Question

Q9 Which of the following statement about business entities is correct?

a) A partnership is a separate legal entity from its owners.
b) Ownership in a partnership is represnted by having shares of stock.
c) A sole-proprietorship is a separate legal entity from its owner.
d) Ownership in a corporation is reporation is represented by having shars of stock.

Q10- Answer the following using the time value of money concepts. Show your work calculator input.
a) The Harper Partnership invests $60,000 on January 1, 2018 in account that will pay 8% interest compounded annually for 8 years. what amount will Harper's investement be at the end of the 8 years?

b) The Hason Company wants to have $100,000 in 5 years. What amount must it deposit today at 6% annual interest rate to accumlate the $100,000 in 5 years?

c) The Cole Corporation borrowed $178,000 to purchase a new piece of equipment. The company will make 5 annual payment at the end of each year and is being charged 8% on the loan. What is the amount of the annual payment?

d) the Pen Corporation is going to deposit $30,000 into a savings account at he end of each year for 6 years at a compound interest rate of 4% At the end of 6 years, Pen wants to buy a new piece of equipment. How much money will Pen have saved for the new equipment at the end of 6 years?

Answer 1

Q9 :

Answer is d.

Reasons :

a) Partnership is always linked to its partners and so partnership firm is never said to as separate legal entity.

b) Partnership firm ownership is identified as sharing in profit or loss of the Firm and not by shares.

c) Sole proprietorship can never be treated as different legal entity than its owner.

Q10 :

a) Investment at end of 8th year = Initial investment ( 1+r)⁸

= $60,000 ( 1+0.08)⁸

= $60,000 X 1.85093

= $ 111,055.80

So, Harper`s investment amount will be $ 111,055.80 at the end of 8th year.

b) Assume A as Initial deposit as on today.

Amount after 5 years = Initial investment ( 1+r)⁵

$100,000 = A ( 1+0.06)⁵

$100,000 = A X 1.33823

$100,000 / 1.33823 = A

So, A = $74,725.60

So, Hason must deposit $ 74,725.60 today to earn $100,000 in 5 years.

c) Annual payment = P X r X (1+r)^N /  (1+r)^N- 1

= $ 178,000 X 0.08 X ( 1+ 0.08) ⁵ /   ( 1+ 0.08) ⁵ - 1

⁼  $ 178,000 X 0.08 X 1.46933 / 1.46933 -1

= $ 20923 / 0.46933

= $ 44580

So, amount of annual payment is $ 44,580 .

d) Amount of savings at the end of 6th year is $ 168,989 for the new equipment.

As Pen corporation is depositing $ 30,000 at the end of each year , there will not be any addition in 6th year and so there will be no interest for the deposit made on the end of 1st year.