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47 Cards in this Set
- Front
- Back
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Callable Bonds
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Bonds that have an exercisable by the issuer to retire them at a stated dollar amount prior to maturity
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A corporation borrowed $125,000 cash by signing a 5-year, 9% installment note requiring annual payments each December 31 of accrued interest plus equal amounts of principal. What journal entry would the issuer record for the first payment?
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Interest Expense 11,250
Notes Payable 25,000 Cash 36,250 |
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Long term Liabilities
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Obligations not expected to be paid within one year of the company's reporting cycle
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Contingent Liabilities must be recorded if...
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The future event is probable and the amount owed can be reasonably estimated
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On December 1, Martin Company signed a $5,000 3-month 6% note payable, with the principle plus interest due on March 1 of the following year. What amount of interest expense is accrued at December 31 on the note?
Use a 360-day year for interest calculation. |
$25
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FICA Taxes
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Social Security, Charitable givings, employee income taxes, unemployment taxes
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Employee vacation benefits are
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estimated liabilities
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A company estimates that warranty expense will be 4% of sales. The company's sales for the current period are $185,000. The current period's entry to record the warranty expense is:
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Warranty Expense 7,400
Sales 7,400 |
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Trade Accounts Payable
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amounts owed to suppliers for products or services purchased on credit
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Building Blocks of financial statement analysis
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Liquidity, Solvency, Profitability, and Market Prospects
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Tools of Analysis
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Horizontal, Vertical, Ratio
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Common Size statements
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Reveal changes in the relative magnitude of each financial statement item
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Liquidity
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short term obligations
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Solvency
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generate future revenues (long term)
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Profitability
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provide financial rewards
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Market Prospects
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generate positive market expectations
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Horizontal Analysis
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compare finances ACROSS time
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Vertical Analysis
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compare performance to a base amount
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Ratio Analysis
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measures key relations between financial statement items
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What are quick assets?
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cash, short term investments, and current receivables
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Current Ratio
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Total Current Assets/ Total Current Liabilities
-measures liquidity of of the firm -larger ratio=more liquid firm -short term debt paying ability of the company |
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Acid Test Ratio
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Quick Assets/ Current Liabilities
-Similar to current ratio minus Excludes current assets |
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Equity Ratio
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Total Equity/Total Assets
-measures portion of a companys assets are controlled by owners -amount of free cash |
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Debt Ratio
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Total Liabilities/Total Assets
-want low debt ratio -measures portion f a company's assets are contributed by creditors -always equals equity ratio |
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Times Interest Earned
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Net Income before Interest and Income/Interest Expense
-higher is better -most common measure of the ability of a firm's operations to provide protection to the long term creditor |
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Profit Margin
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Net Income/Net Sales
-ability to earn a net income from sales |
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Gross Margin
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Net Sales-Cost of Sales/Net Sales
-measures amount remaining from $1 in sales. -This is left to cover operating expenses and a profit after considering cost of sales |
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Return on Total Assets
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Net Income/Average Total Assets
-ratio considered the best overall measure of a company's profitability -higher better |
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Return on Common Stockholders Equity
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Net income- Preferred Dividends/ Average common stockholders equity
-how well company's employed the owners' investments to earn income |
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Basic Earnings per Share
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Net Income- Preferred Dividends/ Weighted Average Common Shares Outstanding
-how much income was earned for each share of common stock outstanding |
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Price Earning Ratio
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Market Price Per Share/ Earnings Per Share
-gauges stock value -Higher ratio, more opportunity to grow |
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Dividend Yield
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Annual Dividends/Market Price per share
-identifies the return, in terms of cash dividends, and on the current market price of the stock |
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Standards for Comparison
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Intracompany, Competitor, Industry, Guidelines (rule of thumb)
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Current vs. Longterm
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Current is less than one year
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Estimated Liability
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obligation of an uncertain amount that can be reasonably estimated
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Warranty Liability
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Book when you sell it (like bad debts)
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Contingent Liability
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obligation to make a future payment if and only if an uncertain future event occurs
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Advantages of Bonds
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1. Do not affect owner control
2. Interest on bonds is tax deductible 3. Bonds can increase return on equity |
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Disadvantages of Bonds
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1. May decrease return on equity
2. Require payment of both periodic interest and the par value at maturity |
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Bond Rates
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Discount<Par<Premium
-compared to market value |
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Equal total payments period
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-Interest and Principle change but pay same total amount each year
-Interest paid decreases overtime -Principle paid Increases |
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Equal principle payments
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-Same principle payment amount decreases each period
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Calculate Payment
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Principle x Percent x time (months/12)
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Accounts Receivable Turnover
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Sales on Account/Average Accounts Receivable
-measures how many times a company converts... |
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Inventory Turnover
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Cost of Goods Sold/Average Inventory
-measures number of times merchandise is sold and replaced during the year |
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Days' Sales Uncollected
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Ending Accounts Receivable/Net Sales
-measures liquidity of receivables |
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Days Sales in Inventory
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Ending Inventory/Cost of Goods sold
-Measures liquidity of inventory |
