1. Realize that if payments for an asset are delayed into the future, part of that cash amount is attributed to the purchase of the asset with the rest deemed to be interest.
2. Recognize that a reasonable rate of interest can be stated explicitly and paid when payment for a purchase is delayed so that no present value computation is needed.
3. Determine the allocation of cash flows between principal and interest using a present value computation when a reasonable interest rate is not paid.
4. Record the acquisition of an intangible asset when a present value computation has been required.
5. Define the term “compounding.”
6. Compute interest to be recognized each period when a transaction was recorded using a present value computation.
7. Understand the difference in an annuity due and an ordinary annuity.