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What is the fair value of the lottery payments according to the Financial Accounting Standards Board (FASB)?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

KA.

An individual recently won a lottery and has the opportunity to receive $100,000 per year at the end of the year for the next 25 years. Assuming an annual interest rate of 5% is appropriate, the present value of 1 is 0.29530 × $100,000 = $29,530, the present value of an ordinary annuity is 14.09394 × $100,000 = $1,409,394, and the present value of an annuity due is 14.79864 × $100,000 = $1,479,864.

What is the fair value of the lottery payments according to the Financial Accounting Standards Board (FASB)?

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