Test Bank for Financial Accounting, 5th EditionTest Bank for Financial Accounting, 5th EditionTest Bank for Financial Accounting, 5th EditionTest Bank for Financial Accounting, 5th EditionTest Bank for Financial Accounting, 5th EditionTest Bank for Financ

Test Bank for Financial Accounting, 5th Edition Fina ncial Accounting, 5e (Spiceland) Appendix C: Time Value of Money 1) The value of $1 today is worth more than $1 one year from now. Answer: TRUE Difficulty: 1 Easy Topic: Simple Versus Compound Interest Learning Objective: C-01 Contrast simple and compound interest. Bloom's: Remember AACSB: Reflective Thinking AICPA/Accessibility: BB Critical Thinking/Keyboard Navigation 2) The time value of money is a concept, which means that the value of $1 increases over time. Answer: FALSE Explanation: Time value of money means that interest causes the value of money received today to be greater than the value of that same amount of money received in the future. Difficulty: 1 Easy Topic: Simple Versus Compound Interest Learning Objective: C-01 Contrast simple and compound interest. Bloom's: Remember AACSB: Reflective Thinking AICPA/Accessibility: BB Critical Thinking/Keyboard Navigation 3) Simple interest is interest earned on the initial investment only. Answer: TRUE Difficulty: 1 Easy Topic: Simple Versus Compound Interest Learning Objective: C-01 Contrast simple and compound interest. Bloom's: Remember AACSB: Reflective Thinking AICPA/Accessibility: BB Critical Thinking/Keyboard Navigation 4) If you put $500 into a savings account that pays simple interest of 8% per year and then withdraw the money two years later, you will earn interest of $80. Answer: TRUE Explanation: Simple interest = ($500 × 8%) + ($500 × 8%) = $80. Difficulty: 3 Hard Topic: Simple Versus Compound Interest Learning Objective: C-01 Contrast simple and compound interest. Bloom's: Analyze AACSB: Analytical Thinking AICPA/Accessibility: FN Measurement/Keyboard Navigation 3 . 5) If you put $600 into a savings account that pays simple interest of 10% per year and then withdraw the money two years later, you will earn interest of $126. Answer: FALSE Explanation: Simple interest = ($600 × 10%) + ($600 × 10%) = $120. Difficulty: 3 Hard Topic: Simple Versus Compound Interest Learning Objective: C-01 Contrast simple and compound interest. Bloom's: Analyze AACSB: Analytical Thinking AICPA/Accessibility: FN Measurement/Keyboard Navigation 6) Compound interest is interest you earn on the initial investment and on previous interest. Answer: TRUE Difficulty: 1 Easy Topic: Simple Versus Compound Interest Learning Objective: C-01 Contrast simple and compound interest. Bloom's: Remember AACSB: Reflective Thinking AICPA/Accessibility: BB Critical Thinking/Keyboard Navigation 7) If you put $200 into a savings account that pays annual compound interest of 8% per year and then withdraw the money two years later, you will earn interest of $32. Answer: FALSE Explanation: Compound interest = ($200 × 8%) + ($216 × 8%) = $33.28. Difficulty: 3 Hard Topic: Simple Versus Compound Interest Learning Objective: C-01 Contrast simple and compound interest. Bloom's: Analyze AACSB: Analytical Thinking AICPA/Accessibility: FN Measurement/Keyboard Navigation