Midterm 1

Question 1

The value of $1 today is worth more than $1 one year from now. T/F

Answer 1

True

Question 2

When interest is compounded, the stated rate of interest exceeds the effective rate of interest. T/F

Answer 2

F

Question 3

With an annuity due, a payment is made or received on the date the agreement begins. T/F

Answer 3

T

Question 4

Reba wishes to know how much would be in her investment account in five years if she deposits a given sum in an account that earns 6% interest compounding monthly. She should use a calculation involving the:

Answer 4

Future value of a single amount

Question 5

Tammy wants to buy a car that costs $10,000 and wishes to know the amount of the monthly payments, which will be made at the first of the month, with interest of 12% on the unpaid balance. She should use a calculation involving the:

Answer 5

Present value of an annuity due

Question 6

George Jones is planning on a cruise for his 70th birthday party. He wants to know how much he should set aside at the beginning of each month at 6% interest to accumulate the sum of $4,800 in five years. He should use a calculation involving the:

Answer 6

Future value of an annuity due

Question 7

The concept 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 is referred to as the:

Answer 7

Time value of money

Question 8

A series of equal periodic payments is referred to as:

Answer 8

An annuity

Question 9

The value that a series of equal payments at the end of each period will grow to in the future is referred to as the:

Answer 9

Future value of an ordinary annuity

Question 10

The future value calculation should be used when determining how much an amount today will grow to be in the future. T/F

Answer 10

T

Question 11

The present value calculation should be used when determining how much an amount in the future is worth today. T/F

Answer 11

T

Question 12

The number of compounding periods and interest rate per compounding period are needed to calculate the future value and the present value. T/F

Answer 12

T

Question 13

The value today of receiving a series of equal payments at the end of each future period is referred to as the:

Answer 13

Present value of an ordinary annuity

Question 14

Holding constant the annuity amount, number of periods, and interest rate, which of the following will have the lowest present value?

Answer 14

Deferred annuity

Question 15

A company might incur other costs at the time of purchasing a franchise, such as employee training, and those costs are included in the capitalized amount. T/F

Answer 15

F

Question 16

If land, building, and equipment are acquired in a lump-sum purchase, the purchase price is allocated first based on the fair value of the building and then the fair value of the equipment, with any residual allocated to the land. T/F

Answer 16

F

Question 17

The initial valuation of natural resources can include (a) acquisition costs, (b) exploration costs, (c) development costs, and (d) restoration costs. T/F

Answer 17

T

Question 18

The acquisition costs of property, plant, and equipment do not include:

Answer 18

Maintenance costs during the first 30 days of use

Question 19

Which of the following best describes intangible assets?

Answer 19

Exclusive rights that provide benefits to the owner in the production of goods and services

Question 20

The capitalized cost of equipment excludes:

Answer 20

Maintenance

Question 21

Donated assets are recorded at

Answer 21

Fair value

Question 22

Assets acquired under multi-year deferred payment contracts are:

Answer 22

Valued at the present value of the payments required by the contract

Question 23

A company receiving a donated asset will record an

Answer 23

Increase in revenue

Question 24

On June 17, a company issued 120,000 shares of its $0.10 par value common stock in exchange for land. On the date of the transaction, the fair value of the common stock, evidenced by its market price, was $10 per share. The journal entry to record this transaction includes:

Answer 24

Debit Land $1,200,000

Question 25

Property, plant, and equipment and intanglible assets are:

Answer 25

Long-term revenue-producing assets

Question 26

An asset is acquired using a noninterest-bearing note payable for $100,000 due in two years. Management records the purchase with a debit to the asset for $100,000 and a credit to notes payable for $100,000. Which of the following statements is correct?

Answer 26

Management has not considered the present value of the note in recording the asset.

Question 27

Any method of depreciation should be both systematic and rational. T/F

Answer 27

T

Question 28

When a declining-balance method is used, the starting point for calculating depreciation is the depreciable base of the asset. T/F

Answer 28

F

Question 29

Activity-based methods of depreciation are appropriate for assets whose service life is a function of use rather than time. T/F

Answer 29

T

Question 30

A company records a loss on the exchange of nonmonetary assets. What impact will the exchange have on this year's financial statements?

Answer 30

Total assets decrease

Question 31

Research and development (R&D) costs pertain to:

Answer 31

Activities that occur prior to the start of the production

Question 32

Depreciation, depletion, and amortization:

Answer 32

all refer to the process of allocating the cost of long-term assets used in the business over future periods

Question 33

The costs of research and development performed by the company for sale to others (but not yet sold) would be included in which of the following accounts?

Answer 33

Inventory

Question 34

The overriding principle for all depreciation methods is that the method must be:

Answer 34

Systematic and rational

Question 35

A company spends $50,000 this year in research and development for a new drug to cure liver damage. By the end of the year, management feels confident that the new drug will gain Food and Drug Administration approval and lead to higher future sales. What impact will the $50,000 spending have on this year's financial statements?

Answer 35

Increase expenses

Question 36

In computing capitalized interest, average accumulated expenditures:

Answer 36

is determined by time-weighting individual expenditures made during the asset construction period.

Question 37

In a nonmonetary exchange of equipment, if the exchange has commercial substance, the new equipment is recorded for(equation):

Answer 37

FV + Cash Paid

Question 38

When one company acquires another company, any acquired “in-process research and development” is recorded as:

Answer 38

Indefinite-life intangible asset

Question 39

In a nonmonetary exchange of equipment, if the exchange has commercial substance, a loss is recognized if:

Answer 39

the fair value of the equipment given is less than the book value of the equipment given.

Question 40

If you put $500 into an investment account that pays simple interest of 8% per year and then withdraw the money two years later, you will earn interest of $80. T/F

Answer 40

T

Question 41

Compound interest includes interest earned on interest. T/F

Answer 41

T

Question 42

A deferred annuity is one in which interest charges are deferred for a stated time period. T/F

Answer 42

F

Question 43

A series of equal periodic payments in which the first payment is made one compounding period after the date of the contract is a(n):

Answer 43

Ordinary annuity

Question 44

The value that an amount today will grow to in the future is referred to as the:

Answer 44

Future value of a single amount

Question 45

Simple interest is computed as the interest rate times:

Answer 45

The initial investment only

Question 46

George Jones is planning on a cruise for his 70th birthday party. He wants to know how much he should set aside at the beginning of each month at 6% interest to accumulate the sum of $4,800 in five years. He should use a calculation involving the:

Answer 46

Future value of an annuity due

Question 47

The interest capitalization period for a self-constructed asset ends either when the asset is substantially complete and ready for use or when interest costs no longer are being incurred. T/F

Answer 47

T

Question 48

Property, plant, and equipment and finite-life intangible assets must be tested for impairment at least once a year. T/F

Answer 48

F

Question 49

A distinguishing characteristic of intangible assets is that the extent and timing of their future benefits typically are highly uncertain. T/F

Answer 49

T

Question 50

Short Corporation acquired Hathaway, Inc., for $54,250,000. The fair value of all Hathaway's identifiable tangible and intangible assets was $52,800,000. Short will amortize any goodwill over the maximum number of years allowed. What is the annual amortization of goodwill for this acquisition?

Answer 50

$0

Question 51

A type of annuity that is paid out over a certain period of time

Answer 51

Deferred annuity