Time Value of Money: Simple vs. Compound Interest & Present/Future Value Calculations

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Finance - Personal Finance

charlotte1oxhi Created by 10 mon ago

Cards in this deck(100)

The measurement and recording of liabilities are based on the concept of the _____ of money.

The time value of money is often equated with the concept of _____ interest.

Simple interest is earned on the _____ invested.

Compound interest earns interest on both the principal invested as well as _____ earned interest.

The formula for calculating simple interest is _____ x rate x time.

The four cases of time value of money include future value of a lump sum, present value of a lump sum, future value of an annuity, and _____ value of an annuity.

In time value of money calculations, the number of periods is represented by the symbol _____.

The interest rate in time value of money calculations is represented by the symbol _____.

When we know the value of some amount today and want to know its value at a future point, we are calculating the _____ value of a lump sum.

The formula for the future value of a lump sum is present value x _____ value table factor.

If interest is compounded in any way other than annually, you must make adjustments to the interest rate _____ and n.

When not compounding annually, the necessary adjustments are i divided by the number of compounds per year and n multiplied by the number of compounds per year. What are these adjustments for _____?

As the compounding frequency increases, the future value of an investment _____ .

When we know the value of some amount in the future and want to know its value today, we are dealing with the _____ value lump sum case.

The formula for the present value of a lump sum is future value x _____ value table factor.

Discounting is the process of figuring out how much a future amount is worth _____ .

As compounding frequency increases, the present value of an investment _____ .

The present value of a lump sum and the future value of a lump sum are _____ of each other.

A lump sum is defined as a _____ payment.

An annuity is a series of equal payments with each payment having the same _____ interval between them.

An ordinary annuity involves payments occurring at the _____ of each period.

An annuity due involves payments occurring at the _____ of each period.

In the future value of an ordinary annuity case, we want to know the value of a series of equal cash flows occurring at the end of each period at some point in the _____ .

The formula for the future value of an ordinary annuity is payment amount x _____ value annuity table factor.

The future value and present value of annuities are _____ to each other.

In the future value of an annuity due case, we want to know the value of a series of equal cash flows occurring at the beginning of each period at some point in the _____ .

For an annuity due, you must multiply the annuity table factor by (1 + _____ ).

In the present value of an ordinary annuity case, we want to know the value today of a series of equal payments to be made or received in the _____ .

The formula for the present value of an ordinary annuity is payment x _____ value annuity factor.

In the present value of an annuity due case, we want to know the value today of a series of equal payments to be made or received in the _____ .

The easiest way to compare different alternatives is by using all _____ values and using present instead of future because it is comparable in today's world.

The four accountable events in the life cycle of PPE include acquisition, capital expenditures, depreciation, and _____ or disposal.

PPE should be recorded at cost, which includes the purchase price plus all costs incurred in getting the asset ready for _____ .

Capitalization involves recording all costs incurred in getting the asset ready for use on the _____ sheet as part of the cost of the asset.

A cost is capitalized when it is recorded as part of an asset on the balance sheet rather than as an expense on the _____ statement.

Recurring, ongoing costs such as repairs, maintenance, and insurance are _____ capitalized.

Once an asset is in use, only costs that significantly improve the asset or substantially extend its life are _____ .

A lump sum purchase of PPE occurs when a company purchases more than one asset for one, _____ amount.

To find the cost assigned to each asset in a lump sum purchase, use the formula (market value/total expense) x _____ price.

To record a lump sum purchase, debit costs of each asset and credit _____ .

Expenditures during the life of the asset can be classified as capital expenditures or _____ expenditures.

Capital expenditures are costs incurred to increase the operating efficiency, productive capacity, or expected useful life of the asset and are _____ .

Revenue expenditures are made to keep an asset in good working order and are usually small in amount, occurring frequently, and are _____ immediately as repair expense.

If a cost substantially adds value to the asset, it should be _____ .

If a cost is incurred to maintain the asset in its current condition, it should be _____ .

Depreciation is the systematic allocation of the cost of a plant asset to expense over its useful life and requires an adjusting entry every year to record this _____ .

Depreciation has _____ to do with the value of an asset.

Buildings and equipment are depreciated because of the _____ concept.

What PPE does not depreciate? _____

To record a depreciation expense, debit depreciation expense and credit _____ depreciation.

Depreciation expense is classified as an expense account, found on the income statement, reduces net income, and represents the amount of the building or equipment used up in the _____ year.

Accumulated depreciation causes a decrease in assets, is classified as a contra asset account, and represents the total amount of the building or equipment used up since it was _____ by the company.

The book value formula is cost of asset minus _____ depreciation.

Over time, what happens to the book value of an asset? It _____ each year because the amount of accumulated depreciation gets larger.

How does depreciation affect the three financial statements? On the income statement, it increases depreciation expense and decreases net income; on the balance sheet, it decreases assets and retained earnings; and on the cash flow statement, it has _____ effect.

The amount that is depreciated each year depends on the _____ method that is being used by the company.

The four common depreciation methods are straight-line, sum of the years digits, double declining balance, and _____ of production.

The factors in calculating depreciation include cost, useful life, and _____ value.

Residual value is an estimate of what the company thinks the asset can be sold for at the end of its useful life, also known as _____ value.

The straight-line depreciation formula is (cost - residual value) divided by useful life in _____ .

A key point of straight-line depreciation is that the depreciation expense is the same amount each year of the asset's life, assuming an equal using up of the asset over _____ .

In every method, once an asset is fully depreciated, the ending book value is equal to the _____ value.

Accelerated depreciation methods record more depreciation in the early years of an asset's life and less in the later years, showing a _____ amount of depreciation each year.

The sum of the years digits is a type of _____ depreciation method.

The sum of the years digits formula is (Cost - Residual Value) x (Life / _____ ).

In the sum of the years digits method, the fraction (Life / SYD) is equal to the useful life of the asset, with the numerator reduced by one each subsequent year while the denominator stays _____ .

SYD depreciation assumes that the asset is used up more in the early years of its life and _____ in the later years.

The double declining balance is a type of _____ depreciation method.

The double declining balance formula is book value at the beginning of year x (2 / _____ ).

In the double declining balance method, the fraction (2 / life) stays constant and is based on a declining book value, with the book value at the beginning of the first year being the cost of the asset and subsequent years being the difference between cost and accumulated depreciation at the beginning of the _____ .

In the double declining balance method, you must stop depreciation so that the ending book value does not go below the _____ value.

Both straight-line and accelerated depreciation methods show the same amount of depreciation over the life of the asset, with the only difference being a _____ issue.

In the first year of an asset's life, the straight-line method will show the highest net income because it has a _____ amount of depreciation.

In the first year of an asset's life, the accelerated method will give an income tax advantage because it has a _____ expense.

In the first year of an asset's life, the straight-line method will show the highest total assets on the year-end balance sheet because it has a _____ reduction of assets.

In the last year of an asset's life, the accelerated method will show the highest net income, the straight-line method will give a tax advantage, and both methods will show the same _____ assets.

In the last year of an asset's life, the straight-line method will always record _____ depreciation expense than an accelerated method.

The units of production method differs from other methods because it is not based on time but on the actual _____ of the asset.

The units of production method calculates depreciation based on actual usage of the asset rather than on some estimate of _____ .

An advantage of the units of production method is that it best adheres to the _____ concept because the recording of the expense is based on actual usage.

A problem with the units of production method is that the estimates involved can be very difficult to develop for most _____ assets.

The units of production formula is (cost - residual value) divided by total estimated usage to get the usage rate, which is then multiplied by actual usage for the current year to get the _____ expense.

Is there a pattern to the amount of depreciation recorded each year using the units of production method? _____

Depreciation is based on estimated residual value and estimated _____ life.

Depreciation is based on _____ .

When a change in estimate is made, no corrections or changes are made to amounts previously recorded as depreciation expense, and the new estimates are incorporated into the current and _____ years' depreciation only.

To determine the new annual depreciation expense after changes have been made, divide the book value at the date of change by the number of years remaining in the _____ life.

A gain on sale occurs when cash received exceeds the _____ value.

A loss on sale occurs when cash received is less than the _____ value.

A gain on sale is recorded as a revenue account on the income statement and _____ net income.

A loss on sale is recorded as an expense account on the income statement and _____ net income.

When you own less than 20% of another company's stock, the four events that happen include recording the investment at cost, recording dividends as revenue, making a mark to market adjustment, and recording cash received and any gain or loss when the investments are _____ .

The mark to market adjustment is an exception to the _____ cost concept.

To calculate gain or loss, compare the selling price of the investment to the amount at which the investments are being reported on the balance sheet, using the formula selling price minus _____ value.

Realized gains and losses result from the sale of investments and are recorded on the _____ statement.

Unrealized gains and losses result from changes in the value of investments and are used in the _____ to market adjustment.

Both realized and unrealized gains and losses are recorded on the _____ statement.

To record the purchase of an investment, debit investments and credit _____ .

To record the receipt of dividends, debit cash and credit _____ revenue.

In an investment T-chart, debit beginning investment revenue and credit _____ received.

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Time Value of Money: Simple vs. Compound Interest & Present/Future Value Calculations

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