Week 2 - Ch 6-7

Week 2 - Ch 6-7 - CHAPTER 6 ACCOUNTING AND THE ACCOUNTING...

Info icon This preview shows pages 1–10. Sign up to view the full content.

View Full Document Right Arrow Icon
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
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
In accounting (and finance), thephrase time value of money indicates a relationship between time and money—that a dollar received today is worth more than a dollar promised at sometimein the future. Why? Basic Time Value Concepts Basic Time Value Concepts Time Value of Money
Image of page 2
1. Notes 2. Leases 3. Pensions and Other Postretirement Benefits 4. Long-Term Assets Applications to Accounting Topics: Basic Time Value Concepts Basic Time Value Concepts 1. Sinking Funds 2. Business Combinations 3. Disclosures 4. Installment Contracts
Image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Payment for theuseof money. Excess cash received or repaid over theamount borrowed (principal). Variables involved in financing transaction: 1. Principal - Amount borrowed or invested. 2. Interest Rate - A percentage. 3. Time - Thenumber of years or portion of a year that the principal is outstanding. Nature of Interest Basic Time Value Concepts Basic Time Value Concepts
Image of page 4
Interest computed on theprincipal only. Basic Time Value Concepts Basic Time Value Concepts Simple Interest Illustration: KC borrows $20,000 for 3 years at a rateof 7% per year. Computethetotal interest to bepaid for the 3 years . Federal law requires thedisclosureof interest rates on an annual basis in all contracts. Interest = p x i x n = $20,000 x .07 x 3 = $4,200 Total Interest Total Interest
Image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Interest computed on theprincipal only. Basic Time Value Concepts Basic Time Value Concepts Simple Interest Illustration: On March 31, 2011 , KC borrows $20,000 for 3 years at a rateof 7% per year. Computethetotal interest to bepaid for theyear ended Dec. 31, 2011. Interest = p x i x n = $20,000 x .07 x 9/12 = $1,050 Partial Year Partial Year
Image of page 6
Basic Time Value Concepts Basic Time Value Concepts Compound Interest Computes interest on the principal and any interest earned that has not been paid or withdrawn. Most business situations usecompound interest.
Image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Illustration: Tomalczyk Company deposits $10,000 in the Last National Bank, where it will earn simple interest of 9% per year. It deposits another $10,000 in the First State Bank, where it will earn compound interest of 9% per year compounded annually. In both cases, Vasquez will not withdraw any interest until 3 years from the date of deposit. Year 1 $10,000.00 x 9% $ 900.00 $ 10,900.00 Year 2 $10,900.00 x 9% $ 981.00 $ 11,881.00 Year 3 $11,881.00 x 9% $1,069.29 $ 12,950.29 Illustration 6-1 Simple versus compound interest Basic Time Value Concepts
Image of page 8
Table 1 - FutureValueof 1 Table 2 - Present Valueof 1 Table 3 - FutureValueof an Ordinary Annuity of 1 Table 4 - Present Valueof an Ordinary Annuity of 1 Table 5 - Present Valueof an Annuity Dueof 1 Compound Interest Tables Number of Periods = number of years x the number of compounding periods per year. Compounding Period Interest Rate = annual rate divided by the number of compounding periods per year.
Image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 10
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern