INTERMEDIATE ACCOUNTING 1: UNITS
5-7 EXAM QUESTIONS AND ANSWERS
GRADED A+ 2025/2026
Time value of money - ANS a dollar today is worth more than a dollar tomorrow
Level 1 fair value measures are - ANS the least subjective because they are based on quoted
prices
Level 3 fair value measures are - ANS the most subjective because they are based on
unobservable inputs, such as a company's own data or assumptions related to the expected
future cash flows associated with the asset or liability.
interest - ANS payment made for the use of borrowed money
simple interest - ANS interest paid only on the principal
compound interest - ANS interest earned on both the principal amount and any interest
already earned
To convert the "annual interest rate" into the "compounding period interest rate - ANS divide
the annual rate by the number of compounding periods per year.
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
,determine the number of periods by - ANS multiplying the number of years involved by the
number of compounding periods per year
The present value is always a _______ amount than the known future value, due to earned and
accumulated interest. - ANS smaller
Use _____ to determine future value - ANS accumulation
Use _____ to determine present value - ANS discounting
to find the present value of an annuity due factor - ANS multiply the present value of an
ordinary annuity factor by 1 plus the interest rate (that is, 1 + i).
If an annuity due and an ordinary annuity have the same number of equal payments and the
same interest rates, what is true regarding the present values of each? - ANS The present
value of the annuity due is greater than the present value of the ordinary annuity because
payments are made sooner with an annuity due (at the beginning of the period) than with an
ordinary annuity (at the end of the period).
ordinary annuity payments made at - ANS the end of a period
annuity due payments made at - ANS the beginning of a period
For which accounting topic are present value-based accounting measurements relevant? -
ANS Environmental Liabilities
Which four variables are fundamental to all compound interest problems? - ANS Rate of
interest, number of time periods, future value, and present value
Equipment is exchanged for a noninterest-bearing note. Payment of $20,000 on the note is to
be made in one year. The market rate of notes of similar risk is 5%. Assuming an annual interest
rate of 5% is appropriate, the present value of the principal is $20,000 × 0.95238 = $19,048.
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
, Assuming that a semiannual interest rate of 2.5% is appropriate, the present value of the
principal is ($20,000/2) × 1.92742 = $19,274.
What is the cost that should be recorded with the purchase of this equipment? -
ANS $19,048 present value
A company issues a five-year zero-interest-bearing note for a new lathe it purchased for
$25,000. The market rate of interest at the time the note was issued is 4%. Assuming an annual
interest rate of 4% for five years is appropriate, the present value of the principal is $25,000 ×
0.82193 = $20,548. Assuming an annual interest rate of 5% for 4 years is appropriate, the
present value of the principal is $25,000 × 0.82270 = $20,568.
Which amount should be recorded for the cost of the lathe? - ANS $20548, present value
original maturity date of 90 days or less - ANS cash equivalent
US Treasury Bills - ANS cash equivalent
commercial paper - ANS cash equivalent
Money market funds - ANS cash equivalent
checking account - ANS would be included in cash and cash equivalents
restricted cash - ANS cash accounts with legal restrictions
bank overdrafts - ANS a bank overdraft is a liability unless the right of offset is permitted by
the same bank as the overdraft; using a savings account to "cover" costs that are over the
checking account
3 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
5-7 EXAM QUESTIONS AND ANSWERS
GRADED A+ 2025/2026
Time value of money - ANS a dollar today is worth more than a dollar tomorrow
Level 1 fair value measures are - ANS the least subjective because they are based on quoted
prices
Level 3 fair value measures are - ANS the most subjective because they are based on
unobservable inputs, such as a company's own data or assumptions related to the expected
future cash flows associated with the asset or liability.
interest - ANS payment made for the use of borrowed money
simple interest - ANS interest paid only on the principal
compound interest - ANS interest earned on both the principal amount and any interest
already earned
To convert the "annual interest rate" into the "compounding period interest rate - ANS divide
the annual rate by the number of compounding periods per year.
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
,determine the number of periods by - ANS multiplying the number of years involved by the
number of compounding periods per year
The present value is always a _______ amount than the known future value, due to earned and
accumulated interest. - ANS smaller
Use _____ to determine future value - ANS accumulation
Use _____ to determine present value - ANS discounting
to find the present value of an annuity due factor - ANS multiply the present value of an
ordinary annuity factor by 1 plus the interest rate (that is, 1 + i).
If an annuity due and an ordinary annuity have the same number of equal payments and the
same interest rates, what is true regarding the present values of each? - ANS The present
value of the annuity due is greater than the present value of the ordinary annuity because
payments are made sooner with an annuity due (at the beginning of the period) than with an
ordinary annuity (at the end of the period).
ordinary annuity payments made at - ANS the end of a period
annuity due payments made at - ANS the beginning of a period
For which accounting topic are present value-based accounting measurements relevant? -
ANS Environmental Liabilities
Which four variables are fundamental to all compound interest problems? - ANS Rate of
interest, number of time periods, future value, and present value
Equipment is exchanged for a noninterest-bearing note. Payment of $20,000 on the note is to
be made in one year. The market rate of notes of similar risk is 5%. Assuming an annual interest
rate of 5% is appropriate, the present value of the principal is $20,000 × 0.95238 = $19,048.
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
, Assuming that a semiannual interest rate of 2.5% is appropriate, the present value of the
principal is ($20,000/2) × 1.92742 = $19,274.
What is the cost that should be recorded with the purchase of this equipment? -
ANS $19,048 present value
A company issues a five-year zero-interest-bearing note for a new lathe it purchased for
$25,000. The market rate of interest at the time the note was issued is 4%. Assuming an annual
interest rate of 4% for five years is appropriate, the present value of the principal is $25,000 ×
0.82193 = $20,548. Assuming an annual interest rate of 5% for 4 years is appropriate, the
present value of the principal is $25,000 × 0.82270 = $20,568.
Which amount should be recorded for the cost of the lathe? - ANS $20548, present value
original maturity date of 90 days or less - ANS cash equivalent
US Treasury Bills - ANS cash equivalent
commercial paper - ANS cash equivalent
Money market funds - ANS cash equivalent
checking account - ANS would be included in cash and cash equivalents
restricted cash - ANS cash accounts with legal restrictions
bank overdrafts - ANS a bank overdraft is a liability unless the right of offset is permitted by
the same bank as the overdraft; using a savings account to "cover" costs that are over the
checking account
3 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
