After completing this chapter you should be able to: Identify accounting topics where the time value of money is relevant, distinguish between simple and compound interest, use appropriate compound interest tables, identify variables fundamental to solving interest problems, solve future and present value of 1 other contents. | C H A P T E R 6 ACCOUNTING AND THE TIME VALUE OF MONEY Intermediate Accounting 13th Edition Kieso, Weygandt, and Warfield Identify accounting topics where the time value of money is relevant. Distinguish between simple and compound interest. Use appropriate compound interest tables. Identify variables fundamental to solving interest problems. Solve future and present value of 1 problems. Solve future value of ordinary and annuity due problems. Solve present value of ordinary and annuity due problems. Solve present value problems related to deferred annuities and bonds. Apply expected cash flows to present value measurement. Learning Objectives 1. On the topic, “Challenges Facing Financial Accounting,” what did the AICPA Special Committee on Financial Reporting suggest should be included in future financial statements? Non-financial Measurements (customer satisfaction indexes, backlog information, and reject rates on goods purchases). Forward-looking Information Soft Assets (a company’s know-how, market dominance, marketing setup, well-trained employees, and brand image). Timeliness (no real time financial information) Future value of a single sum Present value of a single sum Solving for other unknowns Basic Time Value Concepts Single-Sum Problems Annuities More Complex Situations Present Value Measurement Applications The nature of interest Simple interest Compound interest Fundamental variables Future value of ordinary annuity Future value of annuity due Examples of FV of annuity Present value of ordinary annuity Present value of annuity due Examples of PV of annuity Deferred annuities Valuation of long-term bonds Effective-interest method of bond discount/ premium amortization Choosing an appropriate interest rate Expected cash flow illustration Accounting and the Time Value of Money Service Cost - Actuaries compute service cost as the present value of the new benefits earned by employees during the year. Future salary levels considered in calculation. Interest | C H A P T E R 6 ACCOUNTING AND THE TIME VALUE OF MONEY Intermediate Accounting 13th Edition Kieso, Weygandt, and Warfield Identify accounting topics where the time value of money is relevant. Distinguish between simple and compound interest. Use appropriate compound interest tables. Identify variables fundamental to solving interest problems. Solve future and present value of 1 problems. Solve future value of ordinary and annuity due problems. Solve present value of ordinary and annuity due problems. Solve present value problems related to deferred annuities and bonds. Apply expected cash flows to present value measurement. Learning Objectives 1. On the topic, “Challenges Facing Financial Accounting,” what did the AICPA Special Committee on Financial Reporting suggest should be included in future financial statements? Non-financial Measurements (customer satisfaction indexes, backlog information, and reject rates on goods purchases). Forward-looking Information Soft Assets (a .
