined from the table of the
a. present value of 1.
b. present value of an annuity.
c. future value of 1.
d. future value of an annuity.
Answer: a, LO2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
44. If a bond has a stated rate of 10% and is discounted at 10%, then the proceeds received
at issuance will be
a. equal to the face value of the bonds.
b. greater than the face value of the bonds.
© John Wiley & Sons, Inc. or the author, all rights reserved.
Weygandt Financial Accounting IFRS 5e Test Bank (For Instructor Use Only)
International Financial Reporting Standards,
5th Edition by Jerry J. Weygandt
Hello all ,
We have all what you need with best price
Our email :
Our website :
testbanks-store.com
, APPENDIX E
TIME VALUE OF MONEY
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.
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 (receipts), 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 payments
and the interest rate.
2. Compute present values. 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 payments (annuities), the number of payments
(receipts), 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 payments and the interest rate.
To compute the present value of notes and bonds, determine the present value of the
principal amount and the present value of the interest payments. 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. 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.
© John Wiley & Sons, Inc. or the author, all rights reserved.
Weygandt Financial Accounting IFRS 5e Test Bank (For Instructor Use Only)
,E-2
TRUE-FALSE STATEMENTS
1. Interest is the difference between the amount borrowed and the principal.
Answer: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
2. Compound interest is computed on the principal and any interest earned that has not
been paid or withdrawn.
Answer: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
3. The future value of a single amount is the value at a future date of a given amount
invested now, assuming compound interest.
Answer: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
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.
Answer: F, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
5. The process of determining the present value is referred to as discounting the future
amount.
Answer: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
6. A higher discount rate produces a higher present value.
Answer: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
7. In computing the present value of an annuity, it is not necessary to know the number of
discount periods.
Answer: F, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
8. Many companies calculate the future value of the cash flows involved in an investment in
evaluating long-term capital investments.
Answer: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
9. Financial calculators can be used to solve the same problems as those solved with time
value of money tables.
Answer: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
10. With a financial calculator, one can solve for any interest rate or for any number of periods
in a time value of money problem.
Answer: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
© John Wiley & Sons, Inc. or the author, all rights reserved.
Weygandt Financial Accounting IFRS 5e Test Bank (For Instructor Use Only)
, Time Value of Money E-3
MULTIPLE CHOICE QUESTIONS
Note: Students will need future value and present value tables for some questions.
11. 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.
Answer: c, LO1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis, AICPA
PC: None, IMA: Reporting & Control: Financial Recordkeeping
12. 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
Answer: a, LO1, Bloom: AP, Difficulty: Medium, Min: 1,5, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
13. If €40,000 is deposited 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
Answer: d, LO1, Bloom: AP, Difficulty: Medium, Min: 1,5, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
14. 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.
Answer: b, LO1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
15. 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.
Answer: d, LO1, Bloom: AN, Difficulty: Medium, Min: 1,5, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
16. 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
© John Wiley & Sons, Inc. or the author, all rights reserved.
Weygandt Financial Accounting IFRS 5e Test Bank (For Instructor Use Only)
,E-4
c. Present value of 1
d. Present value of an annuity of 1
Answer: b, LO1, Bloom: AN, Difficulty: Medium, Min: 1,5, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
17. 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.
Answer: d, LO1, Bloom: AP, Difficulty: Medium, Min: 1,5, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
18. 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.
Answer: b, LO1, Bloom: AN, Difficulty: Medium, Min: 1,5, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
19. If $40,000 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. $65,156
b. $420,000
c. $503,116
d. $600,000
Answer: c, LO1, Bloom: AP, Difficulty: Medium, Min: 1,5, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
20. 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
Answer: d, LO1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis, AICPA
PC: None, IMA: Reporting & Control: Financial Recordkeeping
21. In present value calculations, the process of determining the present value is called
a. allocating.
b. pricing.
c. negotiating.
d. discounting.
Answer: d, LO2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis, AICPA
PC: None, IMA: Reporting & Control: Financial Recordkeeping
© John Wiley & Sons, Inc. or the author, all rights reserved.
Weygandt Financial Accounting IFRS 5e Test Bank (For Instructor Use Only)
, Time Value of Money E-5
22. 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 the answer choices are correct.
Answer: d, LO2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis, AICPA
PC: None, IMA: Reporting & Control: Financial Recordkeeping
23. 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 non-current notes payable.
d. The determination of the amount to report for lease liability.
Answer: b, LO2, Bloom: AN, Difficulty: Medium, Min: 1,5, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
24. If you can earn an 8% rate of return, what amount would you need to invest to have
€60,000 one year from now?
a. €55,494
b. €55,556
c. €54,546
d. €59,400
Answer: b, LO2, Bloom: AP, Difficulty: Medium, Min: 1,5, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
25. If you can earn a 15% rate of return, what amount would you need to invest to have
€25,000 one year from now?
a. €24,753
b. €21,875
c. €21,250
d. €21,740
Answer: d, LO2, Bloom: AP, Difficulty: Medium, Min: 1,5, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
26. If the single amount of €10,000 to be received in 2 years is discounted at 11%, its present
value is
a. €9,090.
b. €8,116.
c. €9,010.
d. €13,770.
Answer: b, LO2, Bloom: AP, Difficulty: Medium, Min: 1,5, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
27. If the single amount of €5,000 is to be received in 3 years and discounted at 6%, its
present value is
a. €4,198.
b. €4,716.
c. €4,333.
© John Wiley & Sons, Inc. or the author, all rights reserved.
Weygandt Financial Accounting IFRS 5e Test Bank (For Instructor Use Only)
,E-6
d. €4,700.
Answer: a, LO2, Bloom: AP, Difficulty: Medium, Min: 1,5, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
28. Which of the following discount rates will produce the smallest present value?
a. 8%
b. 9%
c. 10%
d. 4%
Answer: c, LO2, Bloom: AN, Difficulty: Medium, Min: 1,5, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
29. Suppose you have a winning lottery ticket and you have the option of accepting
€5,000,000 three years from now or taking the present value of the €5,000,000 now. The
sponsor of the prize uses a 6% discount rate. If you elect to receive the present value of
the prize now, the amount you will receive is
a. €4,198,100.
b. €4,319,200.
c. €4,450,000.
d. €5,000,000.
Answer: a, LO2, Bloom: AP, Difficulty: Medium, Min: 1,5, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
30. The amount you must deposit now in your savings account, paying 6% interest to
accumulate €8,000 for a down payment 5 years from now on a new car is
a. €1,600.
b. €5,978.
c. €5,969.
d. €5,600.
Answer: b, LO2, Bloom: AP, Difficulty: Medium, Min: 1,5, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
31. The amount you must deposit now in your savings account, paying 5% interest to
accumulate €15,000 for your first tuition payment when you start college in 3 years is
a. €12,750.
b. €11,745.
c. €12,957.
d. €13,290.
Answer: c, LO2, Bloom: AP, Difficulty: Medium, Min: 1,5, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
32. The present value of €10,000 to be received in 5 years will be smaller if the discount rate is
a. increased.
b. decreased.
c. not changed.
d. equal to the stated rate of interest.
Answer: a, LO2, Bloom: AN, Difficulty: Medium, Min: 1,5, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
33. Dexter Company is considering purchasing equipment. The equipment will produce the
following cash flows:
Year 1 €150,000
© John Wiley & Sons, Inc. or the author, all rights reserved.
Weygandt Financial Accounting IFRS 5e Test Bank (For Instructor Use Only)
, Time Value of Money E-7
Year 2 €250,000
Dexter requires a minimum rate of return of 10%. What is the maximum price Dexter
should pay for this equipment?
a. €342,975
b. €206,613
c. €400,000
d. €200,000
Answer: a, LO2, Bloom: AP, Difficulty: Medium, Min: 1,5, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
34. If Sloane Joyner invests $14,019.75 now and she will receive $40,000 at the end of 11
years, what annual rate of interest will she be earning on her investment?
a. 8%
b. 8.5%
c. 9%
d. 10%
Answer: d, LO2, Bloom: E, Difficulty: Hard, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis, AICPA
PC: None, IMA: Reporting & Control: Financial Recordkeeping
35. Suzy Douglas has been offered an investing opportunity that requires an immediate
deposit of €110,310 and will earn 8% per year. At the end of the investment’s life, it will
return €300,000 to Suzy. How many years must Suzy wait to receive the €300,000?
a. 10
b. 11
c. 12
d. 13
Answer: d, LO2, Bloom: E, Difficulty: Hard, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis, AICPA
PC: None, IMA: Reporting & Control: Financial Recordkeeping
36. Peter Johnson invests $71,033.60 now for a series of $10,000 annual returns beginning
one year from now. Peter will earn 10% on the initial investment. How many annual
payments will Peter receive?
a. 10
b. 12
c. 13
d. 15
Answer: c, LO2, Bloom: E, Difficulty: Hard, Min: 2, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis, AICPA
PC: None, IMA: Reporting & Control: Financial Recordkeeping
37. To compute the present value of an annuity, it is necessary to know the
a. discount rate.
b. number of discount periods and the amount of the periodic payments/receipts.
c. both the discount rate and the number of discount periods and the amount of the
periodic payments/receipts.
d. other information in addition to the discount rate and the number of discount periods
and the amount of the periodic payments/receipts.
Answer: c, LO2, Bloom: AN, Difficulty: Medium, Min: 1,5, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
38. A €10,000, 6%, 5-year note payable that pays interest quarterly would be discounted back
to its present value by using tables that would indicate which one of the following period-
interest combinations?
a. 5 interest periods, 6% interest
b. 20 interest periods, 6% interest
© John Wiley & Sons, Inc. or the author, all rights reserved.
Weygandt Financial Accounting IFRS 5e Test Bank (For Instructor Use Only)
, E-8
c. 20 interest periods, 1.5% interest
d. 5 interest periods, 1.5% interest
Answer: c, LO2, Bloom: AP, Difficulty: Medium, Min: 1,5, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
39. Hazel Company has just purchased equipment that requires annual payments of $80,000
to be paid at the end of each of the next 4 years. The appropriate discount rate is 15%.
What is the present value of the payments?
a. $228,398
b. $320,000
c. $93,950
d. $300,270
Answer: a, LO2, Bloom: AP, Difficulty: Medium, Min: 1,5, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
40. Perdue Company has purchased equipment that requires annual payments of $50,000 to
be paid at the end of each of the next 6 years. The appropriate discount rate is 12%. What
amount will be used to record the equipment?
a. $300,000
b. $205,570
c. $276,286
d. $192,750
Answer: b, LO2, Bloom: AP, Difficulty: Medium, Min: 1,5, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
41. If a bond has a stated rate of interest of 6%, but the market rate of interest is 8%, the bond
a. will sell at a discount.
b. will sell at a premium.
c. may sell at either a premium or a discount.
d. will sell at its face value.
Answer: a, LO2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
42. When determining the proceeds received when issuing a bond, the factor applied to the
amount of the interest payments is determined from the table of the
a. present value of 1.
b. present value of an annuity.
c. future value of 1.
d. future value of an annuity.
Answer: b, LO2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
43. When determining the proceeds received when issuing a bond, the factor applied to the
amount of the bond principal is determined from the table of the
a. present value of 1.
b. present value of an annuity.
c. future value of 1.
d. future value of an annuity.
Answer: a, LO2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Knowledge, AICPA BC: None, AICPA AC: Measurement, Interpretation and Analysis,
AICPA PC: None, IMA: Reporting & Control: Financial Recordkeeping
44. If a bond has a stated rate of 10% and is discounted at 10%, then the proceeds received
at issuance will be
a. equal to the face value of the bonds.
b. greater than the face value of the bonds.
© John Wiley & Sons, Inc. or the author, all rights reserved.
Weygandt Financial Accounting IFRS 5e Test Bank (For Instructor Use Only)
