INTERMEDIATE ACCOUNTING ONE COMPREHENSIVE EXAM SCRIPT COMPLETE
QUESTIONS VERIFIED SOLUTIONS
⩥Level 1 fair value measures are. Answer: the least subjective because
they are based on quoted prices
⩥Level 3 fair value measures are. Answer: 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. Answer: payment made for the use of borrowed money
⩥simple interest. Answer: interest paid only on the principal
⩥compound interest. Answer: interest earned on both the principal
amount and any interest already earned
⩥To convert the "annual interest rate" into the "compounding period
interest rate. Answer: divide the annual rate by the number of
compounding periods per year.
,⩥determine the number of periods by. Answer: 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.. Answer: smaller
⩥Use _____ to determine future value. Answer: accumulation
⩥Use _____ to determine present value. Answer: discounting
⩥to find the present value of an annuity due factor. Answer: 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?. Answer: 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. Answer: the end of a period
⩥annuity due payments made at. Answer: the beginning of a period
, ⩥For which accounting topic are present value-based accounting
measurements relevant?. Answer: Environmental Liabilities
⩥Which four variables are fundamental to all compound interest
problems?. Answer: 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. 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?. Answer: $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
QUESTIONS VERIFIED SOLUTIONS
⩥Level 1 fair value measures are. Answer: the least subjective because
they are based on quoted prices
⩥Level 3 fair value measures are. Answer: 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. Answer: payment made for the use of borrowed money
⩥simple interest. Answer: interest paid only on the principal
⩥compound interest. Answer: interest earned on both the principal
amount and any interest already earned
⩥To convert the "annual interest rate" into the "compounding period
interest rate. Answer: divide the annual rate by the number of
compounding periods per year.
,⩥determine the number of periods by. Answer: 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.. Answer: smaller
⩥Use _____ to determine future value. Answer: accumulation
⩥Use _____ to determine present value. Answer: discounting
⩥to find the present value of an annuity due factor. Answer: 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?. Answer: 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. Answer: the end of a period
⩥annuity due payments made at. Answer: the beginning of a period
, ⩥For which accounting topic are present value-based accounting
measurements relevant?. Answer: Environmental Liabilities
⩥Which four variables are fundamental to all compound interest
problems?. Answer: 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. 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?. Answer: $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
