Chapter 6

Question 1

Which of the following is NOT a step used in core principle of recognition?

A. Determine the transaction price
B. Identify the performance obligations in the contract
C. Identify the contract with the customer
D. Ensure the sale price is fixed and determinable

Answer 1

D. Ensure the sale price is fixed and determinable

Question 2

You want to invest $20,000 today to accumulate $32,000 for graduate school. You can invest at an interest rate of 10% compounded annually. Find how many years it will take to accumulate the required amount.

Note: Use tables, Excel, or a financial calculator. Round your final answers to the nearest whole dollar. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)

Multiple Choice

4.9 years.

5.2 years.

5.6 years.

6.0 years.

Answer 2

The years it will take is the value of n that will provide a present value of $20,000 when finding the present value of $32,000 at a rate of 10%:

$20,000 (present value) = $32,000 (future value) × ?question mark*Footnote asterisk

*Footnote asterisk Present value of $1; n = ?question mark, i = 10%

Rearranging algebraically, we find that the present value table factor is 0.625:

$20,000 (present value) ÷ $32,000 (future value) = 0.625

When you consult the present value table, you search the 10% column (i = 10%) for this value and find 0.62092 in row five. So it would take approximately five years to accumulate $32,000 in the situation described.