Exercise 6–19
Requirement 1
Exercise 6–20
6–22 Intermediate Accounting, 8/e
Exercise 6–21
List A List B
e 1. Interest a. First cash flow occurs one period after
agreement begins.
CPA / CMA REVIEW QUESTIONS
CPA Exam Questions
1. b. PV = FV x PV factor,
2. d. The sales price is equal to the present value of the note payments:
4. b. First solve for present value of a four-year ordinary annuity:
6. a. PVA = $100 x 5.65022 = $565 (present value of the interest payments)
7. a. PVA = PMT x PVA factor
CMA Exam Questions
1. d. Both future value tables will be used because the $75,000 already in the
account will be multiplied times the future value factor of 1.26 to determine
2. a. An annuity is a series of cash flows or other economic benefits occurring at
fixed intervals, ordinarily as a result of an investment. Present value is the
Problem 6–1
Choose the option with the lowest present value of cash outflows, net of the
present value of any cash inflows (Cash outflows are shown as negative amounts; cash
inflows as positive amounts).
Machine A:
PV = – $48,000 – 1,000 (6.71008* ) + 5,000 (.46319** )
Machine B:
PV = – $40,000 – 4,000 (.79383) – 5,000 (.63017) – 6,000 (.54027)
PROBLEMS
6–26 Intermediate Accounting, 8/e
Problem 6–2
1. PV = $10,000 + 8,000 (3.79079* ) = $40,326 = Equipment
2. $400,000 = Annuity amount x 5.9753*
3. PVAD = $120,000 (9.36492* ) = $1,123,790 = Lease liability
Problem 6–3
Choose the option with the lowest present value of cash payments.
1. PV = $1,000,000
6–28 Intermediate Accounting, 8/e
Problem 6–4
The restaurant should be purchased if the present value of the future cash
flows discounted at a 10% rate is greater than $800,000.
PV = $80,000 (4.35526* ) + 70,000 (.51316** ) + 60,000 (.46651**)
n = 7 n = 8
Problem 6–5
The maximum amount that should be paid for the store is the present value of the
estimated cash flows.
Years 1–5:
PVA = $70,000 x 3.99271* = $279,490
Years 11–20:
PVA = $70,000 x 5.65022* = $395,515
* Present value of an ordinary annuity of $1: n = 10, i = 12% (from Table 4)
End of Year 20:
PV = $400,000 x .32197* x .62092 x .68058 = $54,424
6–30 Intermediate Accounting, 8/e
Problem 6–6
1.
PV of $1 factor = $30,000 = .5000*
$60,000
3.
Annuity amount = PVA
Annuity factor
Problem 6–7
Requirement 1
Annuity amount = PVA
Annuity factor
Requirement 2
Annuity amount = PVA
Annuity factor
Requirement 3
Annuity factor = PVA
Annuity amount
Requirement 4
Annuity factor = PVA
Annuity amount
Problem 6–8
Requirement 1
Present value of payments 4–6:
PVA = $40,000 x 2.48685* = $99,474
* Present value of an ordinary annuity of $1: n = 3, i = 10% (from Table 4)
Or alternatively:
PV = $25,000 (2.48685* ) + 40,000 (1.86841** ) = $136,907
Requirement 2
Problem 6–9
Choose the alternative with the highest present value.
Alternative 1:
PV = $180,000
Alternative 2:
Or, alternatively (for 3):
PV = $50,000 (3.82037* ) = $191,019
(difference due to rounding)
6–34 Intermediate Accounting, 8/e
Problem 6–10