Question 1

On December 30, 2005, Chang Co. sold a machine to Door Co. in exchange for a noninterest-bearing note requiring ten annual payments of $10,000. Door made the first payment on December 30, 2005. The market interest rate for similar notes at the date of issuance was 8%. Information on present value factors is as follows:

Question 2

On December 30, 2005, Bart, Inc. purchased a machine from Fell Corp. in exchange for a non-interest bearing note requiring eight payments of $20,000. The first payment was made on December 30, 2005, and the others are due annually on December 30. At date of issuance, the prevailing rate of interest for this type of note was 11%. Present value factors are as follows:

Question 3

Which of the following transactions would require the use of the present value of an annuity due concept in order to calculate the present value of the asset obtained or liability owed at the date of incurrence?

A capital lease is entered into with the initial lease payment due upon the signing of the lease

agreement.

A capital lease is entered into with the initial lease payment due 1 month subsequent to the signing of the lease agreement.

A 10-year 8% bond is issued on January 2 with interest payable semiannually on July 1 and January 1 yielding 7%.

A 10-year 8% bond is issued on January 2 with interest payable semiannually on July 1 and January 1 yielding 9%.

Question 4

On January 1, year 1, Beal Corporation adopted a plan to accumulate funds for a new plant building to be erected beginning July 1, year 6, at an estimated cost of $1,200,000. Beal intends to make five equal annual deposits in a fund that will earn interest at 8% compounded annually. The first deposit is made on July 1, year 1. Present value and future amount factors are as follows:

Question 5

On December 31, 2005, Jet Co. received two $10,000 notes receivable from customers in exchange for services rendered. On both notes, interest is calculated on the outstanding principal balance at the annual rate of 3% and payable at maturity. The note from Hart Corp., made under customary trade terms, is due in nine months and the note from Maxx, Inc. is due in five years. The market interest rate for similar notes on December 31, 2005 was 8%. The compound interest factors to convert future values into present values at 8% follow:

Question 6

The following information pertains to Camp Corp.'s issuance of bonds on July 1, 2005:

Question 7

Ace Co. sold King Co. a $20,000, 8%, 5-year note that required five equal annual year-end payments. This note was discounted to yield a 9% rate to King. The present value factors of an ordinary annuity of $1 for five periods are as follows:

Question 9

On November 1, year 1, a company purchased a new machine that it does not have to pay for until November 1, year 3. The total payment on November 1, year 3, will include both principal and interest. Assuming interest at a 10% rate, the cost of the machine would be the total payment multiplied by what time value of money concept?

Question 10 Theoretically, the proceeds from the sale of a bond will be equal to The sum of the face amount of the bond and the periodic interest payments. The face amount of the bond. The face amount of the bond plus the present value of the interest payments made during the life of the bond discounted at the prevailing market rate of interest. The present value of the principal amount due at the end of the life of the bond plus the present value of the interest payments made during the life of the bond, each discounted at the prevailing market rate of interest.

Question 11

On December 27, year 1, Holden Company sold a building, receiving as consideration a $400,000 noninterest bearing note due in 3 years. The building cost $380,000 and the accumulated depreciation was $160,000 at the date of sale. The prevailing rate of interest for a note of this type was 12%. The present value of $1 for three periods at 12% is 0.71. In its year 1 income statement, how much gain or loss should Holden report on the sale?

Question 12

On January 1, year 1, Robert Harrison signed an agreement to operate as a franchisee of Perfect Pizza, Inc. for an initial franchise fee of $40,000. Of this amount, $15,000 was paid when the agreement was signed and the balance is payable in five annual payments of $5,000 each beginning January 1, year 2. The agreement provides that the down payment is not refundable and no future services are required of the franchisor. Harrison’s credit rating indicates that he can borrow money at 12% for a loan of this type. Information on present and future value factors is as follows:

Question 13

On January 1, year 1, Duripan Corp. invested $10,000 in 5-year certificates of deposit at 8% interest. Future value factors are as follows:

Question 14

On January 1 of the current year, Lean Co. made an investment of $10,000. The following is the present value of $1.00 discounted at a 10% interest rate: