Question

Question:Identify three situations in which accounting measures are based on present values. Do these present value applications involve single sums or annuities, or both single sums and annuities? Explain.

Short answer

The situation in which present value measures are used in accounting includes:

Notes receivables and payable

Leases

Pensions and another deferred compensation arrangement

These involve the single sum transaction.

Step-by-step solution

Step-by-Step SolutionStep 1 Various situations which are based on the present value

There are various situations in which accounting measures are based on present values.

Notes Receivables and Payables: It includes present value annuities, when there are periodic interest payments are involved.

Leases: It involves the measurement of assets and obligations which are usually based on the present value of annuities.

Pensions and another deferred compensation arrangement: It involves the discounted future annuity payments that are paid to the employees on their retirement.

Step 2Single sum transactions

The notes receivables and payables involve single sums and leases also involve single sums.

Single sums refer to that single amount of money that either exists now or will exist in the future.