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Final Study: Exam 2
How would you calculate the simple interest of a sum?
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Interest = Principal * Rate * time
$10,000 * .1 * 1 year = $1,000 |
How would you calculate the compound interest of a sum?
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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?
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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?
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Cash XXX
Note Payable XXX
Interest Expense XXX
Interest Payable XXX |
What is the journal entry to record a reduction of note payable balance?
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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?
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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?
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Interest expense XXX
......Interest Payable XXX |
What is the journal entry for the payment of interest payable?
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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?
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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?
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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?
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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. |