Chapter 10

Question 1

define property tax

Answer 1

Based on specified rate for every 100 of asset value of property
invoices issued in March

Question 2

What 3 liabilities does an employer incur related to the employees salary/ wages?

Answer 2

• net pay owed to employees
• employee payroll deductions
• employer payroll obligations

Question 3

What does net pay equal?

Answer 3

gross pay(money employee earns) - deductions( EI, CPP, federal tax)

Question 4

define provisions

Answer 4

uncertain cost and timing liabilities

Question 5

What are the 3 characteristics of provisions

Answer 5

• must be present obligation from past event
• must require probable outflow
• company has to be able to estimate amount of obligation
• *needs all 3 to be recorded on balance sheet

Question 6

define contingent liability

Answer 6

existing or possible obligations as a result from past events.

Question 7

what are the three options when recording a contingent liability?

Answer 7

• do nothing, unlikely
• disclose in the notes, likely but unknown amount
• record liability, likely and known amount

Question 8

what are the characteristics of fixed principal

Answer 8

• equals total amount to pay back/ total number of payments
• reduction of principal is consistent every period
• interest paid on every payment will decrease as the principal is decreasing

Question 9

what are the characteristics of blended payments?

Answer 9

• total payment stays consistent but each component changes

- repaid in equal, periodic amounts including interest

Question 10

What does it mean when a bond is issued at a discount? Face Value? Premium?

Answer 10

face value: coupon rate = market rate

discount: coupon rate < market rate
premium: coupon rate > market rate

Question 11

How to calculate PMT?

Answer 11

Coupon Rate x Face Value/ payments per year

Question 12

What is the formula for the discount to amortize?

Answer 12

Interest Payment - Interest Expense

Question 13

What is the formula for the interest expense?

Answer 13

Carrying amount x Market interest rate

Question 14

What is implicated by a bond being offered at a discount?

Answer 14

• Interest Expense higher than the actual interest paid
• bonds issued below face value
• less attractive to investor than market
• gives discount to investor to make bond equally as attractive as market

Question 15

What is implicated by a bond being offered at a premium?

Answer 15

• more attractive to investor than market
• charge premium to investor to make bond equally as attractive as market
• bond issued above face value
• Interest expense lower than actual interest paid