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WUSTL ACCT 2610 - ACCT2610_S10_QUIZ_05

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ACCOUNTING 2610 – SPRING 2010 - QUIZ # 5 QUIZ # 5 (5 Points) Name_______________________ Mail-file Status: Olin / Non-Olin (Note: There are present value tables on the last page of the quiz. Each of the tables has been constructed assuming that all payments are made at the end of the applicable period.) Problem 1 (1 Point) On December 30, 2009, Santa Claus Company signed a contract with a team of elves. According to the terms of the contract, beginning January 1, 2010, the elves would make toys, and work would continue making toys throughout the year. The elves would be paid a total of$ 250,000 for their work in 2010, and the entire amount would be paid on December 31, 2010. North Pole GAAP is consistent with United States GAAP with regard to the recognition of liabilities. Accordingly, on Santa Claus Company’s Dec. 31, 2009 Balance Sheet, should Santa report a liability for the amounts to be paid to the elves at the end of 2010? Why or why not? Problem 2 (1 Point) As a result of a slowdown in operations, Mercantile Stores is offering employees who have been terminated a severance package of $ 118,000 of cash, another $ 129,000 to be paid in one year, and an annuity of $ 27,500 to be paid each year for six years beginning in one year. What is the present value of the package, assuming an interest rate of 5%?Problem 3 (1 Point) _____ Today is your lucky day, your numbers have just come up and you are the only winner of the $ 212 Million Powerball Jackpot! According to the lottery officials, you have a choice between receiving $ 116.6 Million dollars now, or $ 10.6 Million dollars at the end of each year for the next 20 years. Using only the information contained in the attached tables, you can conclude that: A. The lottery “discounts” lottery payments using an interest rate less than 6% B. The lottery “discounts” lottery payments using an interest rate between 6% & 8%. C. The lottery “discounts” lottery payments using an interest rate greater than 8% D. It is not possible to place the lottery’s discount rate in any of the above categories. Problem 4 (1 Point) Forget about Problem # 3, it was all a dream. Instead, assume that you have found your dream house, but you’re going to have to save some money in order to be able to buy it. The house has a current market value of $ 480,000, and you expect that it will appreciate by 2% per year into the forseeable future. Your banker tells you that you will have to make a 20% downpayment on the house in order to buy it, based on the market value of the house at the time that you buy it. You would like to purchase the house ten years from today, and may assume that the owner would be willing to sellit to you then. Assuming that you can earn 8% on your investments, how much money would you have to save at the end of each year for the next ten years in order to be able to make the “downpayment”on your dreamhouse? (Ignore taxes when answering the question.) Problem 5 (1 Point) The following statement is TRUE / FALSE. (Circle One) One disadvantage of raising capital for a firm by issuing debt is that the creditors of the firm may force the firm into bankruptcy if the firm fails tomake the required payments on the debt.Present Value of 11.0% 2.0% 4.0% 5.0% 6.0% 8.0% 10.0% 12.0%1 0.9901 0.9804 0.9615 0.9524 0.9434 0.9259 0.9091 0.89292 0.9803 0.9612 0.9246 0.9070 0.8900 0.8573 0.8264 0.79723 0.9706 0.9423 0.8890 0.8638 0.8396 0.7938 0.7513 0.71184 0.9610 0.9238 0.8548 0.8227 0.7921 0.7350 0.6830 0.63555 0.9515 0.9057 0.8219 0.7835 0.7473 0.6806 0.6209 0.56746 0.9420 0.8880 0.7903 0.7462 0.7050 0.6302 0.5645 0.50667 0.9327 0.8706 0.7599 0.7107 0.6651 0.5835 0.5132 0.45238 0.9235 0.8535 0.7307 0.6768 0.6274 0.5403 0.4665 0.40399 0.9143 0.8368 0.7026 0.6446 0.5919 0.5002 0.4241 0.360610 0.9053 0.8203 0.6756 0.6139 0.5584 0.4632 0.3855 0.322020 0.8195 0.6730 0.4564 0.3769 0.3118 0.2145 0.1486 0.1037Future Value of 11.0% 2.0% 4.0% 5.0% 6.0% 8.0% 10.0% 12.0%1 1.0100 1.0200 1.0400 1.0500 1.0600 1.0800 1.1000 1.12002 1.0201 1.0404 1.0816 1.1025 1.1236 1.1664 1.2100 1.25443 1.0303 1.0612 1.1249 1.1576 1.1910 1.2597 1.3310 1.40494 1.0406 1.0824 1.1699 1.2155 1.2625 1.3605 1.4641 1.57355 1.0510 1.1041 1.2167 1.2763 1.3382 1.4693 1.6105 1.76236 1.0615 1.1262 1.2653 1.3401 1.4185 1.5869 1.7716 1.97387 1.0721 1.1487 1.3159 1.4071 1.5036 1.7138 1.9487 2.21078 1.0829 1.1717 1.3686 1.4775 1.5938 1.8509 2.1436 2.47609 1.0937 1.1951 1.4233 1.5513 1.6895 1.9990 2.3579 2.773110 1.1046 1.2190 1.4802 1.6289 1.7908 2.1589 2.5937 3.105820 1.2202 1.4859 2.1911 2.6533 3.2071 4.6610 6.7275 9.6463Present Value of Annuity of 11.0% 2.0% 4.0% 5.0% 6.0% 8.0% 10.0% 12.0%1 0.9901 0.9804 0.9615 0.9524 0.9434 0.9259 0.9091 0.89292 1.9704 1.9416 1.8861 1.8594 1.8334 1.7833 1.7355 1.69013 2.9410 2.8839 2.7751 2.7232 2.6730 2.5771 2.4869 2.40184 3.9020 3.8077 3.6299 3.5460 3.4651 3.3121 3.1699 3.03735 4.8534 4.7135 4.4518 4.3295 4.2124 3.9927 3.7908 3.60486 5.7955 5.6014 5.2421 5.0757 4.9173 4.6229 4.3553 4.11147 6.7282 6.4720 6.0021 5.7864 5.5824 5.2064 4.8684 4.56388 7.6517 7.3255 6.7327 6.4632 6.2098 5.7466 5.3349 4.96769 8.5660 8.1622 7.4353 7.1078 6.8017 6.2469 5.7590 5.328210 9.4713 8.9826 8.1109 7.7217 7.3601 6.7101 6.1446 5.650220 18.0456 16.3514 13.5903 12.4622 11.4699 9.8181 8.5136 7.4694Future Value of an Annuity of 11.0% 2.0% 4.0% 5.0% 6.0% 8.0% 10.0% 12.0%1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.00002 2.0100 2.0200 2.0400 2.0500 2.0600 2.0800 2.1000 2.12003 3.0301 3.0604 3.1216 3.1525 3.1836 3.2464 3.3100 3.37444 4.0604 4.1216 4.2465 4.3101 4.3746 4.5061 4.6410 4.77935 5.1010 5.2040 5.4163 5.5256 5.6371 5.8666 6.1051 6.35286 6.1520 6.3081 6.6330 6.8019 6.9753 7.3359 7.7156 8.11527 7.2135 7.4343 7.8983 8.1420 8.3938 8.9228 9.4872 10.08908 8.2857 8.5830 9.2142 9.5491 9.8975 10.6366 11.4359 12.29979 9.3685 9.7546 10.5828 11.0266 11.4913 12.4876 13.5795 14.775710 10.4622 10.9497 12.0061 12.5779 13.1808 14.4866 15.9374 17.548720 22.0190 24.2974 29.7781 33.0660 36.7856 45.7620 57.2750 72.0524SOLUTION TO ACCT 2610 – SPRING 2010 - QUIZ # 5Problem 1 Santa Claus Company would NOT be required to report a liability on their December 31, 2009 Balance Sheet related to the contract signed with the elves. In particular, one of the criteria for a liability to be reported is


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