F5 M3 Long-Term Liabilities

Question 1

What is the normal present value formula?

Answer 1

Present value = Future amount x Present value factor
Present value = Future value / (1+r)^n
n = number of periods
r = periodic interest rate

Question 2

When working with the present value of $1 and future value of $1 computations, how many cash flows will there be?

Answer 2

1 lump sum

Question 3

When working with annuities, how many cash flows will there be?

Answer 3

Multiple equal cash flows

Question 4

What is the difference between an ordinary annuity and an annuity due?

Answer 4

Ordinary annuity is at the end of each period

Annuity due is at the beginning of each period

Question 5

How do you calculate the present value factor?

Answer 5

1 / (1+r)^n
n = number of periods
r = periodic interest rate

Question 6

If interest compounds on an “other-than-annual basis” the number of periods and the interest rate must be adjusted. For example, if the annual interest rate is 12% and interest compounds quarterly over 10 years what is i and n?

Answer 6

i = 3%
n = 40 periods

Question 7

How do you calculate your future value factor?

Answer 7

(1+r)^n

Question 8

What is the formula for the present value of an ordinary annuity?

Answer 8

Annuity payment x present value of ordinary annuity of $1 for appropriate n and r

Question 9

If you’re needing to calculate the present value of the annuity due but you’re given the present value of an ordinary annuity, how can you calculate the PV of the annuity due?

Answer 9

PV ordinary annuity minus one period

Question 10

What value do you record long-term liabilities?

Answer 10

Present value

Question 11

Current maturities of long-term debt in the balance sheet should include amounts due and payable within ____ months of the balance sheet date.

Answer 11

12 months

Question 12

Bonds or notes due within one year are shown as (current/noncurrent) if the issuer has the intent and ability to refinance with a new issuance of long-term debt.

Answer 12

Noncurrent

Question 13

Although the discount is a separate account from the notes payable account, the note payable is reported on the balance sheet at the _____.

Answer 13

Net of the note payable face value less the unamortized discount

Question 14

Loan origination fees shall be deferred and recognized

Answer 14

Over the life of the loan as an adjustment to interest income

Question 15

You’re given that there will be five equal annual year-end payments of $5,009 and that the company recorded the note at its present value of $19,485. How much total interest revenue will be earned over the life of the note?

Answer 15

$5,560

Question 16

The effective interest rate paid includes all costs charged by the ____.

Answer 16

Bank

Question 17

Normally interest is imputed when no rate is stated. An exception exists for ______. The note is recorded at _____.

Answer 17

Receivables and payables arising from transactions with customers or suppliers in the normal course of business when the trade terms do not exceed 1 year.
Recorded at face.