Chapter 10 Liabilities Bearer bonds bonds not registered Bond certificate a legal document that indicates the name of the issuer the face value of the bonds and such other data as the contractual interest rate and maturity date of the bonds Bond discount the amount by which a bond sells at less than its face value Bond indenture a legal document that sets forth the terms of the bond issue Bond premium the amount by which a bond sells above its face value Bonds a form of interest bearing notes payable issued by corporations universities and governmental entities Callable bonds bonds that are subject to retirement at a stated dollar amount prior to maturity at the option of the issuer Contractual interest rate rate used to determine the amount of interest the borrower pays and the investor receives Convertible bonds bonds that permit bondholders to convert them into common stock at their option Current liabilities debts that a company reasonably expects to pay from existing current assets within the next year or operating cycle Current ratio a measure of a company s liquidity computed as current assets divided by current liabilities Debt to total assets ratio a solvency measure that indicates the percentage of total assets provided by creditors computed as total debt divided by total assets Face value amount of principal the issuer must pay at the maturity date of the bond Long term liabilities obligations expected to be paid after one year Market interest rate the rate investors demand for loaning funds to the corporation Mortgage bond a bond secured by real estate Mortgage note payable a long term note secured by a mortgage that pledges title to specific assets as security for a loan Notes payable obligations in the form of written promissory notes Registered bonds bonds issued in the name of the owner Secured bonds bands that have specific assets of the issuer pledged as collateral Serial bonds bonds that mature in installments Sinking fund bonds bonds secured by specific assets set aside to retire them Term bonds bonds that mature at a single specified future date Times interest earned ratio a solvency measure that indicates a company s ability to meet interest payments computed by dividing income before income taxes and interest expense by interest expense Unsecured bonds bonds issued against the general credit of the borrower debenture bonds Working capital a measure of a company s liquidity computed as current assets minus current liabilities Chapter 11 Corporations Organization Stock Transactions Dividends and Retained Earnings Authorized stock the amount of stock that a corporation is authorized to sell as indicated in its charter By laws the internal rules and procedures for conducting the affairs of a corporation Cash dividend a pro rata distribution of cash to stock holders Charter a document that creates a corporation Corporation a business organized as a legal entity separate and distinct from its owners under state corporation law Cumulative dividend a feature of preferred stock entitling the stockholder to receive current and unpaid prior year dividends before common stockholders receive any dividends Declaration date the date the board of directors formally declares the dividend and announces it to stockholders Deficit a debit balance in retained earnings Dividend a distribution by a corporation to its stockholders on a pro rata proportional basis Liquidating dividend a dividend declared out of paid in capital No par value stock capital stock that has not been assigned a value in the corporate charter Organization costs costs incurred in the formation of a corporation Outstanding stock capital stock that has been issued and is being held by stockholders Paid in capital total amount of cash and other assets paid to the corporation by stockholders in exchange for capital stock Par value stock capital stock that has been assigned a value per share in the corporate charter Payment date the date dividend checks are mailed to stockholders Preferred stock capital stock that has some contractual preferences over common stock Prior period adjustment the correction of an error in previously issued financial statements Privately held corporation a corporation that has only a few stockholders and whose stock isn t available for sale to the general public Publicly held corporation a corporation that may have thousands of stockholders and whose stock is regularly traded on a national securities exchange Record date the date when ownership of outstanding shares is determined for dividend purposes Retained earnings net income that a corporation retains for future use Retained earnings restrictions circumstances that make a portion of retained earnings currently unavailable for dividends Retained earnings statement a financial statement that shows the changes in retained earnings during the year Return on common stockholders equity ratio a ratio that measures profitability from the stockholders point of view It is computed by dividing net income available to common stockholders by average common stockholders equity Stated value the amount per share assigned by the board of directors to no par stock that becomes legal capital per share Stock dividend a pro rata distribution of the corporation s own stock to stockholders Stock split the issuance of additional shares of stock to stockholders accompanied by a reduction in the par or stated value per share Stockholders equity statement a statement that shows the changes in each stockholder s equity account and in total stockholders equity during the year Treasury stock a corporation s own stock that the corporation has issued fully paid for and reacquired but not retired Chapter 12 Investments Available for sale securities securities that are held with the intent of selling them sometime in the future Consolidated financial statements financial statements that present the assets and liabilities controlled by the parent company and the total revenues and expenses of the subsidiary companies Controlling interest ownership of more than 50 percent of the common stock of another entity Cost method an accounting method in which the investment in common stock is recorded at cost and revenue is recognized only when dividends are received Debt investments investments in government and corporation bonds Equity method an accounting method in which the investment in common stock is initially recorded at cost and the investment account is then
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