Accounting 211- Test 3 (Richardson)

Front 1

bonds payable

Back 1

long-term debt securities that subdivide a very large and log-term corporate debt into transferable increments of $1000 (or multiples thereof)

Front 2

collateral

Back 2

assets pledged to secure specific liabilities

Front 3

convertible bond

Back 3

a bond that may be exchanged for a specified number of shares of the company's capital stock

Front 4

deferred income taxes

Back 4

a liability account to pay income taxes that have been postponed to a future year's income tax return

Front 5

estimated liabilities

Back 5

liabilities known to exist, but that must be recorded in financial statements at estimated dollar amounts

Front 6

interest coverage ratio

Back 6

operating income divided by interest expense; indicates number of times that the company was able to earn the amount of its interest charges

Front 7

junk bonds

Back 7

bonds payable that involve a greater than normal risk of default, so they have higher than normal interest rates

Front 8

leverage

Back 8

use of borrowed money to finance business operations

Front 9

loss contingencies

Back 9

situations involving uncertainty as to whether a loss has occurred, uncertainty will be resolved by a future even; a possible loss (expense) stemming from past events; appear as liabilites only when it is probable that a loss has been incurred and the amount can be reasonably estimated

Front 10

off-balance sheet financing

Back 10

an arrangement in which the use of resources is financed without the obligation for future payments appearing as a liability in the balance sheet

Front 11

payroll taxes

Back 11

taxes levied on an employer based on amount of wages and salaries being payed to employees during the period (e.g. Social Security taxes, Medicare taxes, unemployment taxes, and workers' comp premiums)

Front 12

pension fund

Back 12

a fund managed by an independent trustee into which an employer-company makes periodic payments

Front 13

postretirement benefits

Back 13

expense for current period, can result in a liability for unfunded benefits

Front 14

sinking fund

Back 14

cash set aside by a corporation at regular intervals for the repayment of a bond issue at its maturity date

Front 15

special purpose entities

Back 15

separate entities established by a corporation; often used to borrow money and then transfer it to the sponsoring corporation as an off-balance sheet financing arrangement

Front 16

underwriter

Back 16

an investment baking firm that handles the sale of a corporations stocks of bonds to the public

Front 17

workers' compensation

Back 17

state-mandated insurance; premiums charged to employers as a percentage of the employees wages and salaries

Front 18

additional paid-in capital

Back 18

shows paid-in capital in excess of legal capital/ par value

Front 19

book value per share

Back 19

stockholder's equity represented by each share of common stock; divide common stockholders' equity by number of common shares outstanding

Front 20

capital stock

Back 20

refers to common or preferred stock

Front 21

closely held corporation

Back 21

closely held corporation

Front 22

common stock

Back 22

basic rights of ownership, including the right to vote

Front 23

contributed/ paid-in capital

Back 23

amounts invested in a corporation by its stockholders

Front 24

dividend yield

Back 24

annual dividend payed to a share of stock, expressed as a percentage of stock's market value; indicates rate of return

Front 25

dividends

Back 25

distribution of assets by a corporation to its stockholders; cannot exceed the amount of retained earnings

Front 26

double taxation

Back 26

the fact that corporate income is taxed to the corporation when earned and then again to the stockholders when it is distributed

Front 27

legal capital

Back 27

equal to par value or stated value of capital stock issued

Front 28

par value/ stated value

Back 28

legal capital of a corporation; represents minimum amount per share invested in the corporation by its owners

Front 29

preferred stock

Back 29

has preferences to dividends and in the distribution of assets

Front 30

publicly owned corporation

Back 30

any corporation whose shares are offered for sale to the general public

Front 31

retained earnings

Back 31

owners' equity in a corporation that has accumulated through profitable business operations; increased by net income, decreased by net losses and dividends

Front 32

state of incorporation

Back 32

state in which a corporation is legally formed

Front 33

stock certificate

Back 33

document issued by corporation as evidence of ownership of shares

Front 34

stock registrar

Back 34

independent fiscal agent (e.g. a bank) retained by a corporation to provide assurance against over issuance of stocks

Front 35

stock split

Back 35

increase in number of shares of stock with a decrease in par value per share; reduces market price to make it more affordable to investors

Front 36

stock transfer agent

Back 36

bank or trust company retained by a corporation to maintain its records of capital stock ownership and make transfers from one investor to another

Front 37

stockholder subsidiary ledger

Back 37

a record showing the number of shares owned by each stockholder

Front 38

treasury stock

Back 38

shares of a corporation's stock that have been issued and then reacquired but not canceled; recorded by establishing a contra-equity account: Treasury Stock; no effect on net income

Front 39

date of record

Back 39

date on which a person must be listed as a shareholder to be eligible to receive a dividend; follows date of declaration by 2/3 weeks

Front 40

ex-dividend date

Back 40

a date three days prior to the date of record specified in a dividend declaration

Front 41

debenture vs. mortgage bond

Back 41

debenture- no collateral; mortgage- collateral

Front 42

municipal bonds

Back 42

exempt from taxes

Front 43

NOPAT

Back 43

net operating profit after taxes

Front 44

2 ways to raise capital

Back 44

borrow money (e.g. bonds) or take company public (i.e. make shares of stock publicly available for sale)

Front 45

IPO

Back 45

initial public offering- the first time a company offers shares of stock for public sale

Front 46

order of payment in case of bankruptcy

Back 46

secured creditors (e.g. mortgage bonds), unsecured creditors (e.g. debenture bonds), preferred stockholders, common stockholders

Front 47

callable

Back 47

refinancing preferred stock (and also bonds)

Front 48

convertible

Back 48

preferred stock can be converted into common stock at the option of the holder

Front 49

cumulative

Back 49

if any part of dividends on preferred stock is omitted, the amount must still be paid

Front 50

total paid-in capital

Back 50

legal capital + additional paid-in capital

Front 51

board of directors

Back 51

decides when to declare a dividend

Front 52

declaration date

Back 52

when the board gets together and decides to declare a dividend

Front 53

payment/ distribution date

Back 53

when the dividend is actually issued

Front 54

bonds vs. stock

Back 54

bonds- more stable, guaranteed to get money back, long-term n/p (usually $1000), no ownership, interest payments are tax deductible; stock- fluctuates, not guaranteed to get all money back, potential for greater return on investment, interest payments not tax deductible

Front 55

pros of corporations

Back 55

limited liability, transferability of ownership, professional management, continuity of existence

Front 56

cons of corporations

Back 56

heavy taxation (double taxation), greater regulation, cost of formation, separation of ownership and management

Front 57

amortization table

Back 57

a schedule that indicates how installment payments are allocated between interest expense and repayments of principal

Front 58

current vs. long term liabilities

Back 58

current= 1 year or less and expected to be paid from current assets; long term= greater than 1 year and either refinanced or paid from noncurrent assets

Front 59

coupon rate

Back 59

bond interest rates

Front 60

premium/ discount

Back 60

premium- dollar amount above par value, borrower will repay an amount less than the amount originally borrowed; discount- amount below par value, borrower will repay more than originally borrowed

Front 61

loss contingencies vs. liabilities

Back 61

loss contingencies involve a greater degree of uncertainty; extends not only to possible liabilities, but also to possible impairments of assets

Front 62

employer liabilites/ taxes

Back 62

Social Security, Medicare, workers' comp, federal and state unemployment taxes, health insurance, post-retirement benefits

Front 63

employee liabilites/ taxes

Back 63

state and federal income taxes, social security, medicare

Front 64

4 things shown in an amortization schedule

Back 64

amount of each payment, portion of payment representing interest expense, portion of payment that reduces the principal amount of the loan, and remaining unpaid balance

Front 65

present value

Back 65

less money now is better than more money later

Front 66

commitments

Back 66

contracts for future transactions (they are not liabilites); if material, often disclosed in notes

Front 67

journal entry for capital stock

Back 67

debit: asset account (for cash or market value of goods/services), credit: capital stock account (for par value of issued shares), excess credited to Additional Paid-In Capital account

Front 68

when is the liability (dividend) recorded?

Back 68

date of declaration

Front 69

how is the liability recorded?

Back 69

date of declaration: debit dividends, credit Dividends payayble; date of distribution: debit dividends payable, credit cash