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21.doc-Accounting, 9e, Global Edition (Horngren) C...

21.doc-Accounting, 9e, Global Edition (Horngren) Chapter

21.doc-Accounting, 9e, Global Editi...

21.doc-Accounting, 9e, Global Edition (Horngren) Chapter

##### Page 27

9) If $1,000 is invested in an account with 4% interest compounding yearly, what will the balance of the account be

after 4 years?

Please refer to the following Future Value table:

Future

Value of

$1

4%

5%

6%

7%

1

1.040

1.050

1.060

1.070

2

1.082

1.103

1.124

1.145

3

1.125

1.158

1.191

1.225

4

1.170

1.216

1.262

1.311

5

1.217

1.276

1.338

1.403

6

1.265

1.340

1.419

1.501

A) $1,218

B) $1,170

C) $1,040

D) $1,240

Answer:

B

Explanation:

B) Calculations: 1.170 × $1,000 = $1,170

Diff: 2

LO:

21-3

EOC Ref:

S21-8

AACSB:

Analytic Skills

AICPA Business:

Critical Thinking

AICPA Functional:

Measurement

10) If $2,000 is invested in an account with 5% interest compounding yearly, what will the balance of the account be

after 6 years?

Please refer to the following Future Value table:

Future

Value of

$1

4%

5%

6%

7%

1

1.040

1.050

1.060

1.070

2

1.082

1.103

1.124

1.145

3

1.125

1.158

1.191

1.225

4

1.170

1.216

1.262

1.311

5

1.217

1.276

1.338

1.403

6

1.265

1.340

1.419

1.501

A) $1,340

B) $2,680

C) $2,676

D) $2,432

Answer:

B

Explanation:

B) Calculations: 1.340 × $2,000 = $2,680

Diff: 2

LO:

21-3

EOC Ref:

S21-8

AACSB:

Analytic Skills

AICPA Business:

Critical Thinking

AICPA Functional:

Measurement

27

Copyright © 2012 Pearson Education

##### Page 28

11) If $5,000 is invested in an account with 7% interest compounding yearly, what will the balance of the account be

after 3 years?

Please refer to the following Future Value table:

Future

Value of

$1

4%

5%

6%

7%

1

1.040

1.050

1.060

1.070

2

1.082

1.103

1.124

1.145

3

1.125

1.158

1.191

1.225

4

1.170

1.216

1.262

1.311

5

1.217

1.276

1.338

1.403

6

1.265

1.340

1.419

1.50

A) $6,180

B) $6,211

C) $5,867

D) $6,125

Answer:

D

Explanation:

D) Calculations: 1.225 × $5,000 = $6,125

Diff: 2

LO:

21-3

EOC Ref:

S21-8

AACSB:

Analytic Skills

AICPA Business:

Critical Thinking

AICPA Functional:

Measurement

28

Copyright © 2012 Pearson Education

##### Page 29

12) If $1,000 is invested in an account with 9% interest compounding yearly, approximately how many years will it

take for the amount to double?

Please refer to the following Future Value table:

Future

Value of

$1

4%

5%

6%

7%

8%

9%

1

1.040

1.050

1.060

1.070

1.080

1.090

2

1.082

1.103

1.124

1.145

1.166

1.188

3

1.125

1.158

1.191

1.225

1.260

1.295

4

1.170

1.216

1.262

1.311

1.360

1.412

5

1.217

1.276

1.338

1.403

1.469

1.539

6

1.265

1.340

1.419

1.501

1.587

1.677

7

1.316

1.407

1.504

1.606

1.714

1.828

8

1.369

1.477

1.594

1.718

1.851

1.993

9

1.423

1.551

1.689

1.838

1.999

2.172

10

1.480

1.629

1.791

1.967

2.159

2.367

A) Slightly more than 8 years

B) Exactly 9 years

C) 5 years

D) Slightly less than 7 years

Answer:

A

Explanation:

A) Calculations: 1.993 only

Diff: 2

LO:

21-3

EOC Ref:

S21-8

AACSB:

Analytic Skills

AICPA Business:

Critical Thinking

AICPA Functional:

Measurement

13) John Doe wins the lottery and may pick from the following three choices:

Take $750,000 now.

Take $1,000,000 ten years from now.

Take $90,000 at the end of this year, and at the end of each following year for ten installments in

total.

Assume that John Doe uses a discount rate of 5% to evaluate his choices.

If he selects the first option, how much is

the present value of that alternative?

A) $750,000

B) $1,000,000

C) $450,000

D) $798,000

Answer:

A

Diff: 2

LO:

21-3

EOC Ref:

S21-8

AACSB:

Analytic Skills

AICPA Business:

Critical Thinking

AICPA Functional:

Measurement

29

Copyright © 2012 Pearson Education

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