Intermediate Accounting Study Set 7

Business

Quiz 7 :
Accounting and the Time Value of Money

Quiz 7 :
Accounting and the Time Value of Money

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Simple interest is computed on just the accumulated interest left on deposit.
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True False
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Answer:

False

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Compound interest is computed on both the principal and on the accumulated interest.
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True False
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Answer:

True

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Compound interest includes interest earned on interest.
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True False
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Answer:

True

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The effective interest rate is the same as the stated interest rate.
True False
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The effective interest rate is calculated as the total interest earned during the year divided by the beginning balance of the investment as the first of the year.
True False
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The value of a dollar today is greater than the value of a dollar in the future because a dollar today can be invested to earn interest.
True False
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The length of a compounding period is determined by the frequency of interest compounding.
True False
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Which of the following items does not use an accounting measure based on present value?
Multiple Choice
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Determining the future value of one or more present day cash flows is known as ________.
Multiple Choice
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Determining the present value of one or more future amounts is known as ________.
Multiple Choice
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The method of converting a future dollar amount into its present dollar value by removing the time value of money is called ________.
Multiple Choice
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Interest calculated on the original principal regardless of the amount of interest that has been paid or accrued in the past is ________.
Multiple Choice
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What is the term that describes the value today of a cash flow or series of cash flows to be received or paid in the future?
Multiple Choice
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When payments take place at the beginning of each period, the series of cash flows is called a(n) ________.
Multiple Choice
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Simple interest on a $620,000, 6%, 18-month note is ________.
Multiple Choice
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Bob Marby purchased a TV from Tryton Sales and signed a 2-year, 8% promissory note for $1,000. What is the amount required to pay off the note if it accrues simple interest over the term of the loan?
Multiple Choice
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What is the effective interest rate for an investment fund that pays 4% interest compounded monthly? (Use spreadsheet software or a financial calculator to calculate your answer. Do not round any intermediary calculations, and round your final answer two decimal places, X.XX%.)
Multiple Choice
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What is the effective interest rate for an investment fund that pays 6% interest compounded semiannually? (Use spreadsheet software or a financial calculator to calculate your answer. Do not round any intermediary calculations, and round your final answer two decimal places, X.XX%.)
Multiple Choice
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What is the time value of money?
Essay
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Why do accountants need to be familiar with present value concepts?
Essay
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