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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