Chapter 9- Liabilities1

# Chapter 9- Liabilities1 - 1 BUSI 1004 INTRODUCTION TO...

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Unformatted text preview: 1 BUSI 1004 INTRODUCTION TO FINANCIAL ACCOUNTING Chapter 9 – Long-term Liabilities 2 Objectives Understand the time value of money and perform basic present value and future value calculations Understand bonds payable and perform all journal entries associated to them Understand notes payable and perform all journal entries associated to them 3 Agenda 1. Time value of money 2. Bonds payable • Definition and terminology • Journal entries 1. Notes payable 4 18 Time Value of Money Prefer to receive payment now or in future (interest factor)? Applicable to both personal and business decisions… 5 Setting your calculator (TI BA II Plus) Set your calculator to accept one payment per year as follows: Press 2 ND P/Y Press 1 and then enter You only need to do this once . To verify, Press 2 ND and then P/Y, the calculator should show 1. Clear the time value of money memory as follows (after each use): Press 2 ND FV 6 Steps using the calculators (order does not matter) Enter : FV: Future value- when there’s a single amount to be received\paid in the future N: number of periods I/Y: interest rate per period PMT: amount of annuity per period PV: Present Value – Value now of future amounts received/paid 7 Present Value of a Single Amount (cont’d) Exercise 1: you just came into some money \$50,000 and want to invest it for 12 years at 6%. How much will you have in 12 years? 8 Present Value of a Single Amount (cont’d) Steps using the calculators: Enter : 50,000 then PV 6 then I/Y 12 then N 0 then PMT To compute the FV: CPT and FV FV = \$100,609.82 9 Future Value of an Annuity An annuity = a series of identical cash flows that end at a specific time. Exercise2: you plan to deposit \$5,000 in your RRSP each year for the next 30 years. How much will accumulate after 30 years if I=7%? 10 Future Value of an annuity (cont’d) Steps using the calculators: Enter : 5,000 then PMT 7 then I/Y 30 then N 0 then PV To compute the FV: CPT and FV FV= 472,303.93 11...
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Chapter 9- Liabilities1 - 1 BUSI 1004 INTRODUCTION TO...

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