Financial 5 PassMaster Questions - Becker CPA Review,...

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Becker CPA Review, PassMaster Questions Lecture: Financial 5 1 © 2009 DeVry/Becker Educational Development Corp. All rights reserved. CPA PassMaster Questions–Financial 5 Export Date: 10/30/08
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Becker CPA Review, PassMaster Questions Lecture: Financial 5 2 © 2009 DeVry/Becker Educational Development Corp. All rights reserved. Present Values & Annuities CPA-05223 Type1 M/C A-D Corr Ans: B PM#12 F 5-01 1. CPA-05223 Released 2006 Page 3 On January 1 of the current year, Lean Co. made an investment of $10,000. The following is the present value of $1.00 discounted at a 10% interest rate: Present value of $1.00 Periods discounted at 10% 1 .909 2 .826 3 .751 What amount of cash will Lean accumulate in two years? a. $12,000 b. $12,107 c. $16,250 d. $27,002 CPA-05223 Explanation Choice "b" is correct. The problem with this question is that there is a discount rate but not an interest rate available. The normal present value formula can be expressed as: Present value = Future amount x present value factor $10,000 = Future amount x .826 (the present value factor is the discount rate for 2 years) Future amount = $10,000 / .826 = $12,107 Choice "a" is incorrect. If the interest rate, rather than the discount rate, was 10% and the interest was not compounded, the $10,000 would accumulate to $12,000 ($1,000 of interest each year). However, that calculation does not coincide with the facts of the question (the discount rate is 10% and the interest is compounded). Choice "c" is incorrect. If Lean had invested $10,000 at a rate around 10%, it is not expected that the investment could accumulate to anything like $16,250. $10,000 invested at 10% would only amount to slightly more than $12,000. Choice "d" is incorrect, per the above calculation and explanation. Accounting for Leases CPA-00395 Type1 M/C A-D Corr Ans: B PM#1 F 5-02 2. CPA-00395 FARE R03 #2 Page 16 Douglas Co. leased machinery with an economic useful life of six years. For tax purposes, the depreciable life is seven years. The lease is for five years, and Douglas can purchase the machinery at fair value at the end of the lease. What is the depreciable life of the leased machinery for financial reporting? a. Zero. b. Five years. c. Six years. d. Seven years. CPA-00395 Explanation Choice "b" is correct. Assets acquired under capital lease are depreciated using the same theory as purchased assets. The purchase option is for " fair value." It is not a "bargain purchase option" therefore
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Becker CPA Review, PassMaster Questions Lecture: Financial 5 3 © 2009 DeVry/Becker Educational Development Corp. All rights reserved. the assumption cannot be made that Douglas Co. will acquire the machine at the end of the lease period. At the inception of the lease, the best estimate of economic life to Douglas is the five-year lease term. Choice "a" is incorrect. Assets acquired under capital lease must be depreciated over their projected economic lives. Choice "c" is incorrect. Although the machine has a projected life of six years, the best estimate of useful life to Douglas is the five-year lease term.
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This note was uploaded on 09/25/2011 for the course ACCOUNTING AC555ON taught by Professor Abekele during the Spring '10 term at Keller Graduate School of Management.

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Financial 5 PassMaster Questions - Becker CPA Review,...

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