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AccountingIntermediate Accounting: Reporting And Analysis3rd Edition

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Chapter M, Problem 17P
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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

Solutions

Chapter
Section
Problem 1GI
Problem 2GI
Problem 3GI
Problem 4GI
Problem 5GI
Problem 6GI
Problem 7GI
Problem 8GI
Problem 9GI
Problem 10GI
Problem 11GI
Problem 12GI
Problem 13GI
Problem 14GI
Problem 15GI
Problem 16GI
Problem 17GI
Problem 18GI
Problem 19GI
Problem 20GI
Problem 21GI
Problem 22GI
Problem 23GI
Problem 24GI
Problem 25GI
Problem 26GI
Problem 1MC
Problem 2MC
Problem 3MC
Problem 4MC
Problem 5MC
Problem 6MC
Problem 7MC
Problem 8MC
Problem 9MC
Problem 10MC
Problem 1RE
Problem 2RE
Problem 3RE
Problem 4RE
Problem 5RE
Problem 6RE
Problem 7RE
Problem 8RE
Problem 9RE
Problem 10RE
Problem 11RE
Problem 12RE
Problem 13RE
Problem 14RE
Problem 1E
Problem 2E
Problem 3E
Problem 4E
Problem 5E
Problem 6E
Problem 7E
Problem 8E
Problem 9E
Problem 10E
Problem 11E
Problem 12E
Problem 13E
Problem 14E
Problem 1P
Problem 2P
Problem 3P
Problem 4P
Problem 5P
Problem 6P
Problem 7P
Problem 8P
Problem 9P
Problem 10P
Problem 11P
Problem 12P
Problem 13P
Problem 14P
Problem 15P
Problem 16P
Problem 17P
Problem 18P
Problem 19P
Problem 1C
Problem 2C
Problem 3C
Problem 4C
Problem 5C
BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
379 views

Comprehensive The following are three independent situations:

  1. 1. K. Herrmann has decided to set up a scholarship fund for students. She is willing to deposit $5,000 in a trust fund at the end of each year for 10 years. She wants the trust fund to then pay annual scholarships at the end of each year for 30 years.
  2. 2. Charles Jordy is planning to save for his retirement. He has decided that he can save $3,000 at the end of each year for the next 10 years, $5,000 at the end of each year for Years 11 through 20, and $10,000 at the end of each year for Years 21 through 30.
  3. 3. Patricia Karpas has $200,000 in savings on the day she retires. She intends to spend $2,000 per month traveling around the world for the next 2 years, during which time her savings will earn 18%, compounded monthly. For the next 5 years, she intends to spend $6,000 every 6 months, during which time her savings will earn 12%, compounded semiannually. For the rest of her life expectancy of 15 years, she wants an annuity to cover her living costs. During this period, her savings will earn 10% compounded annually. Assume that all payments occur at the end of each period.

Required:

  1. 1. In Situation 1, how much will the annual scholarships be if the fund can earn 6%? How much at 10%?
  2. 2. In Situation 2,
    1. (a) How much will Charles have at the end of 30 years if his savings can earn 10%? How much at 6%?
    2. (b) If Charles expects to live for 20 years in retirement, how much can he withdraw from his savings at the end of each year if his savings earn 10%? How much at 6%?
    3. (c) How much would Charles need to invest today to have the same amount available at the time he retires as calculated in Situation 2(a) at 10%? How much at 6%?
  3. 3. In Situation 3, how much will Patricia’s annuity be?

1.

To determine

Determine the amount of annual scholarship that will be paid to the student at the end of each year for 30 years.

Explanation

Future Value: The future value is value of present amount compounded at an interest rate until a particular future date.

Determine the amount of annual scholarship will be, if the fund earns 6% interest and compounded annually.

Calculate the future value of $5,000 to be deposited at the end of each year for 10 years.

FVO=Cash flow×Future value of ordinary annuity at 6% of 10 years=$5,000 ×(fOn=10,i=6%)=$5,000 ×13.180795=$65,903.98

Calculate amount of annual scholarship that will be paid to the student at the end of each year for 30 years.

FVO=Cash flow×Future value of ordinary annuity at 6% of 30 years$65,903.98=Cash flow ×(fOn=30,i=6%)Cash flow=$65,903.9813.764831=$4,787.85

Therefore, the amount of annual scholarship that will be paid to the student at the end of each year for 30 years is $4,787

2. (a).

To determine

Determine the amount will Person C have at the end of 30 years.

2. (b).

To determine

Determine the amount that can be withdrawn by Person C at the end of each year, if he expects to live for 20 years in retirement.

2. (c).

To determine

Determine the amount to be invested by Person C today to have the same amount available at the time he retires as calculated in situation 2 (a).

3.

To determine

Determine the annuity that Person P wants to cover the last 15 years of life expectancy.

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Ch-M P-1GICh-M P-2GICh-M P-3GICh-M P-4GICh-M P-5GICh-M P-6GICh-M P-7GICh-M P-8GICh-M P-9GICh-M P-10GI
Ch-M P-11GICh-M P-12GICh-M P-13GICh-M P-14GICh-M P-15GICh-M P-16GICh-M P-17GICh-M P-18GICh-M P-19GICh-M P-20GICh-M P-21GICh-M P-22GICh-M P-23GICh-M P-24GICh-M P-25GICh-M P-26GICh-M P-1MCCh-M P-2MCCh-M P-3MCCh-M P-4MCCh-M P-5MCCh-M P-6MCCh-M P-7MCCh-M P-8MCCh-M P-9MCCh-M P-10MCCh-M P-1RECh-M P-2RECh-M P-3RECh-M P-4RECh-M P-5RECh-M P-6RECh-M P-7RECh-M P-8RECh-M P-9RECh-M P-10RECh-M P-11RECh-M P-12RECh-M P-13RECh-M P-14RECh-M P-1ECh-M P-2ECh-M P-3ECh-M P-4ECh-M P-5ECh-M P-6ECh-M P-7ECh-M P-8ECh-M P-9ECh-M P-10ECh-M P-11ECh-M P-12ECh-M P-13ECh-M P-14ECh-M P-1PCh-M P-2PCh-M P-3PCh-M P-4PCh-M P-5PCh-M P-6PCh-M P-7PCh-M P-8PCh-M P-9PCh-M P-10PCh-M P-11PCh-M P-12PCh-M P-13PCh-M P-14PCh-M P-15PCh-M P-16PCh-M P-17PCh-M P-18PCh-M P-19PCh-M P-1CCh-M P-2CCh-M P-3CCh-M P-4CCh-M P-5C

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