Accounting Chapter 8

Front 1

Accrued Expense

Back 1

An expense incurred but not yet paid in cash. AKA accrued liability.

Front 2

Accrued Liability

Back 2

A liability for an expense that has not yet been paid. AKA accrued expense.

Front 3

Bonds payable

Back 3

Groups of notes payable issued to multiple lenders called bondholders.

Front 4

Callable bond

Back 4

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

Front 5

Capital lease

Back 5

Lease agreement in which the lessee assumes, in substance, the risks and rewards of asset ownership. In the USA, a lease is assumed to be a capital lease if it meets one of the following criteria: 1: the lease transfers title of the leased asset to...

Front 6

Convertible bonds

Back 6

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

Front 7

Current portion of long-term debt

Back 7

The amount of principal that is payable within one year.

Front 8

debentures

Back 8

Unsecured bonds--bonds backed only by the good faith of the borrower.

Front 9

Discount (on a bond)

Back 9

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

Front 10

Earnings per share (EPS)

Back 10

Amount of a company's net income per share of its outstanding common stock.

Front 11

interest-coverage ratio

Back 11

Another name for the times-interest-earned ratio.

Front 12

lease

Back 12

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

Front 13

Lessee

Back 13

tenant in lease agreement.

Front 14

Lessor

Back 14

property owner in lease agreement.

Front 15

Leverage

Back 15

Using borrowed funds to increase the return on equity. Successful use of 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 eq...

Front 16

Market interest rate

Back 16

Interest rate that investors demand for loaning their money. AKA effective interest rate.

Front 17

Operating lease

Back 17

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

Front 18

Payroll

Back 18

Employee compensation, a major expense of many businesses.

Front 19

Pension

Back 19

Employee compensation that will be received during retirement.

Front 20

Premium (on a bond)

Back 20

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

Front 21

Present value

Back 21

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

Front 22

Serial bonds

Back 22

Bonds that mature in installments over a period of time.

Front 23

Short-term notes payable

Back 23

Notes payable due within one year

Front 24

Stated interest rate

Back 24

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

Front 25

Term bonds

Back 25

Bonds that mature at the same time for a particular issue

Front 26

Times-interest-earned ratio

Back 26

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 27

Trading on the equity

Back 27

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

Front 28

Underwriter

Back 28

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.

Front 29

Unsecured bonds.

Back 29

aka Debentures, are backed only by the good faith of the borrower.

Front 30

Types of bonds

Back 30

Serial bonds, debentures, term bonds

Front 31

Term Bonds

Back 31

All the bonds in a particular issue mature at the same time

Front 32

Serial Bonds

Back 32

Bonds mature in installments over a period of time

Front 33

The Discount on Bonds Payable account

Back 33

is a contra account to Bonds Payable