Chapter 8 Financial Accounting

Question 1

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

Answer 1

Face Value

Par Value

Question 2

What lease would we want and why?

Answer 2

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

Question 3

Issuing Bonds at a Premium

Answer 3

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

Question 4

Unsecured (debenture) Bonds

Answer 4

Backed only by the good faith of the issuing company

Question 5

Interest Expense on Bonds Issued at a Premium

Answer 5

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

Question 6

Lease

Answer 6

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

Question 7

Unearned Revenues

Answer 7

Customers makes payments before receiving product or service

Question 8

Current Liabilities

Answer 8

Obligations due with one year of balance sheet date

Question 9

What are 4 types of bonds?

Answer 9

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

Question 10

What does Carrying Amount =

Answer 10

Face Value

Less Discount Balance

Question 11

Lessor

Answer 11

The person who owns the property

Question 12

Interest (In Bond Terms)

Answer 12

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

Question 13

What 3 things does the Stated Interest Rate include?

Answer 13

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

Question 14

What are 3 characteristics of Operating Lease?

Answer 14

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

Question 15

Estimated Warranty Payable

Answer 15

Companies guarantee products through warranty agreements

Question 16

Market Interest Rate

Answer 16

Rate investors demand for loaning money which changes frequently

Question 17

Time Value of Money

Answer 17

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

Question 18

Interest Expense on Bonds Issued at a Discount

Answer 18

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

Question 19

Term Bonds

Answer 19

All bonds in an issue mature at one specific date

Question 20

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

Answer 20

Do not report

Question 21

Bonds Payable

Answer 21

Groups of notes payable issued to multiple lenders called bondholders

Question 22

Short Term Notes Payable

Answer 22

Common form of financing where company incurs interest expense

Question 23

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

Answer 23

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

Question 24

What are the 2 categories of Leases

Answer 24

Operating

Capital

Question 25

Principal (In Bond Terms)

Answer 25

Amount borrowed and usually in $1000 units

Question 26

Sales Tax Payable

Answer 26

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

Question 27

Convertible Bonds

Answer 27

Bondholders may exchange bonds for companies stock

Question 28

In order to raise capital, what do companies do?

Answer 28

Sell bonds to public

Question 29

Warranty Expense

Answer 29

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

Question 30

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

Answer 30

Record liability if amount can be estimated

Question 31

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

Answer 31

Issuing Stock | Issuing Bonds or Notes

Question 32

Accounts Payable

Answer 32

Amount owed for products and services purchased on account

Question 33

Contingent Liabilities

Answer 33

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

Question 34

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

Answer 34

No liabilities or interest expense Less risky More Costly

Question 35

Serial Bonds

Answer 35

Bonds in the issue mature installments

Question 36

Underwriter (In Bond Terms)

Answer 36

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

Question 37

Secured (mortgage) Bonds

Answer 37

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

Question 38

Issuing Bonds at a Discount

Answer 38

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

Question 39

What are 2 differences between Bond Premium and Bond Discount?

Answer 39

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

Question 40

What is an example of a Long Term Liability?

Answer 40

Bonds

Question 41

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

Answer 41

Estimated Warranty Payable | Contingent Liabilities

Question 42

What is attractive to investors in terms of convertible bonds?

Answer 42

Investors like lower interest rates

Question 43

What is are 2 examples of an operating lease?

Answer 43

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

Question 44

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

Answer 44

Include in notes to financial statements

Question 45

Payroll Liabilities

Answer 45

Salaries and wages paid to employees which includes income taxes

Question 46

Accrued Liabilities

Answer 46

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

Question 47

What are 6 Current Liabilities of Known Account?

Answer 47

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

Question 48

Lessee

Answer 48

The person who takes out the lease

Question 49

Maturity Date

Answer 49

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