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Unformatted text preview: Chapter 61 C H A P T E R C H A P T E R 6 6 ACCOUNTING AND THE ACCOUNTING AND THE TIME VALUE OF MONEY TIME VALUE OF MONEY Intermediate Accounting 13th Edition Kieso, Weygandt, and Warfield Chapter 62 In accounting (and finance), the term indicates that a dollar received today is worth more than a dollar promised at some time in the future. Basic Time Value Concepts Basic Time Value Concepts Time Value of Money LO 1 Identify accounting topics where the time value of money is relevant. LO 1 Identify accounting topics where the time value of money is relevant. Chapter 63 1. Notes 2. Leases 3. Pensions and Other Postretirement Benefits 4. LongTerm Assets Applications to Accounting Topics: Basic Time Value Concepts Basic Time Value Concepts 1. Sinking Funds 2. Business Combinations 3. Disclosures 4. Installment Contracts LO 1 Identify accounting topics where the time value of money is relevant. LO 1 Identify accounting topics where the time value of money is relevant. Chapter 64 Payment for the use of money. Excess cash received or repaid over the amount borrowed (principal). Variables involved in financing transaction: 1. Principal  Amount borrowed or invested. 2. Interest Rate A percentage. 3. Time The number of years or portion of a year that the principal is outstanding. Nature of Interest Basic Time Value Concepts Basic Time Value Concepts LO 1 Identify accounting topics where the time value of money is relevant. LO 1 Identify accounting topics where the time value of money is relevant. Chapter 65 Interest computed on the principal only. LO 2 Distinguish between simple and compound interest. LO 2 Distinguish between simple and compound interest. Simple Interest Simple Interest ILLUSTRATION: On January 2, 2007, Tomalczyk borrows $20,000 for 3 years at a rate of 7% per year. Calculate the annual interest cost. Principal $20,000 Interest rate x 7% Annual interest $ 1,400 Federal law requires the disclosure of interest rates on an annual basis in all contracts. FULL YEAR FULL YEAR Chapter 66 Computes interest on the principal and on interest earned to date (assuming interest is left on deposit). Compound interest is the typical interest computation applied in business situations. LO 2 Distinguish between simple and compound interest. LO 2 Distinguish between simple and compound interest. Compound Interest Compound Interest Chapter 67 LO 2 Distinguish between simple and compound interest. LO 2 Distinguish between simple and compound interest. ILLUSTRATION: On January 2, 2007, Tomalczyk borrows $20,000 for 3 years at a rate of 7% per year. Calculate the total interest cost for all three years, assuming interest is compounded annually. Compound Interest Compound Interest Compound Interest Accumulated Date Calculation Interest Balance Jan. 2007 20,000 $ 2007 $20,000 x 7% 1,400 $ 21,400 2008 $21,400 x 7% 1,498 22,898 2009 $22,898 x 7% 1,603 24,501 4,501 $ Chapter 68 LO 4 Identify variables fundamental to solving interest problems....
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This note was uploaded on 11/04/2010 for the course ACCT 2115 taught by Professor K during the Spring '10 term at Virginia College.
 Spring '10
 K
 Accounting

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