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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Refer to the present value table information on the previous page. If Kathleen put $3,000 in a savings account today, what amount of cash will be available 2 years from today?

  1. a. $3,000 × 0.857
  2. b. $3,000 × 0.857 × 2 $3,000
  3. c. $4,000 × 0.681 × 0926
  4. d. cannot be determined from the information given

To determine

Determine the present value for $4,000 to be received each year for 6 years from today.

Explanation

Present value:

The value of today’s amount to be paid or received in the future at a compound interest rate is called as present value.

The following formula can be used to calculate the present value of an amount:

Present value of an amount = Future value×1(1 + interest rate)numberofperiods

(or)

The following formula can be used to calculate the present value of an amount, using table value:

Present value of an amount = Future value×(pn,i)

Determine the present value for $4,000 to be received each year for 6 years from today.

Present value table at 8% is provided only for 5 periods, but the present value for 6 years has to be calculated. However, it can be calculated using the following method

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