Question 1
a. The rent is an expense
b. The earrings are an asset while the $700 is an Accrued liability
c. The $2,500 is an asset for him and a liability because he has to pay back
d. the question takes many turns there is a Debit Interest expense__ $60.00 (expense), Credit Note payable______ $60.00 (liability), Credit Note payable___ $2,400.00 (liability)
The offsetting debit cannot be calculated without knowing the original principal of the loan
e. The entry is Credit cash $2,900 (Asset). He wrote this check amount.
Debit tax payable $2,450 (liability account). This was the actual liability. It normally has a credit balance.
Debit Tax receivable $450 (this is an asset just like accounts receivable).
f. the $1,600 investment is an asset
Question 3
It utilizes the following formula
FV = PV × (1+r)n
where FV = Future Value
PV = Present Value
r = annual interest rate
n = number of periods
a. The present value factor for 25 years and 7% is .184, therefore
pv=.184*25000
=4600
Fv=4600*(1+0.07)25
=123050
b.
A=p(1+r)10
A=210,000*(1+0.05)10
=220739.4277
c.
Fv=75000*(1+r) 15
=75000*(1+0.05)15
=1181250
Yes, the money will be enough.
d.
Fv=pv*(1+r)n
1000000=pv*(1+0.05)35
Pv=27210.8843
Question 4
Question 4 also utilizes the formula
FV = PV × (1+r)n
where FV = Future Value
PV = Present Value
r = annual interest rate
n = number of periods
a.
The lump sum deposit earns 8%. After 20 years, the amount of money in Simon’s account will be
fv=pv + (pv*0.08)
Fv=400000+ (400000*0.08)
Fv=432000
Annual withdrawal=28800
b. to extract $35,000 yearly for 15 years Simon has to deposit
35000*15=525,000
To achieve his annual withdrawal goal of $35,000 calculated in part b, Simon should pay 93000 more in an investment earning 5% annual interest as follows
For 35000 withdrawal, the future value will be 35000*15years
This gives 525000
525000-432000=93000.
He should deposit 93000 mores
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