Short term Investments Current asset the investment is liquid or intended to be converted into cash within one year or used to pay a current liability Long term Investments stocks and bond the investor plans to hold onto for mote than a year Available for sale securities may be debt securities not held to maturity or equity securities Initially recorded at cost adjusted to current fair value at balance sheet GAAP requires these to be adjusted to current fair value at balance sheet date Common stock Preferred Stock Paid in capital in excess of par Retained Earnings Total stockholders equity Cash dividend received Purchase Long term Investment Cash Cash Dividend revenue Allowance to adjust investment to market Unrealized gain on investment owned by investor GAAP acct method Less than 20 Fair market value 20 50 Equity greater than 50 Consolidation Stated interest rate Market interest rate Par Stated interest rate Market Interest rate Discount Stated interest rate Market interest rate Premium Adjustment to fair value Time value of money Future value Present value X 1 intrest rate Present Value Future value 1 interest rate Time value of money fators Principal amount single lump sum annuity Number of periods interest rate Present Value the value on a given date of a future payment or series of payments discounted to reflect the time value of money What PV table to use PV of 1 single payment or cash inflow PV of annuity two or more payments equal amounts Using the present value model to compute fair value of available for sale investments L1 Quoted prices in active markets for identical assets L2 Estimates based on other observable inputs L3 Estimates based on unobservable estimates the companies own estimates based on certain asumption PV of investments in bonds PV of bonds its market price is the PV of the future principal amount at maturity plus PV of future stated interest payments Available for sale investment Cash Cash Dividend Revenue Unrealized loss on investment Allowance to adjust investment to market 440 2 Income Statement Revenues Expenses Net Income Other Comprehensive income Unrealized gain on investments Less income tax Comprehensive Income Purchased investment Long term investment 1000x44 Cash Received cash dividend Cash 1000x 0 2 Dividend Revenue Adjusted investment to fair value Allowance to adjust investment to market Unrealized gain on investment 25 440 2 25 Balance Sheet Assets Total Current Assets Long term Available for sale investments at market value Stockholders Equity Common Stock Retained Earnings Accumulated other comprehensive income Unrealized gain loss on investments Current Liabilities of Known Amount Accounts payable Short term notes payable Sales tax payable Accrued liabilities accrued expense Entry to record the estimated amount Estimated warranty payable Warranty expense Estimated warranty payable Entry to record actual replacement of defective product repair Estimated warranty payable Inventory Payroll liabilities Unearned revenue Current portion of long term debt Current liabilities that must be estimated Contingent liabilities Potential liability that depends on future outcome of past events 1Accrue make a adjusting entry for loss probable amount estimable 2Disclose Loss resonably possible 3report nothing wait until an actual transaction clears it up probability of loss considered remote Types of Bonds Term mature at same time Serial mature in installments Secured right to assets if company defaults Unsecured debentures backed only by good faith of borrower Bond Prices EX Bond quoted at 101 5 has a market price of 1015 101 5 of face value 1000X1 015 Bond Prices And Interest Rates bonds always sold at market price bonds present value Stated Interest Rate printed on bond certificates determines cash interest paid to bondholders Market Interest Rate Demand by investors for loaning money Varies minute to minute Strait line amortization method Amortization Discount or premium number of interest payments Convertible bonds and notes bond holders can exchange bonds for stock Investor benefits guaranteed receipt of principal interest on bonds potential gains on stocks Bonds payable at discount Sale of bond at discount Cash Discount on bond payable Bond payable Interest payment on bond P Interest expense Discount on bond payable Cash Lease a rental agreement in which the tenant agrees to make rent payments to the property owner in exchange for use of the asset Operating lease sometimes short term or cancelable lessor retains risk and rewards of owning Capital lease long term non cancelable lessee assumes risk and rewards of ownership Must have 1 of 4 criteria to be classified as transfer of title at end of lease lease term 75 of useful life bargain purchase option PV of lease payments 90 of fair value Pensions and post retirement liabilities expense recorded while employees work for the company cash contributed into pension plan assets obligations grow for future payments to employees Features of a corporation Separate legal entity Continuous life and transferability of ownership Limited liability Separation of ownership and management Corporate taxation Government regulation Organizing a corporation Corp organizers incorporators receive a charter from state Charter includes authorization to issue shares of stock Incorporators Pay fees Sign the charter File the documents with the state Agree to a set of bylaws Stockholder Rights 1 Vote 2 Dividends 3 Liquidation 4 Preemption Stockholders Equity 2 Paid in capital the amount of stockholders have contributed RE Amount earned by profitable operations Classes of stock Common Basic form of stock has the 4 rights Stockholders benefit most if corp succeeds takes more risk Preferred Has advantages of common Receive dividend first Receives assets first in liquidation Earn fixed dividends rarely issued Par Value Arbitrary amount assigned to a share of stock Usually set low to avoid legal issue No par stock may have stated value Treasury stock Issued shares reacquired by the company Reasons make plans for employee stock purchase program plan to Premium Price above face Credit balance Market price decreases toward maturity value Discount Price below face Debit balance Market price increases toward maturity value Buy low sell high avoid takeover increase earnings per share use in share repurchase program Bonds payable at par Issuing bond Cash Bond payable Interest payments Interest Expense Cash At year end interest is