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Problem Solving Survival Guide to accompany Financial Accounting, 8th Edition by Donald E. Kieso, Paul D. Kimmel, Jerry J. Weygandt

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SUMMARY OF LEARNING OBJECTIVES

  1. Distinguish between simple interest and compound interest. Simple interest is computed on the principal only, while compound interest is computed on the principal and any interest earned that has not been withdrawn.
  2. Solve for the future value of a single amount. Prepare a time diagram of the problem. Identify the principal amount, the number of compounding periods, and the interest rate. Using the future value of 1 table, multiply the principal amount by the future value factor specified at the intersection of the number of periods and the interest rate.
  3. Solve for the future value of an annuity. Prepare a time diagram of the problem. Identify the amount of the periodic payments (receipts), the number of payments (receipts), and the interest rate. Using the future value of an annuity of 1 table, multiply the amount of the payments by the future value factor specified at the intersection of the number of periods and the interest rate.
  4. Identify the variables fundamental to solving present value problems. The following three variables are fundamental to solving present value problems: (1) the future amount, (2) the number of periods, and (3) the interest rate (the discount rate).
  5. Solve for the present value of a single amount. Prepare a time diagram of the problem. Identify the future amount, the number of discounting periods, and the discount (interest) rate. Using the present value of 1 table, multiply the future amount by the present value factor ...

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