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 Topic: doubt ( Topic Closed)
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aimtobeacpa
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| Posted: 29 Oct 2010 at 15:24 | IP Logged
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On March 15, 1990, Ashe Corp. adopted a plan to accumulate $1,000,000 by September 1, 1994. Ashe
plans to make four equal annual deposits to a fund that will earn interest at 10% compounded annually.
Ashe made the first deposit on September 1, 1990. Future value and future amount factors are as
follows:
Future value of 1 at 10% for 4 periods 1.46
Future amount of ordinary annuity of 1 at 10% for 4 periods 4.64
Future amount of annuity in advance of 1 at 10% for 4 periods 5.11
Ashe should make four annual deposits (rounded) of:
a. $250,000
b. $215,500
c. $195,700
d. $146,000
CPA-00558 Explanation
Choice "c" is correct. Four annual deposits (rounded) of $195,700.
Amount to be accumulated at 9-1-94 $1,000,000
Future amount of annuity in advance of 1 at 10% for 4 periods ÷ 5.11
Annual amount to be deposited $ 195,695
Rounded to $ 195,700
here why it is annuity in advance??..it needs to accumulate $1,000,000 by September 1, 1994...so ordinary annuity??
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AUD-75
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ccaml
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| Posted: 29 Oct 2010 at 22:22 | IP Logged
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The first deposit was made in Sept, 1990. So 4 deposits: 1990, 1991, 1992 and 1993. To use ordinary annuity, the last deposit would be made in Sept 1, 1994.
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aimtobeacpa
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| Posted: 29 Oct 2010 at 23:08 | IP Logged
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so last deposit is on sept 1, 1994, "Ashe Corp. adopted a plan to accumulate $1,000,000 by September 1, 1994"
__________________
BEC-74,82(lost credit),78
FAR-67,80
AUD-75
REG-68,72,79
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ccaml
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| Posted: 30 Oct 2010 at 14:42 | IP Logged
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If the first deposit was made on Sept 1, 1990 and the company made deposit annually, how come the last one be on Sept 1, 1994? "accumulate BY Sept 1, 1994" means the company accumulated $1B anytime before Sept 1 1994.
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ahonzik
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| Posted: 23 Feb 2011 at 17:15 | IP Logged
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It is an annuity due because there are 4 equal annual payments, with the
first payment being made September 1, 1990. The goal is to accumulate
$1,000,000 by September 1, 1994.
The calendar would be as follows:
Sept 1, 90 - Sept 1, 91: Year 1
Sept 1, 91 - Sept 1, 92: Year 2
Sept 1, 92 - Sept 1, 93: Year 3
Sept 1, 93 - Sept 1, 94: Year 4
The payment schedule would be as follows:
Sept 1, 90 - Payment 1 of 4
Sept 1, 91 - Payment 2 of 4
Sept 1, 92 - Payment 3 of 4
Sept 1, 93 - Payment 4 of 4
The last payment is paid on September 1, 1993, one year before the end
of the plan, i.e., the beginning of Year 4.
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