ACCT 2102: STUDY GUIDE
147 Cards in this Set
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Periodic Payments
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a series of payments at time intervals over a time period (for annuity)
means compound
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Compound interest
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interest based on a principal amount that includes interest from previous time periods
adding interest to the principal
interest paid on interest
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Simple interest
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interest calculated only on the amount borrowed
principal * rate * time =
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Annuity
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a series of equal cash payments made at equal intervals
ex: car/house payments
periodic payments
(principal + initial interest) * rate * time =
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Present Value Factor
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The amount that, if invested today at some compound interest rate for a specified period of time, will equal $1 at the end of that time period
PV = FV * PVf
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Future Value Factors
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The amount of $1 becomes at a future date, if invested at a specified annual interest rate and compounded a certain number of times per year over the investment period
FV = PV * FVf
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Present Value of Annuity Factors
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The amount of money that, if invested today at some compound interest rate for a specified period of time, will equal $1 at the end of that time period
loans
PVA (loas amt) = PVAf * payment
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Future Value of Annuity Factors
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The amount of money that accumulates at some future date, if invested at a specified annual interest rate & compounded a certain number of times per year over the investment period
investments
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Annual compounding
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= 1
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Semi-Annual compounding
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= 2
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Quarterly compounding
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= 4
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Monthly compounding
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= 12
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Financial leverage
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increasing RoR on investment by generating a greater return on borrow funds
uses borrowed funds to earn a RoR that exceed dept
how CoC uses its debt up against assets
how does it help generate revenue
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Financial leverage
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A financing strategy designed to increase the rate of return on the owners investment
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Expected Rate of Return
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estimated RoR on an investment
sum of (possible return/initial investment * prob) =
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Expected Return on investment
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expected means the probability of return
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Rate of Return on investment
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a % measure of the return on investment relative to the amount invested
allows us to rank & compare different investments regardless of size
return on investment/initial investment = RoR
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Time Value of Money
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a tool used to solve problems involving the comparison of cash flows that occur at different points in time
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Cost of Capital
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Often the weighted average cost of debt & equity financing
RoR company needs on investments
minimum RoR an investment will need to make to satisfy both creditors & investors
(debt% * total debt/total A) + eq% * total OE/Total A
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Hurdle Rate
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Cost of Capital
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Borrowing rate
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sacgsh
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Investment Rate
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ghsdxg
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Net Present Value (NPV)
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A method of evaluating investments that uses the time value of money to assess whether the investment's expected RoR is greater than the company's CoC
DCF <cost> = NPV
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Discounted Cash Flow (DCF)
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max willing to pay or PV of cashflow
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Tax Shield
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A reduction in tax liability by reducing taxable income without affecting pretax cash flows
difference b/w the taxable cash flow & the amount of tax paid on it
depreciation expense * tax rate =
depre = cost - salvage value/useful life
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After-Tax Income (flow)
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difference b/w the taxable cash inflow & the amount of tax paid on it
initial invest (or cash flow) * (initial - tax rate)
income * complement of tax rate
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Capital Budgeting (Process)
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used for analysis & selection of long-term investments
deciding when the acquisition of a long term asset is a good idea
includes identifying long-term investment opportunities, & selecting appropriate investments from those identified
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Operational Investments
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matching equipment
PPE: Plan, Property, Equipment
intangibles: copyright, long term assets, natural resources
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Depreciation
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...
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true variable cost
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ex: average charges on a cell phone bill; activity base is the number of minutes used above the allowance.
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step variable cost
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a resource that is obtainable only in large chunks (such as maintenance workers)
small changes in the level of production are not likely to effect the # of maintenance workers employed
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the linearity assumption and the relevant range
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a straight line closely approximates a curvilinear variable cost line - pg 79
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total fixed cost
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ex: your cell phone book has a fixed monthly price that will not go up
types - committed and discretionary
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committed fixed cost
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long term cost cannot be significantly reduced in short term
ex: depreciation on buildings and equipment; real estate taxes
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discretionary fixed cost
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may be altered in the short-term by current management decisions
ex: advertising and research development
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fixed costs and relevant range
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the relevant range of activity for a fixed cost is the range of activity over which the graph of the cost is flat
ex: fixed costs will increase in a step fashion
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step-function pattern vs. fixed cost
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step variable costs can be adjusted more quickly as conditions change
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mixed costs (semi-variable cost)
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contains both a variable and a fixed element
ex: utility cost
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mixed cost formula
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total mixed cost can be expressed as an equation
y = a + bx
y=total mixed cost
a=total fixed cost
b=variable cost per unit of activity
x=level of activity
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the scattergraph method
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draw a line
use one data point to estimate the total level of activity and the total cost
make a quick estimate of variable cost per unit and determine the cost equilibrium
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least squares regression method
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pg. 94 - method used to analyze mixed cost if a scattergraph plot reveals an approx. linear relationship between x and y
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contribution approach (income statements)
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an income statement format that organizes costs by their behavior. Costs are separated into variable and fixed categories rather than being separated according to organizational functions.
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account analysis
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a method for analyzing cost behavior in which an account is classified as either variable or fixed based on the analysts prior knowledge of how the cost in the account behaves
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R2
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a measure of goodness of fit
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contribution-margin method
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a method of computing the break-even point in which the fixed expenses are divided by the contribution margin per unit
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incremental analysis
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an analytical approach that focuses only on those costs and revenues that change as a result of a decision
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sales mix
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the relative proportions in which a company's products are sold. Sales mix is computed by expressing the sales of each product as a percentage of total sales.
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CM Ratio
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Unit Contribution Margin/Unit Sales Price
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Target Profit Unit Sales
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(Target Profit+Fixed Expenses) / Unit Contribution Margin
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Target Profit Sales $
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(Target Profit+Fixed Expenses) / Contribution Margin Ratio
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Break Even Unit Sales
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Fixed Expenses / Unit Contribution Margin
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Break Even Sales $
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Fixed Expenses / Contribution Margin Ratio
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Margin of Safety in $
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Total Sales - Break Even Sales
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Margin of Safety in %
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Margin of Safety $ / Total Sales $
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Margin of Safety in Units
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Margin of Safety $ / Unit Price
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Operating Leverage
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Contribution Margin / Net Operating Income
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Authorized shares
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The total number of shares the state has approved for a corporation to sel
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Budgeted (pro forma) statement of owners (partners) equity
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A statement that indicates the anticipated changes in each partners capital
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Callable preferred stock
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Preferred stock that gives the issuing corporation the right to repurchase the preferred stock at a stipulated price
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Cash divided
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A cash distribution in the form of a check drawn on the corporations bank account that is sent to each shareholder as of a certain time.
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Common stock
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The basic ownership of unit of a corporation
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Common Stock
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CC
OE
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Convertible preferred stock
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Preferred stock that gives the shareholder the right to convert (exchange) the preferred shares for other forms of capital, as stated in the corporate charter, at the option of the preferred shareholder.
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Cumulative preferred stock
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Preferred stock that accumulates unpaid dividends over time.
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Date of declaration
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The date on which the board of directors announces its decision to pay a dividend.
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Date of record
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The date of which the secretary of the corporation examines the stock ownership transfer book to determine who is officially registered as a shareholder of the corporation and, therefore eligible to receive the corporations dividend.
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Date of payment
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The date on which the corporation formally pays dividends to shareholders of record
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Debt financing
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When a company obtains funds (cash) in exchange for a liability to repay the borrowed funds.
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Dividend reinvestment program (drip)
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A program that allows current shareholders to use their cash dividends to buy more shares of the company's stock.
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Dividends in arrears
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The amount of cumulative preferred stock dividends not paid in full when stipulated.
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Equity financing
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A means for a company to obtain funds in exchange for an ownership interest in the company.
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Issued shares
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The number of authorized shares a company has sold to shareholders
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Financial risk
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The chance that a company will fail because it defaults on its debts
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Legal capital
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The portion of shareholders equity require by state law to be retained for the protection of the corporations creditors.
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Market value
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Price agrees to by a willing unrelated buyer and seller.
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No par; stated stock value
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Stock with a minimum issue price or stated value established by the corporations board of directors, but no par value specified in the charter.
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No par stock
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Stock that does not have a minimum price assigned to each share of stock
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Outstanding shares
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To number of stocks issued and held outside the corporation
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Par value
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An arbitrary value assigned to shares of capital stock that is approved by the state in which the business is incorporated.
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Participating preferred stock
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Preferred stock that allows preferred shareholders the right to receive an amount in excess of the stated dividend rate or amount.
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Preemptive right
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A right of common shareholders that allows them to manage their percentage interest I the corporation when it issues new shares of common stock.
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Preferred stock
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An ownership interest in a corporation with special privileges or preferences as to liquidation and dividends
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Property dividend
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The distribution of specific noncash assets to shareholders of a corporation
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Redeemable preferred stock
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Preferred stock that allows a shareholder to turn in(redeem) the preferred stock for cash at the shareholders option.
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Retired shares
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Repurchased issued shares that the corporation will never reissue.
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Return on common equity ratio
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A ratio that measures the proportion of income available to provide a return for common shareholders
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Return on owners equity ratio (roe)
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A ratio that measures the performance of the company in terms of the owners investment.
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Reverse stick split
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The Corporations recall of of its old shares of stock and issuance of a smaller number of Shares in their place
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Stock dividend
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The distribution of additional shares of the corporations stock to existing shareholders.
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Stock split
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The corporations recall of its old shares of stock and issuance of a. Larger umber of. RA shares in their place.
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Times interest earned ratio
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A measure of the companies ability to serve its debts
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Treasury shock
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The shares of a corporations issued stock that the corporation has repurchased and intends to reissue at a layer date.
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Cash
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Current Asset
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Cash
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CA
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Cash Equivalents
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CA
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Marketable Security
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CA
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Trade Security
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CA
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Accounts Receivable
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CA
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Inventory
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CA
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Supplies
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CA
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Prepaid Expense
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CA
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Investments
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LtA
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PPE
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Plant, Property, Equipment
LtA
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Intangibles
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LtA
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A/D ?
Accumulated Depreciation?
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LtA
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Other assets
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LtA
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Payables
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CL
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Unearned Rev
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CL
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Accrued Liability
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CL
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Long Term Debts
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LtL
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Discontinued/Premium?
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LtL
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Retained Earnings
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OE
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Contributed Capital
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C/S & P/S & APIC
OE
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Treasury Stock T/S
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OE contra
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APIC
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Additional Payed in Capital
OE
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OCI
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Over-comprehensive Income
OE
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Sales
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Income Statement
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COGS
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I/S
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Prepaid Insurance
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CA
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Accounts Payable
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CL
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Insurance Expenses
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I/S
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Trucks
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PPE
LtA
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Wages Payable
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CL
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Payroll Taxes Payable
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CL
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Trade Notes Payable
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CL
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Mortgage Payable
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LtL
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Land
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PPE
LtA
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Interest Payable
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CL
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Lt Installment Note Payable
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LtL
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Building
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PPE
LtA
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Equipment
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PPE
LtA
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Allowance for Uncollectible Accounts
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Accounts Receivable
Contra
CA
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Allowance for Uncollectible Accounts
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CA
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AD trucks
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Contra
PPE
LtA
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AD Building
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Contra
PPE
LtA
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AD Equipment
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Contra
PPE
LtA
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Land Held for Speculation
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LtA
Investment
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Accumulated Depletion
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PPE
LtA
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Bonds Payable due next year
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CL
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Goodwill
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LtA
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Land held for expansion
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PPE
LtA
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Discount on Bonds Payable
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LtL
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Investment Common Stock
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LtA
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Available for Sale Securities
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Investments
CA
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Premium on Bonds Payable
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LtL
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Patent
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Intangible A
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Unrealized Gains on Investments
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Accum other Comprehensive Income
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ACCT 2102: STUDY GUIDE