Acct 229 Exam 3

Front 1

Current Liabilities

Back 1

liabilities expected to be paid within one year

Front 2

finding Working Capital

Back 2

CA - CL

Front 3

finding Current Ratio

Back 3

CA / CL

Front 4

examples of current liabilities

Back 4

1. Accounts Payable

2. short-term Notes Payable

3. Accrued Liabilities

4. Unearned Revenue

5. Current Maturities of long-term debt

6. Contingent Liabilities

Front 5

difference in AP and s-t Notes Pay

Back 5

s-t NP have more formal written contracts, state a due date, have interest associated with it

Front 6

interest-bearing short-term notes payable

Back 6

principle and interest are due at maturity

Front 7

non-interest bearing short-term notes payable

Back 7

interest is deducted in advance, called a "discount"

Front 8

how to record the issuance of an interest-bearing s-t notes payable

Back 8

dr cash for face value

cr notes payable for face value

Front 9

how to record issuance of a non-interest bearing s-t notes payable

Back 9

dr cash for carrying value

dr discount for (FV x disc %)

cr notes payable for face value

Front 10

how to record payment at maturity of an interest-bearing s-t notes payable

Back 10

dr notes payable for face value

dr interest expense for (FV x int %)

cr cash for (^ NP + Int Exp ^)

Front 11

how to record payment at maturity of a non-interest bearing s-t notes payable

Back 11

dr notes payable for face value

dr interest expense for (FV x disc %)

cr cash for face value

cr discount for (FV x disc %)

Front 12

how to find effective interest rate

Back 12

interest expense / cash received

Front 13

what is a contingent liability

Back 13

an estimated liability. outcome is not known with certainty and depends on some event that will occur in the future

Front 14

when to record a contingent liability

Back 14

If probable & $ can be estimated --> record

^^ & $ can't be est --> disclose in footnotes

if possible --> disclosure in footnotes

if remote --> no disclosure necessary

Front 15

how to record a contingent liability

Back 15

record at end of period

dr expense

cr estimated liability

Front 16

simple interest

Back 16

interest accrued over time on principle only

Front 17

compound interest

Back 17

principle plus accumulated interest earns interest in the future

Front 18

definition of present value

Back 18

The current value of an amount to be received in the future; a future amount discounted for compound interest

Front 19

definition of future value

Back 19

amount accumulated at a future time from a single payment or investment

Front 20

definition of "n"

Back 20

time period; number of compounding periods

Front 21

definition of "I"

Back 21

interest rate corresponding to the number of periods

Front 22

definition of ordinary annuity

Back 22

pmt or receipt made at the end of each period

Front 23

What are the headings of an amortization table in order?

Back 23

1. Date

2. interest expense

3. cash interest payment

4. amortization

5. carrying value

Front 24

definition of a bond

Back 24

long-term debt sold to creditors

Front 25

promises of a bond

Back 25

1. repayment of principal at maturity (face value of bond)

2. periodic interest payments (annual/semiannual/etc)

Front 26

definition of face value

Back 26

Par value. the denomination of the bond. amount due at maturity.

Front 27

coupon interest rate definition

Back 27

stated/face interest rate. fixed rate of interest that will be paid each interest payment. set by issuing company

Front 28

market interest rate definition

Back 28

effective interest rate. rate of interest that bondholders/investors could obtain by investing in other bonds that are similar to the issuing firm's bonds. set by bond market

Front 29

term bond definition

Back 29

all bonds mature on the same date

Front 30

serial bond definition

Back 30

bonds retire in installments

Front 31

debenture bonds definition

Back 31

unsecured. not backed by collateral. look at general credit worthiness of company

Front 32

secured bonds definition

Back 32

bonds backed by specific collateral

Front 33

callable bonds definition

Back 33

corporation reserves the right to buy them back early at a stated price (call price or redemption price) in order to save on interest

Front 34

convertible bonds definition

Back 34

can be exchanged for a stated number of shares of common stock

Front 35

advantages of issuing bonds vs stock

Back 35

1. debt doesn't dilute ownership

2. interest expense is tax deductible

Front 36

disadvantages of issuing bonds vs stock

Back 36

must have cash to repay principal and interest

Front 37

if a bond is sold at face/par value

Back 37

coupon = market

Front 38

if a bond is sold at a discount

Back 38

coupon < market

Front 39

if a bond is sold at a premium

Back 39

coupon > market

Front 40

how to find the selling price of a bond

Back 40

selling price = PV of face amount + PV of interest pmts

Front 41

what rate is used to find the amount of the cash interest payments

Back 41

coupon rate

Front 42

journal entry to record discounted bond on date of issuance

Back 42

dr cash

dr discount

cr bond payable

Front 43

how to find interest expense of a bond

Back 43

Carrying Value x market rate

Front 44

how to find cash interest pmt of a bond

Back 44

face value x coupon rate

Front 45

how to find discount/premium amort of a bond

Back 45

difference in interest expense and cash interest payment

Front 46

how to find carrying value of a discounted bond

Back 46

last CV + discount amort

Front 47

what's the effect of a discount

Back 47

1. increases the cost of borrowing (received less tofay, but must pay back face at maturity)

2. amort of discount increases interest expense because int exp is calculated based on CV and true cost of borrowing (market rate)

3. carrying value increases over life of bond until it reaches its face value at maturity

Front 48

ways to find total cost to borrow

Back 48

1. cash outflow vs inflow

2. add discount to cash interest pmt/subtract premium from cash int pmt

Front 49

Cash outflow vs cash inflow method

Back 49

(face value) + (total cash interest pmts) = cash out - (selling price/cash in) = total cost to borrow

Front 50

journal entry for premium bond on date of issuance

Back 50

dr cash

cr bond payable

cr premium

Front 51

what's the effect of premium

Back 51

1. premium reduces the cost of borrowing (received more up front and must pay back only face value at maturity)

2. amortization of premium reduces interest expense (market rate-the actual cost of borrowing-is less than coupon rate)

3. carrying value of bond is reduced over its life until it reaches face value at maturity

Front 52

relationship between bond prices and market interest rates

Back 52

inverse

Front 53

if a bond is originally sold at a premium and is now sold at a discount, then the market rates have ______

Back 53

increased, because bond price has decreased. the coupon doesn't change, only the market

Front 54

finding cash needed for callable bonds

Back 54

FV x call price

Front 55

determine gain/loss on retirement

Back 55

if repurchase price < carrying value, it's a gain (credit)

if repurchase price > CV, it's a loss (debit)

Front 56

advantage of issuing equity vs bonds

Back 56

1. ease of raising capital - shares of ownership are available to a large group of potential investors

2. dividend flexibility - dividends are not liability until declared by the board of directors

Front 57

disadvantages of issuing equity vs bonds

Back 57

1. control - could dilute our ownership control

2. no tax incentive - dividends are not tax-deductible

3. effect on key ratios - earnings per share goes down

Front 58

what are the two sources of equity capital

Back 58

contributed capital and earned capital

Front 59

SHE section of balance sheet

Back 59

Pref Stock

+ Common Stock

+ APIC (all)

= Total Contributed Capital

+ RE

- Treasury Stock

= Total SHE

Front 60

common stock rights

Back 60

1. voting

2. dividends

3. liquidation (after creditors, pref stock)

4. preemptive right - maintain percentage by buying a proportional number of future stocks

Front 61

authorized shares definition

Back 61

total number of shares that may be issued, set in the corporate charter

Front 62

issued shares definition

Back 62

total number of shares issued/sold to stockholders since formation

Front 63

outstanding shares definition

Back 63

number of shares held by outside stockholders (doesn't count treasury stock)

Front 64

treasury stock definition

Back 64

number of shares of the company's own stock that were issued to outside shareholers and are now held by the company

Front 65

par value definition

Back 65

nominal value per share established in the corporate charter

Front 66

journal entry on date of declaration of a dividend

Back 66

dr dividends

cr dividends payable

A (NE) = L (^) + SHE (v)

Front 67

journal entry on date of record of a dividend

Back 67

no accounting entry

Front 68

journal entry on date of payment of a dividend

Back 68

dr dividends payable

cr cash

A (V) = L(V) + SHE (NE)

Front 69

stock dividends

Back 69

issue additional shares of stock, each shareholder's % stays the same

Front 70

why issue a stock dividend

Back 70

1. may not have cash to declare cash dividend

2. not taxable income to the stockholder

3. more shares on the market, could lower prices to attract more investors

Front 71

effect of stock dividend

Back 71

1. no effect on total stockholder's equity

2. increases contributed capital

3. decreases retained earnings

Front 72

purpose of stock splits

Back 72

1. decrease market price of stock to attract investors

2. increase # of shares outstanding

3. decrease par value

Front 73

effect of stock splits

Back 73

1. no change in value of corp

2. no change in total SHE

3. no change in RE

Front 74

preferred stock rights

Back 74

1. dividend preference - receive before common stockholders

2. liquidation preference - after creditors, before common stockholders

3. no voting rights

Front 75

how to find earnings per share

Back 75

EPS = (net income - pref dividends)/(weighted avg number of common shares outstanding)