Chapter 6 Intermediate Accounting Iii

EXERCISE 6-4 (15–20 minutes)

(a) | Future value of an ordinary annuity of $5,000 a period for 20 periods at 8% |

$228,809.80 |

($5,000 X 45.76196) |

| Factor (1 + .08) | X 1.08 | |

| Future value of an annuity due of $5,000 a period at 8% |

$ 247,115 | |

(b) | Present value of an ordinary annuity of $2,500 for 30 periods at 10% |

$ 23,567.28 |

($2,500 X 9.42691) |

| Factor (1 + .10) | X 1.10 | |

| Present value of annuity due of $2,500 for 30 periods at 10% | $ 25,924 | (Or see Table 6-5 which gives $25,924.03) |

(c) | Future value of an ordinary annuity of $2,000 a period for 15 periods at 10% | $ 63,544.96 | ($2,000 X 31.77248) |

| Factor (1 + 10) | X 1.10 | |

| Future value of an annuity due of $2,000 a period for 15 periods at 10% | $ 69,900 | |

| | | |

(d) | Present value of an ordinary annuity of $3,000 for 6 periods at 9% | $ 13,457.76 | ($3,000 X 4.48592) |

| Factor (1 + .09) | X 1.09 | |

| Present value of an annuity due of $3,000 for 6 periods at 9% | $ 14,669 | (Or see Table 6-5) |

| PROBLEM 6-10 | |

1. Purchase.

Time diagrams:

Installments

i = 10%

PV – OA = ?

R =

$350,000 $350,000 $350,000 $350,000 $350,000

| | | | |

| | | | |

0 1 2 3 4 5

n = 5

Property taxes and other costs

i = 10%

PV – OA = ?

R =

$56,000 $56,000 $56,000 $56,000 $56,000 $56,000

| | | | | | | |

| | | | | | | |

0 1 2 9 10 11 12

n = 12

PROBLEM 6-10 (Continued)

Insurance

i = 10%

PV – AD = ?

R =

$27,000 $27,000...