Chapter 8 Financial Accounting Flashcards Preview

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Flashcards in Chapter 8 Financial Accounting Deck (49):
1

What are 2 other names for principal (In Bond Terms)

Face Value
Par Value

2

What lease would we want and why?

Operational lease because we do not have to share a lot of information from an accounting standpoint

3

Issuing Bonds at a Premium

If stated interest rate of bonds is greater that market interest rate, bondholders will pay MORE than face value for bond

4

Unsecured (debenture) Bonds

Backed only by the good faith of the issuing company

5

Interest Expense on Bonds Issued at a Premium

The company pays interest based on only the face value even though it received more than face value

6

Lease

Rental agreement in which tenant agrees to make rent payments to the property owner

7

Unearned Revenues

Customers makes payments before receiving product or service

8

Current Liabilities

Obligations due with one year of balance sheet date

9

What are 4 types of bonds?

Term Bonds
Serial Bonds
Secured (mortgage) bonds
Unsecured (debenture) bonds

10

What does Carrying Amount =

Face Value
Less Discount Balance

11

Lessor

The person who owns the property

12

Interest (In Bond Terms)

Company must pay bondholders interest in regular intervals over the term of the bond

13

What 3 things does the Stated Interest Rate include?

Printed on the bond certificate
Determines amount of cash interest
Remains Constant

14

What are 3 characteristics of Operating Lease?

Usually short term or cancelable
Lessor retains risk and rewards of owning asset
Lessee records rent expense when payments are made

15

Estimated Warranty Payable

Companies guarantee products through warranty agreements

16

Market Interest Rate

Rate investors demand for loaning money which changes frequently

17

Time Value of Money

When money has more value if you hold it in your hand rather than the future

18

Interest Expense on Bonds Issued at a Discount

The company must pay interest based on the face value even though it received less than face value

19

Term Bonds

All bonds in an issue mature at one specific date

20

When accounting for Contingent Liabilities, the chances of future events being assessed as UNLIKELY what happens to the accounting?

Do not report

21

Bonds Payable

Groups of notes payable issued to multiple lenders called bondholders

22

Short Term Notes Payable

Common form of financing where company incurs interest expense

23

When a company raises money by issuing bonds or notes what 3 things happen?

Does not dilute control of company
Results in higher earnings per share
More debt increases risk

24

What are the 2 categories of Leases

Operating
Capital

25

Principal (In Bond Terms)

Amount borrowed and usually in $1000 units

26

Sales Tax Payable

Tax levied by state on retail sales which company collects from customer and pays to government

27

Convertible Bonds

Bondholders may exchange bonds for companies stock

28

In order to raise capital, what do companies do?

Sell bonds to public

29

Warranty Expense

Estimated in same period as sale of product and follows the matching principle

30

When accounting for Contingent Liabilities, the chances of future events being assessed as probable what happens to the accounting?

Record liability if amount can be estimated

31

If a company needs funds, what 2 ways can they raise money?

Issuing Stock
Issuing Bonds or Notes

32

Accounts Payable

Amount owed for products and services purchased on account

33

Contingent Liabilities

Potential liability that depends on a future event arising out of past events

34

When a company raises money by issuing stock what 3 things happen?

No liabilities or interest expense
Less risky
More Costly

35

Serial Bonds

Bonds in the issue mature installments

36

Underwriter (In Bond Terms)

A securities firm that purchases the bond issue and resells to clients

37

Secured (mortgage) Bonds

Bondholders have right to company assets if interest and principal is not paid

38

Issuing Bonds at a Discount

If stated interest rate of bonds is less than market interest rate, bondholders will not pay face value for bond

39

What are 2 differences between Bond Premium and Bond Discount?

Bond Premium
- issued price above face value
- stated rate of interest is greater than market rate of interest

Bond Discount
- Issue price below face value
- stated rate of interest is less than market rate of interest

40

What is an example of a Long Term Liability?

Bonds

41

What are the 2 current liabilities that are estimated or amount is unknown?

Estimated Warranty Payable
Contingent Liabilities

42

What is attractive to investors in terms of convertible bonds?

Investors like lower interest rates

43

What is are 2 examples of an operating lease?

A college student signing a lease for an apartment
- An airline renting a plane

44

When accounting for Contingent Liabilities, the chances of future events being assessed as REASONABLY probable what happens to the accounting?

Include in notes to financial statements

45

Payroll Liabilities

Salaries and wages paid to employees which includes income taxes

46

Accrued Liabilities

Expense incurred but not yet paid, which is often an adjusting entry that includes salaries and interest payable

47

What are 6 Current Liabilities of Known Account?

Accounts Payable
Short Term Notes Payable
Sales Tax Payable
Accrued Liabilities
Payroll Liabilities
Unearned Revenues

48

Lessee

The person who takes out the lease

49

Maturity Date

Date bond is due, which is mainly due in terms of 5, 10 or 20 years

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