Accounting Chapter 8

Front 1

accrued expense

Back 1

an expense incurred but not yet paid in cash. also called accrued liability

Front 2

accrued liability

Back 2

a liability for an expense that has not yet been paid. also called accrued expense.

Front 3

callable bond

Back 3

bonds that are paid off early at a specified price at the option of the issuer

Front 4

capital lease

Back 4

lease agreement in which the lessee assumes, in substance, the risks and rewards of asset owndership. in the US, a lease is assumed to be a capital lease if it meets any one of four criteria: 1) the lease tranfers title of the leased asset to the lessee. 2) the lease contains a bargain purchase option. 3) the lease term is 75% or more of the setimated useful life of the leased asset. 4) the present value of the lease payments is 90% or more of the market value of the leased asset

Front 5

convertible bonds (or notes)

Back 5

bonds or notes that may be converted into the issuing company's common stock at the investor's option

Front 6

current portion of long-term debt

Back 6

the amount of the principal that is payable within one year

Front 7

debentures

Back 7

unsecured bonds - bonds backed only by the good faith of the borrower

Front 8

discount (on a bond)

Back 8

excess of a bodn's face (par) value over its issue price

Front 9

earnings per share (EPS)

Back 9

amount of a compnay's net income per share of its outstanding common stock

Front 10

interest-coverage ratio

Back 10

another name for the times-interest-earned ratio

Front 11

lease

Back 11

rental agreement in which the tenant (lessee) agrees to make rent paymetns to the property owner (lessor) in exchange for the use of the asset

Front 12

lessee

Back 12

tenant in a lease agreement

Front 13

lessor

Back 13

property owner in a lease agreement

Front 14

leverage

Back 14

using borrowed funds to increase the return on equity. successful use of the leverage means earning more income on borrowed money than the related interest expense, thereby increasing the earnings for the owners of the business. also called trading on the equity.

Front 15

market interest rate

Back 15

interest rate that investors demand for loaning their money. also called effective interest rate

Front 16

operating lease

Back 16

a lease in which the lessee does not assume the risks or rewards of asset ownership

Front 17

payroll

Back 17

employee compensation, a major expense of many businesses

Front 18

pension

Back 18

employee compensation that will be received during retirement

Front 19

premium (on a bond(

Back 19

excess of a bond's issue price over its face (par) value

Front 20

present value

Back 20

amount a person would invest now to receive a greater amount at a future date

Front 21

serial bonds

Back 21

bonds that mature in installments over a period of time

Front 22

short-term notes payable

Back 22

note payable due within one year

Front 23

stated interest rate

Back 23

interest rate that determines the amount of cash interest the borrower pays and the investor receives each year

Front 24

term bonds

Back 24

bonds that all mature at the same time for a particular issue

Front 25

times-interest-earned ratio

Back 25

ratio of income from operations to interest expense. measures the number of times that operating income can cover interest expense. also called the interest-coverage ratio

Front 26

trading on the equity

Back 26

earning more income on borrowed money than the related interest expense, thereby increasing the earnings for the owners of the business. also called leverage

Front 27

underwriter

Back 27

organization that purchases the bonds from an issuing company and resells them to its clients or sells the bonds for a commission, agreeing to buy all unsold bonds.