F4 M3 - Long-Term Liabilities Flashcards
Time Value of Money
The use of money over a period of time
Annuities
Identical periodic payments
Ordinary Annuity
Payments made at the end of the period
Annuity Due
Payments made at the beginning of the period
Equation
Present Value
Future value / (1 + r)^n
n = number of period
r = periodic interest rate
If interest compounds are not annual
The interest rate needs to be divided
Equation
Future Value
Present value x (1 + r)^n
The difference between present and future value
The amount of interest earned over the period
Equation
Present Value of an Ordinary Annuity
Annuity payment x (1 + r)^n
Equation
Present Value of an Annuity Due
Present value of ordinary annuity x (1+ r)
Equation
Future Value of an Ordinary Annuity
Periodic payment x (1+r)^n
Notes Payable are recorded
At present value at the time of issurance - discount
Debt Covenants
Used to limit or prohibit actions of debtors
Equation
Debt to Equity
Total Debt / Stockholders’ Equity
Equation
Installement Note Receivable Balance
The present value of the remaining monthly payments at discount