Ch 10 Vocabulary Flashcards
(17 cards)
Bond
A type of long-term debt issued by large corporations, universities, and governments that involves a promise to repay a large amount of money at a fixed future date. p 522
Collateral
Assets pledged as security for the payment of a debt. p 503
Contingent liabilities
Existing or possible obligations arising from past events. The liability is contingent (dependent) on whether or not some uncertain future event occurs that will confirm either its existence or the amount payable, or both. p 509
Coupon interest rate
(also known as the contractual or stated interest rate) The rate stated in a bond certificate used to determine the amount of interest the borrower pays and the investor receives. p 522
Discount
The difference between a bond’s face value and its issue price when it is sold for less than it’s face value. This occurs when the market interest rate is higher than the coupon interest rate. p 525
EBIT
Earnings (profit) before interest expense and income tax expense. p 519
Effective-interest method
A method of amortizing a bond discount or premium that results in a periodic interest expense that equals a constant percentage ( the market or effective interest rate) of the bond’s carrying amount. Amortization is calculated as the difference between the interest expense and the interest paid. p 527
Employee benefits
Payments made by an employer for pension, insurance, health, and/or other benefits paid on behalf of its employees. p 505
Financial liability
A form of financial instrument, represented by a contractual obligation to pay cash in the future. p 511
Gross pay
The total compensation ( such as salaries or wages) earned by an employee. p 505
Market interest rate
(also known as the effective interest rate) The rate that investors demand for loaning funds to a corporation
Net pay
Gross pay less payroll deductions p 505
Operating line of credit
(also known as a credit facility) A pre-arranged agreement to borrow money at a bank, up to an agreed-upon amount. p 503
Payroll deductions
Deductions from gross pay to determine the amount of a paycheque. p 505
Premium
The difference between the issue price and the face value of a bond when a bond is sold for more than its face value. This occurs when the market interest rate is less than the coupon interest rate. p 525
Provisions
Liabilities of uncertain timing or amount. They are recorded in the accounts based on reasonable and probable estimates. p 509
Times interest earned
A measure of a company’s solvency, calculated by dividing profit (earnings) before interest expense and income tax expense (EBIT) by interest expense. p 519
