When There Are Material Differences Between the Results of Using

question 86

True/False

When there are material differences between the results of using the straight-line method and using the effective interest method of amortization, the effective interest method should be used.

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Definitions:

Present Value Index

A calculation that compares the present value of cash inflows to the initial investment, often used in capital budgeting.

Compound Interest

The calculation of interest on the initial principal and also on the accumulated interest of previous periods.

Average Rate of Return

A method of determining the profitability of an investment by dividing the average annual profit by the initial investment cost.

Total Income

The sum of all revenues and gains that a person or business receives over a period of time, before any expenses are subtracted.