Intermediate Accounting: Reporting And Analysis
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN: 9781337788281
Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher: Cengage Learning
Question
Book Icon
Chapter M, Problem 11E

1.

To determine

Determine the accumulated amount in the savings account on December 31, 2024.

1.

Expert Solution
Check Mark

Answer to Problem 11E

The accumulated amount in the savings account on December 31, 2024 is $64,041.28.

Explanation of Solution

Future Value: The future value is value of present amount compounded at an interest rate until a particular future date.

Person HD deposits $40,000 on January 1, 2019. Interest rate of 8% is compounded semiannually. Thus the interest rate per one half-year is 4%(8%peryear12×6months in a semiannual). Number of time period from January 1, 2019 to December 31, 2024 is 12 semi annum.

Determine the future value as on January 1, 2019.

FV=PV×(fn=12,i=4%)=$40,000×1.601032=$64,041.28

Hence, the amount of $40,000 deposited for 12 semi annum at 4% interest compounded semi-annually will have a future value of $64,041.28.

Note:

FV stands for Future value

PV stands for Present value

i stands for interest rate for each of the stated time periods

n stands for number of time periods

FV factor (Future value of $1: n = 12, i =4%) is taken from the table value (Table 1 at the end of the time value money module).

2.

To determine

Determine the accumulated amount in the fund on December 31, 2023, after the receipt of December 31 bonuses of 2023.

2.

Expert Solution
Check Mark

Answer to Problem 11E

Accumulated amount in the fund on December 31, 2023, after the receipt of December 31 bonuses of 2023 is $31,764.24.

Explanation of Solution

Person BJ deposits the bonus amount of $5,000 each year in his savings accounts, starts from December 31, 2019. Deposit will earn 12% interest per annum. Number of time period from December 31, 2019 to December 31, 2023 is 5 years.

Determine the future value ordinary annuity.

FVO=Cash flow×(fon=5,i=12%)=$5,000×6.352847=$31,764.24

Hence, the amount of $5,000 deposited each year for 5 years at 12% compound interest has a future value of $31,764.24.

Note:

FVO stands for future value ordinary annuity

i stands for interest rate for each of the stated time periods

n stands for number of time periods

fO stands for factor of annuity due

Future value of ordinary annuity of $1: n =5, i =12% is taken from the table value (Table 2 at the end of the time value money module).

3.

To determine

Determine the amount to be paid on January 1, 2019 by Person RS.

3.

Expert Solution
Check Mark

Answer to Problem 11E

The amount to be paid on January 1, 2019 by Person RS is $11,566.29.

Explanation of Solution

Person RS owes $30,000 on a non- interest bearing note due January 1, 2029. On January 1, 2019 he offers to pay the amount after discounting the note at 10% compounded annually.

Determine the present value as on January 1, 2019.

PV=FV×(pn=10,i=10%)=$30,000×0.385543=$11,566.29

Hence, Person RS would have to pay $11,566.29, on January 1, 2019.

Note:

FV stands for Future value

PV stands for Present value

i stands for interest rate for each of the stated time periods

n stands for number of time periods

PV factor (Present value of $1: n = 10, i =10%) is taken from the table value (Table 3 at the end of the time value money module).

4.

To determine

Determine the cost of annuity for Person JS.

4.

Expert Solution
Check Mark

Answer to Problem 11E

The cost of annuity for Person JS is $50,303.06.

Explanation of Solution

Person JS will receive $6,000 each period on June 30 and December 31 for the next 6 years, from the annuity purchased on January 1, 2019. Interest rate is 12% per annum. Cash flow will be receivable in 6 months, and then the interest rate per one half-year is 6%(12%peryear12×6months in a semiannual) .

Number of time period from June 30, 2019 to December 31, 2024 is 12 semi annum.

Determine the present value ordinary annuity (Cost of annuity).

PVO=Cash flow×(pon=12,i=6%)=$6,000×8.383844=$50,303.06

Hence, the cost of annuity is $50,303.06.

Note:

PVO stands for present value ordinary annuity

i stands for interest rate for each of the stated time periods

n stands for number of time periods

PO stands for factor of present value ordinary annuity

Present value of ordinary annuity of $1: n =12, i =6% is taken from the table value (Table 4 at the end of the time value money module).

5.

To determine

Determine the amount of equal annual contribution.

5.

Expert Solution
Check Mark

Answer to Problem 11E

Amount of equal annual contribution would be $4,467.20.

Explanation of Solution

n – 5 annual cash flows

I – Interest rate 10% compounded annually

Future value – $30,000

First cash flow starts on December 31, 2019, and December 31, 2023 is the last cash flow. Here, the cash flow occurs during the first day of each time period, hence it is an annuity due.

Determine the future value annuity due.

Future valueD= Cash flow×(fDn=5,i=10%)$30,000=Cash flow×(fOn +1=6,i=10%1)$30,000=Cash flow×(7.7156101)$30,000=Cash flow×(6.715610)

Cash flow=$30,0006.715610=$4,467.20

Hence, the 5 equal annual contributions are $4,467.20.

Note:

Future ValueD stands for future value annuity due

Future value of ordinary annuity of $1: n = 6, i =10% is taken from the table value (Table 2 at the end of the time value money module).

There is no separate table provided in this module for future value of annuity due. Thus, factor of annuity due is calculated with the help of ordinary annuity table.

6.

To determine

Determine the amount of equal annual withdrawals.

6.

Expert Solution
Check Mark

Answer to Problem 11E

Amount of equal annual withdrawals would be $2,525.68.

Explanation of Solution

n – 6 equal future annual withdrawals start from December 31, 2020

I –Interest rate 10% compounded annually

Investment (Present value) – $11,000

Here, the cash flow occurs during the last day of each time period, hence it is an ordinary annuity.

Determine the present value ordinary annuity.

PVO= Cash flow×(pOn=6,i=10%)$11,000=Cash flow×4.355261Cash flow=$11,0004.355261Cash flow=$2,525.68

Hence, the 6 equal annual withdrawals would be $2,525.68.

Note:

Present value of ordinary annuity of $1: n = 6, i =10% is taken from the table value (Table 4 at the end of the time value money module).

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
None
Please given correct answer general accounting
General accounting

Chapter M Solutions

Intermediate Accounting: Reporting And Analysis

Ch. M - Prob. 11GICh. M - Prob. 12GICh. M - Prob. 13GICh. M - Prob. 14GICh. M - Prob. 15GICh. M - Prob. 16GICh. M - Prob. 17GICh. M - Prob. 18GICh. M - Prob. 19GICh. M - Prob. 20GICh. M - Prob. 21GICh. M - Prob. 22GICh. M - What is a deferred ordinary annuity? How does it...Ch. M - Prob. 24GICh. M - Prob. 25GICh. M - Give two examples of assets and three examples of...Ch. M - Prob. 1MCCh. M - Prob. 2MCCh. M - Refer to the present value table information on...Ch. M - Refer to the present value table information on...Ch. M - On May 1, 2019, a company purchased a new machine...Ch. M - An office equipment representative has a machine...Ch. M - Prob. 7MCCh. M - For which of the following transactions would the...Ch. M - On July 1, 2019, James Rago signed an agreement to...Ch. M - On January 1, 2019, Ken Company sold a machine to...Ch. M - Prob. 1RECh. M - Based on the following annual interest rates, what...Ch. M - Prob. 3RECh. M - Prob. 4RECh. M - Next Level Potter wishes to deposit a sum that at...Ch. M - Prob. 6RECh. M - Prob. 7RECh. M - Prob. 8RECh. M - Prob. 9RECh. M - If 90,000 is invested in a fund on December 31,...Ch. M - Samuel Ames owes 20,000 to a friend. He wants to...Ch. M - Prob. 12RECh. M - Prob. 13RECh. M - Prob. 14RECh. M - Prob. 1ECh. M - Future Value Hugh Colson deposited 20,000 in a...Ch. M - Prob. 3ECh. M - Future Value of Annuity Using appropriate tables,...Ch. M - Prob. 5ECh. M - Prob. 6ECh. M - Prob. 7ECh. M - Cash Flow Amounts R. Lee Rouse borrows 10,000 that...Ch. M - Prob. 9ECh. M - Amount of an Annuity John Goodheart wishes to...Ch. M - Prob. 11ECh. M - Prob. 12ECh. M - Present Value of Leased Asset On January 1, 2019,...Ch. M - Amount of an Annuity Beginning December 31, 2023,...Ch. M - Prob. 1PCh. M - Prob. 2PCh. M - Prob. 3PCh. M - Determining Loan Repayments Jerry Rockness needs...Ch. M - Prob. 5PCh. M - Prob. 6PCh. M - Value of an Annuity Using the appropriate tables,...Ch. M - Serial Installments; Amounts Applicable to...Ch. M - Prob. 9PCh. M - Comprehensive Part a. Reproduced in the following...Ch. M - Prob. 11PCh. M - Present Value of an Annuity John Joshua wants to...Ch. M - Present Value of an Annuity Ralph Benke wants to...Ch. M - Compound Interest Issues You are given the...Ch. M - Cash Flow Amounts On January 1, 2019, Philip...Ch. M - Prob. 16PCh. M - Comprehensive The following are three independent...Ch. M - Prob. 18PCh. M - Asset Purchase Price BWP Inc. is considering the...Ch. M - Prob. 1CCh. M - Prob. 2CCh. M - Prob. 3CCh. M - Prob. 4CCh. M - Prob. 5C
Knowledge Booster
Background pattern image
Recommended textbooks for you
Text book image
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning
Text book image
Financial Accounting Intro Concepts Meth/Uses
Finance
ISBN:9781285595047
Author:Weil
Publisher:Cengage
Text book image
Excel Applications for Accounting Principles
Accounting
ISBN:9781111581565
Author:Gaylord N. Smith
Publisher:Cengage Learning
Text book image
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Text book image
CONCEPTS IN FED.TAX., 2020-W/ACCESS
Accounting
ISBN:9780357110362
Author:Murphy
Publisher:CENGAGE L