Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

10. Time Value of Money

Time Value of Money Equations

Financial Accounting

10. Time Value of Money

Time Value of Money Equations

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Multiple Choice

The taxable portion of each annuity payment is calculated using which method?

Effective interest rate method

Exclusion ratio method

Straight-line depreciation method

Present value factor method

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Verified step by step guidance

Understand the concept of an annuity: An annuity is a series of payments made at regular intervals, often used in retirement planning. Some portion of each payment may be taxable, depending on the method used to calculate it.

Learn about the exclusion ratio method: This method is used to determine the taxable portion of each annuity payment. It calculates the ratio of the investment in the contract (the amount paid for the annuity) to the expected total return (the sum of all payments expected to be received).

Apply the exclusion ratio formula: The exclusion ratio is calculated as follows:

\frac{Investment in Contract}{Expected Total Return}

. The result is the portion of each payment that is considered non-taxable, as it represents a return of the original investment.

Determine the taxable portion: Subtract the non-taxable portion (calculated using the exclusion ratio) from the total annuity payment to find the taxable portion of each payment.

Review the other methods mentioned: The effective interest rate method, straight-line depreciation method, and present value factor method are not used for calculating the taxable portion of annuity payments. These methods are applied in different contexts, such as interest calculations, asset depreciation, or valuation of future cash flows.