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    Jeri Thurman Eportfolio

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    1. The lump sum payment was determined by calculating the present value of John's future earnings over 25 years at a 7% rate. His yearly salary of $200,000 was multiplied by 11.65358, the present value factor for an investment earning 7% annually over 25 years, resulting in the $2,330,716 settlement amount. 2. The settlement could be considered fair if John invests the money and earns a 7% return over 25 years. However, if he lives off the money without reinvesting, he may not make it to retirement on $200,000 per year. 3. Understanding time value of money is important for accounting, as it affects decisions around accounts rece

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    Jeri Thurman Eportfolio

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    1. The lump sum payment was determined by calculating the present value of John's future earnings over 25 years at a 7% rate. His yearly salary of $200,000 was multiplied by 11.65358, the present value factor for an investment earning 7% annually over 25 years, resulting in the $2,330,716 settlement amount. 2. The settlement could be considered fair if John invests the money and earns a 7% return over 25 years. However, if he lives off the money without reinvesting, he may not make it to retirement on $200,000 per year. 3. Understanding time value of money is important for accounting, as it affects decisions around accounts rece

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    1. The lump sum payment was determined by calculating the present value of John's future earnings over 25 years at a 7% rate. His yearly salary of $200,000 was multiplied by 11.65358, the present value factor for an investment earning 7% annually over 25 years, resulting in the $2,330,716 settlement amount. 2. The settlement could be considered fair if John invests the money and earns a 7% return over 25 years. However, if he lives off the money without reinvesting, he may not make it to retirement on $200,000 per year. 3. Understanding time value of money is important for accounting, as it affects decisions around accounts rece

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    70 views2 pages

    Jeri Thurman Eportfolio

    Uploaded by

    api-253807127
    1. The lump sum payment was determined by calculating the present value of John's future earnings over 25 years at a 7% rate. His yearly salary of $200,000 was multiplied by 11.65358, the present value factor for an investment earning 7% annually over 25 years, resulting in the $2,330,716 settlement amount. 2. The settlement could be considered fair if John invests the money and earns a 7% return over 25 years. However, if he lives off the money without reinvesting, he may not make it to retirement on $200,000 per year. 3. Understanding time value of money is important for accounting, as it affects decisions around accounts rece

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    Jeri Thurman

    ePortfolio Assignment Acct 2310


    10/29/2014

    Case Study:
    Complete Analysis Case 6-4 on page 357 in your test book.

    1- How was the amount of the lump-sum determined? Create a calculation that might help
    Johns sister understand.
    2- Was the settlement fair? Explain.
    3- Write a brief reflection on how this assignment fits into your program and prepares you
    for your field of study.

    1. The payment the attorneys gave was compensation of the work that he couldnt do in the
    future paid now. They took into account the remaining 25 years and 7% that was
    probably used to compensate inflation and calculated an amount that is what the present
    value of his future earnings would be. The following is the calculation that they used to
    get this figure:
    200,000(yearly salary) x 11.65358 (which is a calculation that uses the $1 and in this case if you
    invested a $1 a year for 25 years at 7% this is what it would be worth today. It essentially takes
    out the accumulated interest each year to come up with this figure)
    By multiplying these two together you get the $2,330,716 figure that was awarded your brother.

    2. The concept of time value of money is that money today is more valuable than money
    tomorrow mostly due to interest and inflation. Is this a fair settlement for your brother?
    If he could invest all of this money at the 7% for 25 years then yes I would say it is a fair
    settlement. On the other hand your brother has to live on this money, if he could invest
    part of it then it could live on it longer depending on how much of an interest rate he gets
    and how much he pulls out to live on each year. But if he doesnt invest and lives on the
    same $200,000 year then he will not make the 25 years until retirement.
    3. Time value of money determines what we do with our money today and what it will
    become tomorrow. How does this help me in the world of Accounting? As a future
    Accountant I can see many areas that are effected by knowing the present value and
    future values of money it can make a huge difference in the decision making of many
    areas. Such as Accounts Receivable and discounts that can be given to receive your
    money faster especially if the present value is greater. Accounts Payable, making the
    decision to pay off a debt now or in the future with the interest again based on present
    value and future values. It can also affect how much interest you pay or make
    determined by what part of the month its paid. It may determine what kind of
    investments you do if they are good for today or a leverage for the future. The list goes
    on but one thing is for sure this is a very important concept to learn. For not only is the
    concept of time value of money used in the Accounting world but it is intertwined in the
    business world as a whole.

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