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

In an annuity, the accumulated money is converted into which of the following values using the time value of money equations?

Inventory turnover

Present value

Net income

Depreciation expense

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Verified step by step guidance

Understand the concept of an annuity: An annuity is a series of equal payments made at regular intervals over a period of time. The accumulated money in an annuity can be converted into a present value using time value of money equations.

Recall the time value of money principle: Money today is worth more than the same amount in the future due to its earning potential. Present value calculations discount future cash flows to reflect their value today.

Identify the formula for present value of an annuity: The formula is typically expressed as:

PV = P [\frac{(1 - {1 / (1 + r)}^{n})}{r}]

, where PV is the present value, P is the periodic payment, r is the interest rate per period, and n is the number of periods.

Apply the formula to convert accumulated money into present value: Substitute the values for periodic payment (P), interest rate (r), and number of periods (n) into the formula to calculate the present value of the annuity.

Understand why other options are incorrect: Inventory turnover, net income, and depreciation expense are unrelated to the time value of money equations. These terms pertain to different aspects of financial accounting and do not involve the conversion of accumulated money in an annuity.