# Final Study: Exam 2

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How would you calculate the simple interest of a sum?
Interest = Principal * Rate * time \$10,000 * .1 * 1 year = \$1,000
How would you calculate the compound interest of a sum?
Compound interest is found by multiplying principal by the rate and compounding that amount from year to year as the terms regulate. For example: Year 1 10,000 * .10 = 1000 bal 11,000 Year 2 11,000 * .10 = 1100 bal 12,100 Year 3 12,100 * .10 = 1210 bal 13,310
How would you calculate the present value of a single sum?
Present value = Future value / (1+i)^n where i = discount rate, and n = number of periods
How would you calculate the present value of an annuity?
is the value now of a series of future receipts or payments, discounted assuming compound interest
How would you calculate the future value of a single amount?
Future Value = P x (1+i)^n
How do you calculate the future value of an annuity?
it is the sum of all the payments (receipts) plus the accumulated compound interest on them.
How do you calculate the present value of a Bond Payable?
It is the sum of the Principal and the annual interest payments.
What are current liabilities?
Liabilities that can reasonably be expected to be paid with either current assets or by creating other liabilities and that can be paid within a year. Examples include: Unearned Revenues Accounts Payable Salaries and Wages Payable ect.
What are Long-term liabilities?
debts that cannot be paid with current assets and can't be paid withing 1 year.
What are notes payable?
Obligations in the form of written notes to fund financing needs.
What is the journal entry to record interest expense?
Cash XXX Note Payable XXX Interest Expense XXX Interest Payable XXX
What is the journal entry to record a reduction of note payable balance?
Notes Payable XXX Interest Payable XXX Cash XXX
What are Unearned Revenues and how are they recorded in a journal entry, then how are they recorded once completed?
Unearned Revenues are recorded as liabilities until earned. Cash XXX Unearned Rev. XXX (As services are earned) Unearned Rev XXX Revenue XXX
What are the types of bonds?
Secured - have specific assets pledged as collateral Unsecured - are issued against the general credit of the borrower Convertible- bonds that can be converted into common stock Callable- bonds that the issuing company can retire at a stated dollar amount prior to maturity.
What are the three categories of bond issuance?
Face Value- (stated rate = market rate) Premium- (stated rate > market rate) Discount- (stated rate < market rate)
How do you calculate interest expense?
\$ amount of Bond * % discount
What is the journal entry for the accrual of expense?
Interest expense XXX ......Interest Payable XXX
What is the journal entry for the payment of interest payable?
Interest Payable XXX .......Cash XXX
What is a contingent liability?
Contingencies are events with uncertain outcomes (lawsuits, warranties, etc) Possible Liabilities
Describe the Debt to total assets ratio.
Debt to Total Assets Ratio = total liabilities/total assets
Describe the Current ratio.
Current Ratio = current assets/current liabilities
What are the characteristics of a corporation?
Separate legal existence Limited liability of stockholders Transferable ownership rights Ability to acquire capital Continuous life Corporation management Government regulations Additional taxes
Describe Shares Authorized Stock.
Maximum amount of stock a corporation is allowed to sell as authorized by corporate charter.
Describe Issued Stock
Stock that has been sold and paid for.
Describe Outstanding stock
Number of shares of stock that are being held by stockholders.
What are the characteristics of preferred stock?
Receive dividends and assets in the event of a liquidation, but do not allow for voting.
What is the Par value?
Maximum amount of stock a corporation is allowed to sell as authorized by corporate charter.
What is No-Par value stock?
Capital stock that has not been assigned a value per share in the corporate charter.
What is the journal entry to record the purchase of treasury stock?
Treasury Stock XXX Cash XXX
What effect does Treasury Stock have on the Stockholder's Equity section of the balance sheet?
Treasury stock is subtracted from the Stockholder's Equity section.
What is a cash dividend and what are the three requirements needed to distribute it?
A cash dividend is a pro rata distribution of cash to shareholders.
What is the J/E to Record this
Requires  1)Retained Earnings 2)Adequate Cash 3)Declared Dividends (First # of shares * Declared Dividends = Dividends) Dividends XXX Dividends Payable XXX
What is the journal entry to record the payment of dividends?
Dividends Payable XXX Cash XXX
What is a Stock Dividend?
Is a pro rata distribution of the corporation's own stock to stockholders. Is paid in stock. Results in a decrease in retained earnings and an increase in paid-in capital. Does not decrease total stockholders' equity or total assets.
What is a stock split and what are its effects?
Is the issuance of additional shares of stock to stockholders accompanied by: A reduction in the par or stated value. An increase in number of shares.
What is Retained Earnings?
Is net income that is retained in the business. The balance in retained earnings is part of the stockholders' claim on the total assets of the corporation.
What is a deficit?
a debit balance in retained earnings and is reported as a deduction in the stockholders' equity section of the balance sheet.
Describe the Pay out ratio.
CASH DIVIDENDS DECLARED ON COMMON STOCK / NET INCOME
How do you calculate the Return on Common Stockholder's Equity?
1) Find Average Stockholders Equity = (Beg. Stockholders Equity + End Stockholders Equity)/2 2) Net Income / Average Stockholders Equity
What is the purpose of a Statement of Cash Flows?
To provide information about: cash receipts, cash payments, and the net change in cash resulting from: operating, investing, and financing activities
What are Operating Activities?
transactions that create revenues and expenses and Enter into determination of net income. Involve INCOME STATEMENT ITEMS
What are Investing Activities?
Purchasing and disposing of investments and property, plant & equipment using cash and  Lending money and collecting the loans. Involve investments and Non-current assets
What are Financing Activities?
Obtaining cash from issuing long term debt and repaying the amounts borrowed and  Obtaining cash from stockholders, repurchasing shares, and paying dividends. Involve non-current liabilities and Stockholder's Equity Items
Name 4 significant Non-cash activities not mentioned in the main portion of the Statement of Cash flows.
1. Issuance of common stock to purchase assets. 2. Conversion of bonds into common stock. 3. Issuance of debt to purchase assets. 4. Exchanges of plant assets.