Chpt_6_Solutions - Q1 Money has value because with it one can acquire assets and services and discharge obligations The holding borrowing or

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Q1. Money has value because with it one can acquire assets and services and discharge obligations. The holding, borrowing or lending of money can result in costs or earnings. And the longer the time period involved, the greater the costs or the earnings. The cost or earning of money as a function of time is the time value of money. Accountants must have a working knowledge of compound interest, annuities, and present value concepts because of their application to numerous types of business events and transactions which require proper valuation and presentation. These concepts are applied in the following areas: (1) sinking funds, (2) installment contracts, (3) pensions, (4) long- term assets, (5) leases, (6) notes receivable and payable, (7) business combinations, and (8) amortization of premiums and discounts. Q9. An annuity involves (1) periodic payments or receipts, called rents, (2) of the same amount, (3) spread over equal intervals, (4) with interest compounded once each interval. Rents occur at the end of the intervals for ordinary annuities while the rents occur at the beginning of the intervals for annuities due. Q13. The process for computing the future value of an annuity due using the future value of an ordinary annuity interest table is to multiply the corresponding future value of the ordinary annuity by one plus the interest rate. For example, the factor for the future value of an annuity due for 4 years at 12% is equal to the factor for the future value of an ordinary annuity times 1.12. EXERCISE 6-4 (15–20 minutes)
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This note was uploaded on 11/12/2011 for the course ACCT 2015 taught by Professor Dr,moore during the Spring '10 term at University of the West Indies at Mona.

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Chpt_6_Solutions - Q1 Money has value because with it one can acquire assets and services and discharge obligations The holding borrowing or

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