Intermediating Accounting 1
2020 Spring
Instruction for the first Homework
Substitution of the first week classes
I hope all is well.
This is the instruction for the first homework. Please read the instruction carefully and
prepare your homework report accordingly. The due date of submission is April 2 (subject
to change). If you have any questions about this homework instruction, feel free to contact
me by e-mail.
Chapter 6 of the textbook is titled ‘Accounting and the Time Value of Money’ and
introduces the concepts of the time value of money and how to apply such concepts to
the accounting.
The Time value of money is an important topic in the finance field and I think most of you
have learned these concepts from a basic finance class. Please take look at Chapter 6 of
the textbook to make sure that you fully understand the concepts of the time value of
money.
In particular, I want you to double check yourself whether you understand and are able to
calculate the present value of a single sum (future money), the present value of an ordinary
annuity, the present value of an annuity due.
Once you computed the present value, the difference between the present value and the
future value is recorded as ‘Discount to Present Value’. Discount to Present Value’ need to
be amortized over the discount period using the so-called ‘the effective interest rate
method’. I cannot over-emphasize the importance of knowing how to amortize ‘Discount
to Present Value’ over the discount period using the effective interest method in accounting
for such areas as corporate bons payable, lease transactions, investments in debt securities
and many other transactions with a long-term payment term.
Required:
1.
Once you complete your self-study of Chapter 6, solve the following exercises in the
textbook as the first homework of this semester.
2.
E6.1
Using Interest Tables
Page 6-33
E6.3
Computation of Future Values and Present Values
Page 6-34
E6.5
Computation of Present Values
Page 6-34
E6.7
Computation of Bond Prices
Page 6-34
E6.11
Evaluation of Purchase Options
Page 6-35
E6.13
Computation of Bond Liability
Page 6-35
P6.8
Analysis of Alternatives
Page 6-39
Explain briefly how to determine the carrying value of Bond Liability in the subsequent
period using the effective interest rate method. In answering this requirement, you may
refer to ‘Effective-Interest Method of Amortization of Bond Discount or Premium on page
6-27 of the textbook.
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