5
Notes Payable
• Long-term debt that is paid back at the end of the loan term. • Interest is usually paid throughout the loan period.
To record a loan from the bank (2 year 10% loan): Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 Notes Payable. . . . . . . . . . . . . . . . . 10,000 To record the interest for year 1: Interest Expense. . . . . . . . . . . . . . . . . . 1,000 Cash . . . . . . . . . . . . . . . . . . . . . . . . . 1,000 To record the repayment of the loan and year 2 interest: Notes Payable . . . . . . . . . . . . . . . . . . . . 10,000 Interest Expense . . . . . . . . . . . . . . . . . . 1,000 Cash . . . . . . . . . . . . . . . . . . . . . . . . . 11,000
– Use number of periods and rate to find appropriate factor. – Multiply the factor by the annuity (payment) amount.
Present value factor of annuity (Table II) X Payment = Present value
$90.91 One Year Period at 10% rate $100
Future Value
• $100 is the future value in one year of $90.91 paid or invested today.
2
Computing Present Values
• Using present value tables (Table I):
• Choose the time period and interest rate used. • Multiply the factor by the amount invested today.
$90.91 X 1.10 = $100
4
Annuities
• A series of equal amounts to be received or paid at the end of equal time periods. • Present values or future values can be computed for annuities.
• $90.91 is the present value of $100 received in one year.
1
Future Values
• The value in the future of $1 to be received or paid today, given a specified interest rate.
Present Values
• The value today of $1 to be received or paid in the future, given a specified interest rate.
$90.91 One Year Period at 10% rate $100
Present Value
Period 7% 8% 9% 10% 12%
1
2 3 4 5 6
0.9346
0.8734 0.8163 0.7629 0.7130 0.6663
0.9259
0.8573 0.7938 0.7350 0.6806 0.6302
0.9174
0.8417 0.7722 0.7084 0.6499 0.5963
6
MortgaBiblioteka es• A written promise to pay a stated amount of money. • Secured by the pledging of certain assets. • Liability recorded on the balance sheet is the amount borrowed (which is also the present value of the future payments).
0.9091
0.8264 0.7513 0.6830 0.6209 0.5645
0.8929
0.7972 0.7118 0.6355 0.5674 0.5066
• Choose the time period and interest rate used. • Multiply the factor by the amount to be received in the future. $100 X 0.9091 = $90.91
3
Computing Future Values
• Using future value tables (Table III):
Period 1 2 3 4 5 6 7% 1.0700 1.1449 1.2250 1.3108 1.4026 1.5007 8% 1.0800 1.1664 1.2597 1.3605 1.4693 1.5869 9% 1.0900 1.1881 1.2950 1.4116 1.5386 1.6771 10% 1.1000 1.2100 1.3310 1.4641 1.6105 1.7716 12% 1.1200 1.2544 1.4049 1.5735 1.7623 1.9738