Chapter M, Problem 8RE

Intermediate Accounting: Reporting...

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

Chapter
Section

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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What is the present value on January 1, 2019, of 7 equal future annual receipts of $30,000 if the first receipt is received on January 1, 2020, and the interest rate is 10% compounded annually? To determine Determine the present value of equal future annuity on January 1, 2019. 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. n – 7 equal future annual receipts C –$30,000 Cash flow

i –Interest rate 10% compounded annually.

First cash flow (cash receipts) yet to receive on January 1, 2020. Now, present value as on January 1, 2019 yet to be calculated. Here, the cash flow occurs during the last day of each time period, hence it is an ordinary annuity.

Determine the present value ordinary annuity.

Present valueO= Cash flow

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