AC 302 CHAPTER 6 QUESTIONS AND PROBLEMS

AC 302 CHAPTER 6 QUESTIONS AND PROBLEMS
Exercise 6 QUESTION 2
Name				Date		
Instructor				Course		
Intermediate Accounting 14th Edition by Kieso Weygandt and Warfield						
Primer on Using Excel in Accounting by Rex A Schildhouse						
						
E6-2 (Simple and Compound Interest Computations) Lyle O’Keefe invests						$30,000 
at	8%	annual interest, leaving the money			8 	years. At the 
end of the	8 	years, Lyle withdrew the accumulated amount of money.				
						
Instructions:						
(a) Compute the amount Lyle would withdraw assuming the investment earns simple interest.						
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Text Title						Amount
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"(b) Compute the amount Lyle would withdraw assuming the investment earns interest compounded
     annually."						
						
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Text Title						Amount
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"(c) Compute the amount Lyle would withdraw assuming the investment earns interest compounded
     semi-annually."						
						
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Exercise 6-3
Name:				Date:		
Instructor:				Course:		
Intermediate Accounting, 14th Edition by Kieso, Weygandt, and Warfield						
Primer on Using Excel in Accounting by Rex A Schildhouse						
						
E6-3 (Computation of Future Values and Present Values) Using the appropriate interest table or Excel formula, answer each of the following questions: (Each case is independent of the others.)						
						
						
(a) What is the future value of		$9,000 	at the end of	5 	periods at	8%
compounded interest?						
Text as appropriate.						Fomula
						
(b) What is the present value of			$9,000 	due	8 	periods hence,
discounted at	11%					
Text as appropriate.						Formula
						
(c) What is the future value of		15 	periodic payments of		$9,000 	each made at 
the end of each period and compounded at			10%	?		
Text as appropriate.						Formula
						
(d) What is the present value of			$9,000 	to be received at the end of each of		
20 	periods, discounted at		5%	compound interest?		
Text as appropriate.						Formula
						
"Note: Students using the tables or other sources of present and future values may have values slightly
         different due to rounding."						
						
						

Problem P6-2
Name:				Date:			
Instructor:				Course:			
Intermediate Accounting, 14th Edition by Kieso, Weygandt, and Warfield							
Primer on Using Excel in Accounting by Rex A Schildhouse							
							
P6-2 (Various Time Value Situations) Using the appropriate interest table or Excel formula, provide the solution to each of the following four questions by computing the unknowns.							
							
(a) What is the amount of the payments that Ned Winslow must make at the end of each of							8 
years to accumulate a fund of			$90,000 	by the end of the eighth year, if the fund earns			
8%	interest, compounded annually?						
							
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(b) Robert Hitchcock is		40 	years old today and he wishes to accumulate				$500,000 
by his	65 	th birthday so he can retire to his summer place on Lake Hopatcong. He wishes to					
accumulate this amount by making equal deposits on his fortieth through sixty-fourth birthdays. What annual							
deposit must Robert make if the fund will earn				12%	interest compounded annually?		
							
Text Title							Formula
							
(c) Diane Ross has		$20,000 	to invest today at		9%	to pay a debt of	$47,347 
How many years will it take her to accumulate enough to liquidate the debt?							
							
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(d) Cindy Houston has a		$27,600 	debt that she wishes to repay in			4 	years from
today; she has	$19,553 	that she intends to invest for the			4 	years. What rate of interest	
will she need to earn annually in order to accumulate enough to pay the debt?							
							
Text Title							
							Formula
							

Problem P6-4
Name:				Date:		
Instructor:				Course:		
Intermediate Accounting, 14th Edition by Kieso, Weygandt, and Warfield						
Primer on Using Excel in Accounting by Rex A Schildhouse						
						
P6-4 (Evaluating Payment Alternatives) Howie Long has just learned he has won a						$500,000 
prize in the lottery. The lottery has given him two options for receiving payments: (1) If Howie takes all 						
the money today, the state and the federal governments will deduct taxes at a rate of						46%
immediately. (2) Alternatively, the lottery offers Howie a payout of					20 	equal payments
of	$36,000 	with the first payment occurring when Howie turns in the winning ticket. 				
Howie will be taxed on each of these payments at a rate of					25%	
						
Instructions:						
Assuming Howie can earn an		8%	rate of return (compounded annually) on any money invested			
during this period, which pay-out option should he choose?						
						
Step 1: Determine of single payment cash yield:						Formula
						
Step 2: Determine the present value of an annuity.						
	Cash payment is:			Amount		
	Tax burden is:			Percentage		
	Annual cash yield is:			Formula		
						
Text Title						Formula
						
Enter text answer here.						
						
						
						
						
Note: Due to significant digits of formulas, calculators, and tables, minor value differences may occur.