intermediate accounting – topics time value of money &

Please answer the attached questions based on the concepts below:

Time value of Money Concepts

Revenue recognition

ACC 385 – Intermediate Accounting I Homework 3
Chapter 5 & 6
1. You are saving for a new car. You place $10,000 into an investment account today. How much
will you have after four years if the account earns (a) 4%, (b) 6%, or (c) 8% compounded
annually?
2. You have entered into an agreement for the purchase of land. The agreement specifies that you
will take ownership of the land immediately. You have agreed to pay $50,000 today and another
$50,000 in three years. Calculate the total cost of the land today, assuming a discount rate of (a)
5%, (b) 7%, or (c) 9%.
3. You have an investment opportunity that promises to pay you $16,000 in four years. You could
earn a 6% annual return investing elsewhere. What is the maximum amount you would be
willing to invest in this opportunity?
4. You are saving for a new house. You place $40,000 into an investment account each year for
five years. How much will you have after five years if the account earns (a) 3%, (b) 6%, or (c)
9% compounded annually?
5. Explain the difference between an ordinary annuity and an annuity due.
6. What is a deferred annuity?
7. On May 1, 2024, Varga Tech Services signed a $6,000 consulting contract with Shaffer Holdings.
The contract requires Varga to provide computer technology support services whenever requested
over the period from May 1, 2024, to April 30, 2025, with Shaffer paying the entire $6,000 on May
1, 2024. How much revenue should Varga recognize in 2024?
8. Sarjit Systems sold software to a customer for $80,000. As part of the contract, Sarjit promises
to provide “free” technical support over the next six months. Sarjit sells the same software without
technical support for $70,000 and a stand-alone six-month technical support contract for $30,000,
so these products would sell for $100,000 if sold separately. Prepare Sarjit’s journal entry to record
the sale of the software.
9. Leo Consulting enters into a contract with Highgate University to restructure Highgate’s
processes for purchasing goods from suppliers. The contract states that Leo will earn a fixed fee
of $25,000 and earn an additional $10,000 if Highgate achieves $100,000 of cost savings. Leo
estimates a 50% chance that Highgate will achieve $100,000 of cost savings. Assuming that Leo
determines the transaction price as the expected value of expected consideration, what transaction
price will Leo estimate for this contract?
10. GoodBuy sells gift cards redeemable for GoodBuy products either in store or online. During
2024, GoodBuy sold $1,000,000 of gift cards, and $840,000 of the gift cards were redeemed for
products. As of December 31, 2024, $30,000, of the remaining gift cards had passed the date at
which GoodBuy concludes that the cards will never be redeemed. How much gift card revenue
should GoodBuy recognize in 2024?
11. Holt Industries received a $2,000 prepayment from the Ramirez Company for the sale of new
office furniture. Holt will bill Ramirez an additional $3,000 upon delivery of the furniture to
Ramirez. Upon receipt of the $2,000 prepayment, how much should Holt recognize for a contract
asset, a contract liability, and accounts receivable?
12. A construction company entered into a fixed-price contract to build an office building for $20
million. Construction costs incurred during the first year were $6 million, and estimated costs to
complete at the end of the year were $9 million. The company recognizes revenue over time
according to percentage of completion. How much revenue and gross profit or loss will appear in
the company’s income statement in the first year of the contract?