Binder6 - Intermediate Accounting eBook 6/e Content...

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Unformatted text preview: Intermediate Accounting eBook 6/e Content Chapter6: Time Value of Money Concepts Chapter Opener / / / OVERVIEW Time value of money concepts, specifically future value and present value, are essential in a variety of accounting situations. These concepts and the related computational procedures are the subjects of this chapter. Present values and future values of single amounts and present values and future values of annuities (series of equal periodic payments) are described separately but shown to be interrelated. / / / LEARNING OBJECTIVES After studying this chapter, you should be able to: LO1 Explain the difference between simple and compound interest. ( page 300 ) LO2 Compute the future value of a single amount. ( page 301 ) LO3 Compute the present value of a single amount. ( page 302 ) LO4 Solve for either the interest rate or the number of compounding periods when present value and future value of a single amount are known. ( page 304 ) LO5 Explain the difference between an ordinary annuity and an annuity due situation. ( page 309 ) LO6 Compute the future value of both an ordinary annuity and an annuity due. ( page 310 ) LO7 Compute the present value of an ordinary annuity, an annuity due, and a deferred annuity. ( page 312 ) LO8 Solve for unknown values in annuity situations involving present value. ( page 316 ) LO9 Briefly describe how the concept of the time value of money is incorporated into the valuation of bonds, long-term leases, and pension obligations. ( page 320 ) FINANCIAL REPORTING CASE The Winning Ticket Page 1 of 3 Chapter Opener 1/24/2011 2011 McGraw-Hill Higher Education Any use is subject to the Terms of Use and Privacy Notice . McGraw-Hill Higher Education is one of the many fine businesses of The McGraw-Hill Companies . Al Castellano had been buying California State lottery tickets for 15 years at his neighborhood grocery store. On Sunday, June 24, 2010, his world changed. When he awoke, opened the local newspaper, and compared his lottery ticket numbers with Saturday night's winning numbers, he couldn't believe his eyes. All of the numbers on his ticket matched the winning numbers. He went outside for a walk, came back into the kitchen and checked the numbers again. He woke his wife Carmen, told her what had happened, and they danced through their apartment. Al, a 66-year-old retired supermarket clerk, and Carmen, a 62-year-old semiretired secretary, had won the richest lottery in California's history, $141 million! On Monday when Al and Carmen claimed their prize, their ecstasy waned slightly when they were informed that they would soon be receiving a check for approximately $43 million. When the Castellanos purchased the lottery ticket, they indicated that they would like to receive any lottery winnings in one lump payment rather than in 26 equal annual installments beginning now. They knew beforehand that the State of California is required installments beginning now....
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