ASSIGNMENT CLASSIFICATION TABLE (BY TOPIC)
CHAPTER 6Accounting and the Time Value of MoneyASSIGNMENT CLASSIFICATION TABLE (BY TOPIC)BriefExercisesExercises13, 1481a. Unknown future amount.7, 191, 5, 132, 3, 4, 6b. Unknown payments.10, 11, 126, 12, 178, 16, 172, 74, 910, 152TopicsQuestions1.Present value concepts.1, 2, 3, 4, 5,9, 17, 192.Use of tables.3.Present and future valueproblems:c. Unknown number ofperiods.Problemsd. Unknown interest rate.15, 183, 11, 169, 10, 112, 7e. Unknown present value.8, 192, 7, 8, 10, 143, 4, 5, 6,8, 12, 17,18, 191, 4, 6, 7, 9,13, 14, 154.Value of a series of irregulardeposits; changing interestrates.5.Valuation of leases,pensions, bonds; choicebetween projects.66.Deferred annuity.167.Expected cash flows.Copyright 2011 John Wiley & Sons, Inc.3, 5, 815Kieso, IFRS, 1/e, Solutions Manual7, 12, 13,14, 151, 3, 5, 6, 8, 9,10, 11, 1220, 21, 2213, 14, 15(For Instructor Use Only)6-1
ASSIGNMENT CLASSIFICATION TABLE (BY LEARNING OBJECTIVE)Learning y accounting topics where the timevalue of money is relevant.2.Distinguish between simple and compoundinterest.23.Use appropriate compound interest tables.14.Identify variables fundamental to solvinginterest problems.5.Solve future and present value of 1 problems.1, 2, 3,4, 7, 82, 3, 6, 9,10, 151, 2, 3, 5,7, 9, 106.Solve future value of ordinary and annuitydue problems.5, 6, 9, 133, 4, 5, 6,15, 162, 7, 107.Solve present value of ordinary and annuitydue problems.10, 11, 12,14, 16, 173, 4, 5, 6,11, 12, 17,18, 191, 3, 4, 5,7, 8, 9, 10,13, 148.Solve present value problems relatedto deferred annuities and bonds.155, 7, 8, 13, 146, 11, 129.Apply expected cash flows to presentvalue measurement.20, 21, 2213, 14, 156-2Copyright 2011 John Wiley & Sons, Inc.Kieso, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
ASSIGNMENT CHARACTERISTICS TABLEItemDescriptionLevel 7E6-18E6-19E6-20E6-21E6-22Using interest tables.Simple and compound interest computations.Computation of future values and present values.Computation of future values and present values.Computation of present value.Future value and present value problems.Computation of bond prices.Computations for a retirement fund.Unknown rate.Unknown periods and unknown interest rate.Evaluation of purchase options.Analysis of alternatives.Computation of bond liability.Computation of pension liability.Investment decision.Retirement of debt.Computation of amount of rentals.Least costly payoff.Least costly payoff.Expected cash flows.Expected cash flows and present value.Fair value 10P6-11P6-12P6-13P6-14P6-15Various time value situations.Various time value situations.Analysis of alternatives.Evaluating payment alternatives.Analysis of alternatives.Purchase price of a business.Time value concepts applied to solve business problems.Analysis of alternatives.Analysis of business problems.Analysis of lease vs. purchase.Pension funding.Pension funding.Expected cash flows and present value.Expected cash flows and present value.Fair value 020–2520–2520–2520–25Copyright 2011 John Wiley & Sons, Inc.Kieso, IFRS, 1/e, Solutions Manual(For Instructor Use Only)6-3
ANSWERS TO QUESTIONS1. Money has value because with it one can acquire assets and services and discharge obligations.The holding, borrowing or lending of money can result in costs or earnings. And the longer thetime period involved, the greater the costs or the earnings. The cost or earning of money as afunction of time is the time value of money.Accountants must have a working knowledge of compound interest, annuities, and present valueconcepts because of their application to numerous types of business events and transactionswhich require proper valuation and presentation. These concepts are applied in the followingareas: (1) sinking funds, (2) installment contracts, (3) pensions, (4) long-term assets, (5) leases,(6) notes receivable and payable, (7) business combinations, (8) amortization of premiums anddiscounts, and (9) estimation of fair value.2. Some situations in which present value measures are used in accounting include:(a) Notes receivable and payable—these involve single sums (the face amounts) and may involveannuities, if there are periodic interest payments.(b) Leases—involve measurement of assets and obligations, which are based on the present valueof annuities (lease payments) and single sums (if there are residual values to be paid at theconclusion of the lease).(c) Pensions and other deferred compensation arrangements—involve discounted future annuitypayments that are estimated to be paid to employees upon retirement.(d) Bond pricing—the price of bonds payable is comprised of the present value of the principal orface value of the bond plus the present value of the annuity of interest payments.(e) Long-term assets—evaluating various long-term investments or assessing whether an assetis impaired requires determining the present value of the estimated cash flows (may be singlesums and/or an annuity).3. Interest is the payment for the use of money. It may represent a cost or earnings depending uponwhether the money is being borrowed or loaned. The earning or incurring of interest is a functionof the time, the amount of money, and the risk involved (reflected in the interest rate).Simple interest is computed on the amount of the principal only, while compound interest is computed on the amount of the principal plus any accumulated interest. Compound interest involvesinterest on interest while simple interest does not.4. The interest rate generally has three components:(a) Pure rate of interest—This would be the amount a lender would charge if there were nopossibilities of default and no expectation of inflation.(b) Expected inflation rate of interest—Lenders recognize that in an inflationary economy, theyare being paid back with less valuable dollars. As a result, they increase their interest rate tocompensate for this loss in purchasing power. When inflationary expectations are high,interest rates are high.(c) Credit risk rate of interest—The government has little or no credit risk (i.e., risk of nonpayment)when it issues bonds. A business enterprise, however, depending upon its financial stability,profitability, etc. can have a low or a high credit risk.Accountants must have knowledge about these components because these components areessential in identifying an appropriate interest rate for a given company or investor at any givenmoment.5. (a)(b)(c)(d)6-4Present value of an ordinary annuity at 8% for 10 periods (Table 6-4).Future value of 1 at 8% for 10 periods (Table 6-1).Present value of 1 at 8% for 10 periods (Table 6-2).Future value of an ordinary annuity at 8% for 10 periods (Table 6-3).Copyright 2011 John Wiley & Sons, Inc.Kieso, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
Questions Chapter 6 (Continued)6. He should choose quarterly compounding, because the balance in the account on which interestwill be earned will be increased more frequently, thereby resulting in more interest earned on theinvestment. This is shown in the following calculation:Semiannual compounding, assuming the amount is invested for 2 years:n 4R 1,500 X 1.16986 R 1,754.79i 4Quarterly compounding, assuming the amount is invested for 2 years:n 8R 1,500 X 1.17166 R 1,757.49i 2Thus, with quarterly compounding, Jose could earn R 2.70 more.7. 26,897.80 20,000 X 1.34489 (future value of 1 at 21/2 for 12 periods).8. 44,671.20 80,000 X .55839 (present value of 1 at 6% for 10 periods).9. An annuity involves (1) periodic payments or receipts, called rents, (2) of the same amount,(3) spread over equal intervals, (4) with interest compounded once each interval.Rents occur at the end of the intervals for ordinary annuities while the rents occur at the beginningof each of the intervals for annuities due.10. Amount paid each year 40,0003.03735(present value of an ordinary annuity at 12% for 4 years).Amount paid each year 13,169.37.11. Amount deposited each year 20,000,000 (future value of an ordinary annuity at 10% for4.64100 4 years).Amount deposited each year 4,309,416.12. Amount deposited each year 20,000,000 [future value of an annuity due at 10% for 4 years5.10510 (4.64100 X 1.10)].Amount deposited each year 3,917,651.13. The process for computing the future value of an annuity due using the future value of an ordinaryannuity interest table is to multiply the corresponding future value of the ordinary annuity by oneplus the interest rate. For example, the factor for the future value of an annuity due for 4 years at12% is equal to the factor for the future value of an ordinary annuity times 1.12.14. The basis for converting the present value of an ordinary annuity table to the present value of anannuity due table involves multiplying the present value of an ordinary annuity factor by one plusthe interest rate.Copyright 2011 John Wiley & Sons, Inc.Kieso, IFRS, 1/e, Solutions Manual(For Instructor Use Only)6-5
Questions Chapter 6 (Continued)15. Present value present value of an ordinary annuity of 25,000 for 20 periods at? percent. 245,000 present value of an ordinary annuity of 25,000 for 20 periods at? percent.Present value of an ordinary annuity for 20 periods at? percent 245,000 9.8. 25,000The factor 9.8 is closest to 9.81815 in the 8% column (Table 6-4).16. 4.96764 Present value of ordinary annuity at 12% for eight periods.2.40183 Present value of ordinary annuity at 12% for three periods.2.56581 Present value of ordinary annuity at 12% for eight periods, deferred three periods.The present value of the five rents is computed as follows:2.56581 X 20,000 51,316.20.17. (a)(b)(c)(d)Present value of an annuity due.Present value of 1.Future value of an annuity due.Future value of 1.18. 27,600 PV of an ordinary annuity of 6,900 for five periods at? percent. 27,600 PV of an ordinary annuity for five periods at? percent. 6,9004.0 PV of an ordinary annuity for five periods at? percent4.0 approximately 8%.19. The taxing authority argues that the future reserves should be discounted to present value. Theresult would be smaller reserves and therefore less of a charge to income. As a result, incomewould be higher and income taxes may therefore be higher as well.6-6Copyright 2011 John Wiley & Sons, Inc.Kieso, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
SOLUTIONS TO BRIEF EXERCISESBRIEF EXERCISE 6-18% annual interesti 8%PV 15,000FV ?0123n 3FV 15,000 (FVF3, 8%)FV 15,000 (1.25971)FV 18,895.658% annual interest, compounded semiannuallyi 4%PV 15,0000FV ?123456n 6FV 15,000 (FVF6, 4%)FV 15,000 (1.26532)FV 18,979.80Copyright 2011 John Wiley & Sons, Inc.Kieso, IFRS, 1/e, Solutions Manual(For Instructor Use Only)6-7
BRIEF EXERCISE 6-212% annual interesti 12%PV ?FV 25,000012n 434PV 25,000 (PVF4, 12%)PV 25,000 (.63552)PV 15,88812% annual interest, compounded quarterlyi 3%PV ?0FV 25,00012141516n 16PV 25,000 (PVF16, 3%)PV 25,000 (.62317)PV 15,579.256-8Copyright 2011 John Wiley & Sons, Inc.Kieso, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
BRIEF EXERCISE 6-3i ?PV 30,00001FV 150,0002192021n 21FV PV (FVF21, i)PV FV (PVF21, i)OR 150,000 30,000 (FVF21, i) 30,000 150,000 (PVF21, i)FVF21, i 5.0000PVF21, i .20000i 8%i 8%BRIEF EXERCISE 6-4i 5%PV 10,000FV 17,1000?n ?FV PV (FVFn, 5%)PV FV (PVFn, 5%)OR 17,100 10,000 (FVFn, 5%) 10,000 17,100 (PVFn, 5%)FVFn, 5% 1.71000PVFn, 5% .58480n 11 yearsCopyright 2011 John Wiley & Sons, Inc.n 11 yearsKieso, IFRS, 1/e, Solutions Manual(For Instructor Use Only)6-9
BRIEF EXERCISE 6-5First payment today (Annuity Due)i 12%R FV – AD 8,000 8,000 8,00001 8,000 8,00021819?20n 20FV – AD 8,000 (FVF – OA20, 12%) 1.12FV – AD 8,000 (72.05244) 1.12FV – AD 645,589.86First payment at year-end (Ordinary Annuity)i 12%FV – OA ? 8,000 8,000 8,000 8,000 8,000012181920n 20FV – OA 8,000 (FVF – OA20, 12%)FV – OA 8,000 (72.05244)FV – OA 576,419.526-10Copyright 2011 John Wiley & Sons, Inc.Kieso, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
BRIEF EXERCISE 6-6i 11%0R ?128FV – OA ? 250,000910n 10 250,000 R (FVF – OA10, 11%) 250,000 R (16.72201) 250,00016.72201 RR 14,950BRIEF EXERCISE 6-712% annual interesti 12%PV ?0FV R 300,00012345n 5PV R 300,000 (PVF5, 12%)PV R 300,000 (.56743)PV R 170,229Copyright 2011 John Wiley & Sons, Inc.Kieso, IFRS, 1/e, Solutions Manual(For Instructor Use Only)6-11
BRIEF EXERCISE 6-8With quarterly compounding, there will be 20 quarterly compounding periods,at 1/4 the interest rate:PV R 300,000 (PVF20, 3%)PV R 300,000 (.55368)PV R 166,104BRIEF EXERCISE 6-9i 10%FV – OA R 100,000 16,380 16,38001 16,3802nn ? 100,000 16,380 (FVF – OAn, 10%)FVF – OAn, 10% 100,00016,380 6.10501Therefore, n 5 years6-12Copyright 2011 John Wiley & Sons, Inc.Kieso, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
BRIEF EXERCISE 6-10First withdrawal at year-endi 8%PV – OA ?R 30,000 30,00001 30,000 30,000 30,00028910n 10PV – OA 30,000 (PVF – OA10, 8%)PV – OA 30,000 (6.71008)PV – OA 201,302First withdrawal immediatelyi 8%PV – AD ?R 30,000 30,000 30,00001 30,000 30,00028910n 10PV – AD 30,000 (PVF – AD10, 8%)PV – AD 30,000 (7.24689)PV – AD 217,407Copyright 2011 John Wiley & Sons, Inc.Kieso, IFRS, 1/e, Solutions Manual(For Instructor Use Only)6-13
BRIEF EXERCISE 6-11i ?PV R 793.15 75 75 75 75 75012101112n 12 793.15 75 (PVF – OA12, i)PVF12, i 793.15 10.57533 75Therefore, i 2% per month or 24% per year.BRIEF EXERCISE 6-12i 8%PV 300,000 R ?01?2181920n 20 300,000 R (PVF – OA20, 8%) 300,000 R (9.81815)R 30,5566-14Copyright 2011 John Wiley & Sons, Inc.Kieso, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
BRIEF EXERCISE 6-13i 12%R 30,000 30,000 30,000 30,000 30,00012/31/09 12/31/10 12/31/1112/31/15 12/31/16 12/31/17n 8FV – OA 30,000 (FVF – OA8, 12%)FV – OA 30,000 (12.29969)FV – OA 368,991BRIEF EXERCISE 6-14i 8%PV – OA R ?0 25,000 25,00012345n 4 25,000 25,00061112n 8PV – OA 25,000 (PVF – OA12–4, 8%)PV – OA 25,000 (PVF – OA8, 8%)(PVF4, 8%)ORPV – OA 25,000 (7.53608 – 3.31213)PV – OA 25,000 (5.74664)(.73503)PV – OA 105,599PV – OA 105,599Copyright 2011 John Wiley & Sons, Inc.Kieso, IFRS, 1/e, Solutions Manual(For Instructor Use Only)6-15
BRIEF EXERCISE 6-15i 8%PV ?PV – OA R ? HK 140,0000HK 140,0001HK 2,000,000HK 140,000 HK 140,0002910n 10HK 2,000,000 (PVF10, 8%) HK 2,000,000 (.46319) HK 926,380HK 140,000 (PVF – OA10, 8%) HK 140,000 (6.71008)939,411HK 1,865,791BRIEF EXERCISE 6-16PV – OA 20,000 4,727.53 4,727.5306-1612 4,727.53 4,727.535 20,000 4,727.53 (PV – OA6, i%)(PV – OA6, i%)(PV – OA6, i%) 20,000 4,727.53 4.23054Therefore, i% 11Copyright 2011 John Wiley & Sons, Inc.6Kieso, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
BRIEF EXERCISE 6-17PV – AD 20,000 ? ?01 ? ?256 20,000 Payment (PV – AD6, 11%) 20,000 (PV – AD6, 11%) Payment 20,000 4.6959 4,259.03Copyright 2011 John Wiley & Sons, Inc.Kieso, IFRS, 1/e, Solutions Manual(For Instructor Use Only)6-17
SOLUTIONS TO EXERCISESEXERCISE 6-1 (5–10 minutes)1.a.b.c.(a)Rate of Interest9%2%5%2.a.b.c.9%4%3%(b)Number of Periods92030253028EXERCISE 6-2 (5–10 minutes)(a)Simple interest of 2,400 ( 30,000 X 8%) per year X 8 .Principal .Total withdrawn .(b)Interest compounded annually—Future value of1 @ 8% for 8 periods .Total withdrawn .(c)Interest compounded semiannually—Futurevalue of 1 @ 4% for 16 periods .Total withdrawn . 19,20030,000 49,2001.85093X 30,000 55,527.901.87298X 30,000 56,189.40EXERCISE 6-3 (10–15 minutes)(a) 9,000 X 1.46933 13,223.97.(b) 9,000 X .43393 3,905.37.(c) 9,000 X 31.77248 285,952.32.(d) 9,000 X 12.46221 112,159.89.6-18Copyright 2011 John Wiley & Sons, Inc.Kieso, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
EXERCISE 6-4 (15–20 minutes)(a)Future value of an ordinaryannuity of 5,000 a periodfor 20 periods at 8% 228,809.80 ( 5,000 X 45.76196)Factor (1 .08)X1.08Future value of an annuitydue of 5,000 a period at 8% 247,114.58(b)Present value of an ordinaryannuity of 2,500 for 30periods at 10%Factor (1 .10)Present value of annuitydue of 2,500 for 30 periodsat 10%(c)(d)Future value of an ordinaryannuity of 2,000 a periodfor 15 periods at 10%Factor (1 10)Future value of an annuitydue of 2,000 a periodfor 15 periods at 10%Present value of an ordinaryannuity of 3,000 for 6periods at 9%Factor (1 .09)Present value of an annuitydue of 3,000 for 6 periodsat 9% 23,567.28 ( 2,500 X 9.42691)X1.10 25,924.00 (Or see Table 6-5 whichgives 25,924.03) 63,544.96 ( 2,000 X 31.77248)X1.10 69,899.46 13,457.76 ( 3,000 X 4.48592)X1.09 14,668.96 (Or see Table 6-5)EXERCISE 6-5 (10–15 minutes)(a) 50,000 X 4.96764 248,382.(b) 50,000 X 8.31256 415,628.(c)( 50,000 X 3.03735 X .50663) 76,940.63.or (5.65022 – 4.11141) X 50,000 76,940.50 (difference of .13 due torounding).Copyright 2011 John Wiley & Sons, Inc.Kieso, IFRS, 1/e, Solutions Manual(For Instructor Use Only)6-19
EXERCISE 6-6 (15–20 minutes)(a)(b)(c)Future value of 1,200,000 @ 10% for 10 years( 1,200,000 X 2.59374) Future value of an ordinary annuity of W620,000at 10% for 15 years (W620,000 X 31.77248)Deficiency (W20,000,000 – W19,698,937) 3,112,488W19,698,937.00W 301,063.00R 75,000 discounted at 8% for 10 years:R 75,000 X .46319 R 34,739.25Accept the bonus of R 40,000 now.(Also, consider whether the 8% is an appropriate discount rate sincethe president can probably earn compound interest at a higher ratewithout too much additional risk.)EXERCISE 6-7 (12–17 minutes)(a) 100,000 X .31524 10,000 X 8.55948 31,524.0085,594.80 117,118.80(b) 100,000 X .23939 10,000 X 7.60608 23,939.0076,060.80 99,999.80The answer should be 100,000; the above computation is off by 20 due to rounding.(c)6-20 100,000 X .18270 10,000 X 6.81086 18,270.00 68,108.60 86,378.60Copyright 2011 John Wiley & Sons, Inc.Kieso, IFRS, 1/e, Solutions Manual(For Instructor Use Only)
EXERCISE 6-8 (10–15 minutes)(a)(b)Present value of an ordinary annuity of 1for 4 periods @ 8%Annual withdrawalRequired fund balance on June 30, 2013Fund balance at June 30, 2013Future value of an ordinary annuity at 8%for 4 years3.31213X 25,000 82,803.25 82,803.254.50611 18,375.77Amount of each of four contributions is 18,375.77EXERCISE 6-9 (5–10 minutes)The rate of interest is determined by dividing the future value by the presentvalue and then finding the factor in the FVF table with n 2 that approximates that number: 118,810 100,000 (FVF2, i%) 118,810 100,000 (FVF2, i%)1.1881 (FVF2, i%)—reading across the n 2 row reveals that i 9%.Note: This problem can also be solved using present value tables.EXERCISE 6-10 (10–15 minutes)(a)The number of interest periods is calculated by first divid
E6-6 Future value and present value problems. Moderate 15–20 E6-7 Computation of bond prices. Moderate 12–17 E6-8 Computations for a retirement fund. Simple 10–15 E6-9 Unknown rate. Moderate 5–10 E6-10 Unknown periods and unknown interest rate. Simple 10–15 E6-11 Evaluation of purchase options. Moderate 10–15 E6-12 Analysis of .
Topic 5: Not essential to progress to next grade, rather to be integrated with topic 2 and 3. Gr.7 Term 3 37 Topic 1 Dramatic Skills Development Topic 2 Drama Elements in Playmaking Topic 1: Reduced vocal and physical exercises. Topic 2: No reductions. Topic 5: Topic 5:Removed and integrated with topic 2 and 3.
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Week 8: March 1 st-5 th Dictation Assignment 6/Singing Assignment 6/Rhythmic Assignment 6 due by 11pm on Friday, March 5 th Week 9 : March 8 th-12 th Sight Singing and Rhythmic Sigh t-Reading Test 2 Week 10: March 15 th - 19 th Dictation Assignment 7/Singing Assignment 7/Rhythmic Assignment 7 due by 11pm on Friday, March 19 th Week 11: March 22 .
Submitting a file to a Turnitin assignment is similar to a Blackboard assignment. Turnitin will require a few steps to complete the submission process. To submit a file to a Turnitin assignment, locate the assignment in your course. Turnitin assignments contain the following icon: VIEW TURNITIN ASSIGNMENT
