Question

How much needs to be invested today if your goal is to have $100,000 five years from today? The return on the investment is expected to be 10% and will be compounded semi-annually. (Use Table 1) (Round "PV Factor" to 4 decimal places and final answer to nearest dollar amount.)

$61,390

$62,090

$66,667

$50,000

2.

The following is a partial list of account balances from the books of Probst Enterprise at the end of 2010:

Accounts payable	$ 20,500
Accounts receivable	12,300
Accrued interest on short-term note payable	1,200
Cash	6,500
Wages payable	1,300
Income taxes payable	1,900
Inventory	10,000

    
Based solely upon these balances, what is the quick ratio? (Round your final answer to 2 decimal places.)

0.76

1.15

0.26

0.79

3.

SRJ Corporation had the following transactions:

• The accrual of interest expense on a six-month note payable.
• Collected cash for services to be provided within the next six months.
• The accrual of revenue.

Which of the above transactions resulted in an increase in working capital?

The accrual of interest expense.

Collecting cash for services to be provided in the future.

The accrual of revenue.

Both the accrual of revenue and the collection of cash for future services.

4.

The following is a partial list of account balances from the books of Probst Enterprise at the end of 2010:

Accounts payable	$ 20,500
Accounts receivable	12,300
Accrued interest on short-term note payable	1,200
Cash	6,500
Wages payable	1,300
Income taxes payable	1,900
Inventory	10,000

    
Based solely upon these balances, what is the quick ratio? (Round your final answer to 2 decimal places.)

0.76

1.15

0.26

0.79

Answer 1

1) Answer: $61390.

Explanation: 10% compounded semi-annually i.e. 2 times a year for 5 years is equivalent to 5 percent per period compounded for 10 periods. The present value of $1 received 10 periods hence at 5 percent per period is $0.6139; that is, $0.6139 invested today for 10 periods at an interest rate of 5 percent per period will grow to $1. To have $100,000 in 10 periods (5 years), investment required today = $100,000 x $0.6139 = $61390.

2) Answer: 0.76

Quick ratio = Quick assets / Current liabilities

Quick assets = Cash + Accounts receivable = $6,500 + $12,300 = $18,800

Current liabilities = Accounts payable + Accrued interest on short-term note payable + Wages payable + Income taxes payable = $20,500 + $1,200 + $1,300 + $1,900 = $24,900

Quick ratio = $18,800/$24,900 = 0.755 = 0.76

3) Answer: The accrual of revenue

Explanation: Working capital = Current assets – Current liabilities. Working capital will increase when there is an increase in current assets or decrease in current liabilities.

Accrual of interest expense on six-month note payable will result in an increase in current liabilities and hence there will be no increase in working capital.

Cash collected for services to be provided within next six months will be recorded as unearned revenue, a current liability. There will thus be an increase in current liabilities and hence there will be no increase in working capital.

Accrual of revenue will result in increase in accounts receivable, a current asset and hence it will result in an increase in working capital.

Question 4) is a repetition of 2).