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Account 244: Final exam
Chapter 10 |
... |
Adv of bonds over stock |
stockholder control is not affected
tax savings result
earnings per share may be higher |
Dis of bonds |
Interest must be paid on a periodic basis
Principal (face value) of the bonds must be paid at maturity. |
Secured Bonds |
when the issuer pledges specific assets as collateral |
Unsecured bonds |
They are issued against the credit of the borrower. |
Registered Bonds |
bonds issued in the name of the owner.
bonds are made by check |
Bearer (coupon) bonds |
holder of bonds must send in a coupon to receive interest payments |
Convertible Bonds |
bonds that can be converted to common stock |
Callable Bonds |
Bonds that the issuing company can retire at a specific amount prior to maturity date |
Serial Bonds |
bonds that mature in installments |
What is the contractual interest rate? |
usually stated as an annual rate.
used to determine the amount of interest that is due |
What is the present value?
(3 factors) |
the dollar amounts to be received
the length of time until the amounts are received
the market interest rate |
What is the market interest rate? |
the rate investors demand for loaning funds |
What is the result of a discount |
the interest rate incurred by the company increases to the level of the current market interest rate. |
What is the result of a premium |
Causes the total cost of borrowing to be less than the bond interest paid |
When you add a premium to bonds payable you get the.. |
To the carrying value of bonds payable on the balance sheet |
What is the carrying value of a bond? |
The bonds face value minus any discounts or plus any premiums. |
Adjusting entry on Dec 31 to account for interest to be paid Jan 1 |
"...." expense 400
"...." payable 400 |
To find the total cost of borrowing you... |
Compute all of the interest payments then add discount or minus premium |
When sales taxes are not rung up separately... |
Divide the total amount by 100% plus the sales tax percentage. |
How do you compute the Times interest earned ratio |
Income (before income taxes and interest expense) divided by Interest expense |
How do you compute the debt to total assets ratio? |
total debts divided by total assets |
What is "working capital" a measure of? How do you compute it? |
It is a measure of a companys liquidity.
Current assets - current liabilities |
Calculation To determine amortization amount of a bond.. |
(Carrying value of bonds at beginning of period ( X ) Effective Interest Rate) minus (Face amount of bonds ( X ) Contractual Interest Rate) |
Chapter 11 |
... |
Adv of a Corporation |
ability to acquire capital
continuous life
separate legal existence |
Dis of a corporation |
Government regulations
additional taxes |
What is a treasurer? |
They have custody of the corporations funds and is responsible for maintaining the companys cash position |
What is Par Value Stock? |
capital stock that the charter (which indicates the amount of stock a corp can authorize) has assigned a specific value per share for. |
Stockholder's equity section contains: |
paid in capital
Capital stocks (common, preferred)
Common stock dividends
Total capital
Additional paid in capital
In excess of par value
total paid in capital(then RE, RE + TPIC then - TS |
The closing entry of retained earnings for
Net income
Net loss |
Income summary
Retained Earnings
2. Retained Earnings
Income Summary |
Treasury stock is... |
When a corporation owns buys its stock that was previously issued. |
JE for when dividends are declared |
Retained earnings
Dividends payable |
JE for for the payment date of dividends |
Dividends Payable
Cash |
Stock Dividends increase what and decrease what? |
Increase: total paid in capital and total par value of common stock
Decrease: total retained earnings |
A stock split is a: |
the issuance of additional shares to stock holders.
Decreases: par/stated value per share |
A prior period adjustment is... |
a correction in reporting the net income |
say a company understated depreciation expense and it resulted in an overstated net income. What is the JE to fix it? |
Retained Earnings
Accum. Depreciation
(You debit RE because RE's normal balance is credit) |