Midterm 1 Flashcards
Don't die
The value of $1 today is worth more than $1 one year from now. T/F
True
When interest is compounded, the stated rate of interest exceeds the effective rate of interest. T/F
F
With an annuity due, a payment is made or received on the date the agreement begins. T/F
T
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:
Future value of a single amount
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:
Present value of an annuity due
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:
Future value of an annuity due
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:
Time value of money
A series of equal periodic payments is referred to as:
An annuity
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:
Future value of an ordinary annuity
The future value calculation should be used when determining how much an amount today will grow to be in the future. T/F
T
The present value calculation should be used when determining how much an amount in the future is worth today. T/F
T
The number of compounding periods and interest rate per compounding period are needed to calculate the future value and the present value. T/F
T
The value today of receiving a series of equal payments at the end of each future period is referred to as the:
Present value of an ordinary annuity
Holding constant the annuity amount, number of periods, and interest rate, which of the following will have the lowest present value?
Deferred annuity
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
F
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
F
The initial valuation of natural resources can include (a) acquisition costs, (b) exploration costs, (c) development costs, and (d) restoration costs. T/F
T
The acquisition costs of property, plant, and equipment do not include:
Maintenance costs during the first 30 days of use
Which of the following best describes intangible assets?
Exclusive rights that provide benefits to the owner in the production of goods and services
The capitalized cost of equipment excludes:
Maintenance
Donated assets are recorded at
Fair value
Assets acquired under multi-year deferred payment contracts are:
Valued at the present value of the payments required by the contract
A company receiving a donated asset will record an
Increase in revenue
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:
Debit Land $1,200,000
Property, plant, and equipment and intanglible assets are:
Long-term revenue-producing assets
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?
Management has not considered the present value of the note in recording the asset.
Any method of depreciation should be both systematic and rational. T/F
T
When a declining-balance method is used, the starting point for calculating depreciation is the depreciable base of the asset. T/F
F
Activity-based methods of depreciation are appropriate for assets whose service life is a function of use rather than time. T/F
T
A company records a loss on the exchange of nonmonetary assets. What impact will the exchange have on this year’s financial statements?
Total assets decrease
Research and development (R&D) costs pertain to:
Activities that occur prior to the start of the production
Depreciation, depletion, and amortization:
all refer to the process of allocating the cost of long-term assets used in the business over future periods
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?
Inventory
The overriding principle for all depreciation methods is that the method must be:
Systematic and rational
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?
Increase expenses
In computing capitalized interest, average accumulated expenditures:
is determined by time-weighting individual expenditures made during the asset construction period.
In a nonmonetary exchange of equipment, if the exchange has commercial substance, the new equipment is recorded for(equation):
FV + Cash Paid
When one company acquires another company, any acquired “in-process research and development” is recorded as:
Indefinite-life intangible asset
In a nonmonetary exchange of equipment, if the exchange has commercial substance, a loss is recognized if:
the fair value of the equipment given is less than the book value of the equipment given.
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
T
Compound interest includes interest earned on interest. T/F
T
A deferred annuity is one in which interest charges are deferred for a stated time period. T/F
F
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):
Ordinary annuity
The value that an amount today will grow to in the future is referred to as the:
Future value of a single amount
Simple interest is computed as the interest rate times:
The initial investment only
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:
Future value of an annuity due
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
T
Property, plant, and equipment and finite-life intangible assets must be tested for impairment at least
once a year. T/F
F
A distinguishing characteristic of intangible assets is that the extent and timing of their future benefits typically are highly uncertain. T/F
T
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?
$0
A type of annuity that is paid out over a certain period of time
Deferred annuity
