Flashcards in F10: Other Liabilities and Debt Covenants Deck (9)
Current liabilities are valued at ________, AKA ______.
Settlement value, AKA net realizable value
A purchase of goods/services on account may be recorded one of two ways:
1- Gross method
2- Net method
Gross method definition
-Record purchase without regard to discount
-If paid within the discount period, a purchase discount is credited
Net method definition
-Record purchase net of discount
-If paid within discount period, no adjustment necessary
-If paid after discount period, purchase discount is debited
How is the employer's share of payroll taxes accounted for?
What is the statement presentation of a discount or premium?
Asset or liability is shown net of it on the balance sheet
Debt covenants are used why?
To protect creditors' interest by limiting/prohibiting actions of debtors that might negatively affect the positions of the creditors
Common debt covenants
-Limitation on issuing additional debt
-Restrictions of payment of dividends
-Limitations on disposal of assets
-Minimum working capital requirements
-Limitations on how the borrowed money can be used
-Maintenance of specific ratios