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52 Cards in this Set

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Any obligation that will not be paid or otherwise satisfied within the next year or the operating cycle, whichever is longer.
long-term liabilities
3 Examples of Long-Term Liabilities?
Notes Payable
Bonds Payable
Mortgages Payable
Can be converted into common stock at a future time
convertible bond
Bonds that may be redeemed or retired before their specified due date
callable bond
Bonds that do not all have the same due date; a portion of the bonds comes due each time period
serial bond
If a bond is issued at 92-1/4, what does that mean?
Cash 922.50
Disc. on BP 77.50
Bonds Payable 1,000
The present value of the annuity of interest payments plus the present value of the principal
bond issue price
2 Tables used for looking up bond issue price?
Present Value of Annuity of $1 and Present Value of $1
The issue price of a bond is always calculated using?
market rate of interest
The excess of the issue price over the face value of the bonds
premium
The excess of the face value of bonds over the issue price
discount
How to compute premium?
Issue Price - Face Value
How to compute discount?
Face Value - Issue Price
What is the journal entry for the amortization of the bond premium/discount?
Straight line method of amortization
Debt-to-Equity Ratio?
Total Liabilities / Total Equity
What is importance of debt-to-equity ratio?
It has to be low enough for creditors, but high for money
A lease that is recorded as an asset by the lessee
capital lease
2 Advantages of Capital Lease?
1. If asset, we can depreciate
2. Tax advantage
Why use accelerated depreciation methods for tax purposes?
Provides a way of deferring corporate income taxes by reducing taxable income in current years, in exchange for increased taxable income in future years.
A higher amount of depreciation is recorded in the early years and a lower amount in the later years
accelerated depreciation
What is a deferred tax liability?
It is a long-term liability
What are the 3 different types of stockholder equity accounts?
Stock, Contributed Capital, and Retained Earnings
Single class of capital stock that most companies have?
common stock
Form of capital stock that carries with it certain preferences?
preferred stock
2 Advantages of Preferred Stock?
1. Terms and provisions can be tailored to meet the firm's needs
2. Receive dividends first, before the holders of common stock
Big City Dwellers issues 5,000 shares of its $1 par value common stock at par for cash.
Cash 5,000
Common Stock 5,000
Sale of Stock
If the Big City Dwellers sold their $1 par value stock for $5 per share.
Cash 25,000
Common Stock 5,000
Additional Paid-in Capital 20,000
Sale of 5,000 shares of stock at $5 per share.
Stock issued by the firm and then repurchased but not retired?
treasury stock
Rezin buys 100 of its shares as treasury stock at $25 per share.
Treasury Stock 2,500
Cash 2,500
To record the purchase of 100 shares of treasury stock.
Normal account balance for treasury stock?
Common Stock
Additional paid-in capital
Retained earnings

Total contributed capital and retained earnings
Less: Treasury stock

Total stockholders' equity
The creation of additional shares of stock with a reduction of the par value of the stock
stock split
results in additional shares of stock outstanding and is nontaxable
stock split
3 Reasons that firms may use a stock split?
1. Increase number of shares
2. Reduce the market price per share
3. Make stock more accessible to a wider range of investors
An accounting transaction is not recorded when a corporation declares and executes a?
stock split
The issuance of additional shares of stock to existing stockholders
stock dividend
What is the difference between a stock and a cash dividend?
Stock dividends do not affect total stockholders' equity. They reduce retained earnings and increase the amount of common stock and additional paid-in capital.
3 Reasons why firms use stock dividends?
1. Corporation may not have sufficient cash available to declare a cash dividend. They do not require the use of the corporation's resources.
2. Result in additional shares of stock outstanding and may decrease the market price per share of stock if the dividend is large.
3. Do not represent taxable income to the recipients and may be attractive to some wealthy stockholders.
A business with a single owner.
sole proprietorship
A business owned by two or more individuals and with the characteristic of unlimited liability
partnership
A form of entity organized under the laws of a particular state; ownership evidenced by shares of stock
corporation
Peter Tom began a new business by investing $10,000 cash.
Cash 10,000
Peter Tom, Capital 10,000
To record the investment of cash in the business.
Paige Thoms and Amy Rebec begin a partnership named AP Company. Paige contributes $10,000 cash, and Amy contributes equipment valued at $5,000.
Cash 10,000
Equipment 5,000
Paige Thoms, Capital 10,000
Amy Rebec, Capital 5,000
To record the contribution of assets to the business.
Unpaid dividends on preferred stock, to be paid to the holder at a future date.
dividends in arrears
Are dividends in arrears always paid?
No
Shah declares a 10% stock dividend to common stockholders to be distributed on April 1, 2008. Assume that Shah's common stock is selling at $40 per share on that date. Therefore, the total market value of the stock dividend is $20,000.
Retained Earnings 20,000
Additional Paid-in Capital 15,000
Common Stock Dividend D. 5,000
To record the declaration of a stock dividend.
What are the 4 combinations for income and cash flow?
1. Increase in cash and a net profit
2. Decrease in cash and a net profit
3. Increase in cash and a net loss
4. Decrease in cash and a net loss
What type of activity is borrowing and paying loans?
Operating
What type of activity is purchase of investment?
Investing
What type of activity is sale of merchandise?
Operating
Which of the following is not an investing activity?
a. Purchase of investments for cash
b. Purchase of equipment for cash
c. Sale of merchandise for cash
d. Sale of land for cash
c. Sale of merchandise for cash
What type of activity is purchase of equipment for cash?
Investing
What type of activity is sale of land for cash?
Investing