Chapter 6 - Accounting and the time value of money. After studying 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. | PREVIEW OF CHAPTER 6 Intermediate Accounting 16th Edition Kieso ● Weygandt ● Warfield Describe the fundamental concepts related to the time value of money. Solve future and present value of 1 problems. Solve future value of ordinary and annuity due problems. LEARNING OBJECTIVES Solve present value of ordinary and annuity due problems. Solve present value problems related to deferred annuities, bonds, and expected cash flows. After studying this chapter, you should be able to: Accounting and the Time Value of Money 6 LO 1 A relationship between time and money. A dollar received today is worth more than a dollar promised at some time in the future. Time Value of Money BASIC TIME VALUE CONCEPTS When deciding among investment or borrowing alternatives, it is essential to be able to compare today’s dollar and tomorrow’s dollar on the same footing—to “compare apples to apples.” LO 1 Notes Leases Pensions and Other Postretirement Benefits Long-Term Assets Present Value-Based Accounting Measurements Shared-Based Compensation Business Combinations Disclosures Environmental Liabilities Applications of Time Value Concepts LO 1 Payment for the use of money. Excess cash received or repaid over the amount lent or borrowed (principal). The Nature of Interest BASIC TIME VALUE CONCEPTS LO 1 Interest computed on the principal only. Simple Interest Illustration: Barstow Electric Inc. borrows $10,000 for 3 years at a simple interest rate of 8% per year. Compute the total interest to be paid for the 1 year. Federal law requires the disclosure of interest rates on an annual basis. Interest = p x i x n = $10,000 x .08 x 1 = $800 Annual Interest BASIC TIME VALUE CONCEPTS LO 1 Interest computed on the principal only. Simple Interest Illustration: Barstow Electric Inc. borrows $10,000 for 3 years at a simple interest rate of 8% per year. Compute the total interest to be paid for the 3 years. Interest = p x i x n = $10,000 x .08 x 3 = $2,400 Total Interest BASIC TIME VALUE CONCEPTS LO 1 . | PREVIEW OF CHAPTER 6 Intermediate Accounting 16th Edition Kieso ● Weygandt ● Warfield Describe the fundamental concepts related to the time value of money. Solve future and present value of 1 problems. Solve future value of ordinary and annuity due problems. LEARNING OBJECTIVES Solve present value of ordinary and annuity due problems. Solve present value problems related to deferred annuities, bonds, and expected cash flows. After studying this chapter, you should be able to: Accounting and the Time Value of Money 6 LO 1 A relationship between time and money. A dollar received today is worth more than a dollar promised at some time in the future. Time Value of Money BASIC TIME VALUE CONCEPTS When deciding among investment or borrowing alternatives, it is essential to be able to compare today’s dollar and tomorrow’s dollar on the same footing—to “compare apples to apples.” LO 1 Notes Leases Pensions and Other Postretirement Benefits Long-Term Assets Present Value-Based Accounting .
