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39 Cards in this Set
- Front
- Back
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Nominal Accounts
(closed out at end of year) |
Revenues, Expenses, Gains, Losses, Dividends
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Permanent Accounts
(shown on year-end balance sheet) |
Assets, Liabilities, permanent Stockholder's Equity accounts
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Net Accounts Receivable =
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Accounts Receivable - Allowance for Doubtful Accounts
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Bad Debt Expense estimated in two ways:
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Percentage of Credit Sales Method- based on historical % of credit sales resulting in bad debt
Aging of Accounts Receivable Method- the older they are the less likely they are paid (estimated ending balance) |
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Problems with large inventory
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storage costs, theft, spoilage, TYING UP CASH
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Reporting Ending Inventory under LIFO gives value _______ true economic value of inventory.
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farthest
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LIFO produces lower income & lower inventory when....
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unit costs are rising
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FIFO produces lower income & lower inventory when..
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unit costs are falling
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Market to Book Ratio
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FIFO- close to 1
LIFO- more than 1 |
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LAND IS ______ DEPRECIATED
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NEVER
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Net book value =
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acquisition cost - accumulated depreciation
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Depreciation Expense causes _____ taxes
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LESS
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Change in Estimate of Residual or Useful Life of Inventory
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(New book value - new residual value)/remaining years
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Impairment Loss
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Loss Due to Impairment (+Loss, -SE).......xxx
Flight Equipment (-A)......xxx |
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Deferred Revenues
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collected but not yet earned
(ex. magazine subscription) |
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2 Ways to Finance Capital
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Equity and Bonds
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(+) Bonds
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1. Stockholders maintain control
2. Interest expense is tax deductible 3. Impact on earnings is positive |
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(-) Bonds
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1. Risk of bankruptcy
2. Negative impact on cash flows 3. Must pay the interest, even if you have a loss in the company |
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Senior Debt
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In the event of bankruptcy or default, senior debt gets preference
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Par Value/bond principal/face amount
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Amount payable at maturity date (the amount the payee originally gave)
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Bond Indenture
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Specifies legal provisions of the bond
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Junk Bond
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Bond that is below a certain point; risky and not advisable
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Term Bonds
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All mature over the same time
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Serial Bonds
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Mature in order, over time
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Default Risk (bonds)
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Risk that bond issuer will not be able to meet requirements
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Recourse (bonds)
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A lender's right to seek payment from someone else if the borrower defaults
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Bonds Issued at Discount
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1. When market rate of interest is higher than stated
2. Present value is used to find issue price |
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Straight Line Amortization
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allocates equal dollar amount each period
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Effective Interest - Interest Expense
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current unpaid balance x market rate on day of sale
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Bonds Issued at Premium
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Market Rate < Issue Rate
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Legal Capital
(ch. 11) |
Permanent amount of capital defined by state law that must remain invested in the business
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IPO
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Very first sale of stock to the public
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Reasons to buy back Treasury Stock
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1. Issue to employees with stock options
2. Buying them back increases market price per share 3. Undervalued stock can be sold for higher value 4. Prevent hostile takeover 5. Increases earnings per share |
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1. Declaration Date
2. Record Date 3. Payment Date |
1. Date on which board of directors officially approves dividend
2. Date on which the corporation prepares a list of current stockholders based on its records (NO JOURNAL ENTRY) 3. Date on which the cash is disbursed to pay the dividend liability |
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2 Fundamental Requirements for Payment of Cash Dividends
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1. Sufficient Retained Earnings to cover amount of dividend
2. Sufficient cash to pay dividend AND meet operating needs of business |
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Ex-dividend Date
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2 days before Date of Record
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Stock Dividend
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1. stockholder owns same VALUE of stock as before
2. no change in par value 3. Small (<25%) recorded at current market value 4. Large (>25%) recorded at the par value |
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Stock Split
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1. Total number of authorized shares increases
2. Reduction in par value (compensates for increase in number of shares) 3. No change in total par value |
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Stock Option
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Right to purchase a fixed number of shares at a set price during a specified period of time
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