Long term liabilities

Question 1

What is the formula for present value of $1?

Answer 1

FV(1/(1+r)n
one lump sum

Question 2

What is the formula for future value of $1?

Answer 2

PV(1+r)n
one lump sum

Question 3

What are annuities?

Answer 3

transactions that result in identical periodic payments or receipts at regular intervals

Question 4

When are original annuity payments made?

Answer 4

at the end of each period

Question 5

When are annuity due payments made?

Answer 5

at the beginning of each period

Question 6

Define Notes payable and its characteristics

Answer 6

-contractual rights to pay money at a fixed or determinable rate
-must be recorded at present value at date of issuance
-if not is noninterest bearing or if the interest rate is unreasonable, value of note must be determined by imputing the market rate of the note and using effective interest period.

Question 7

Imputed Interest Rate

Answer 7

-for the accrual method, record interest rate over the life of the loan regardless of whether interest is paid.

Question 8

Amortization of the Discount resulting from Imputed Interest

Answer 8

Step 1: beg. carrying value x effective market rate= interest expense
Step 2: Periodic payment - Interest expense = Principal reduction of note