How do you calculate interest on notes payable?
Face value x Annual interest rate x Fraction of year
How would you record the year-end adjusting entry for interest payable?
Debit interest expense, Credit interest payable.
(Amount = face value x interest rate x fraction of year)
How would you record the repayment of a note?
Debit Notes Payable (face value), Interest Expense (face value x interest rate x fraction of current year), and Interest Payable (face value x interest rate x fraction of previous year); Credit Cash
A(n) ___ is an existing uncertain situation that might result in a loss depending on the outcome of a future event.
A contingent liability is recorded only if: The loss is ___ and the amount is ___.
Probably; Reasonably estimable
A disclosure is required only if a contingent liability can not be recorded and likelihood of payment is at least ___.
How is a contingent liability recorded?
Debit Loss; Credit Contingent Liability
What is the amount used when recording a contingent liability?
Lower amount of dollar range
What should be disclosed when recording a contingent liability?
Dollar amount of range
In order to record a warranty, the likelihood of payment must be ___ and the amount of payment must be ___.
Probable; Reasonably estimable
When recording liability for warranties, what journal entry should be recorded?
Debit Warranty Expense; Credit Warranty Liability
(Amount = Total sales for month x % estimated to be warranty costs)
When recording actual warranty expenditures, what journal entry should be recorded?
Debit Warranty Liability; Credit Cash
(Amount = actual warranty claims)
When should a contingent gain be recorded?
When the gain is certain
___ is expressing each item in a financial statemnet as a percentage of the same base amount. For example, income statement items expressed as a percentage of sales, or balance sheet itmes expressed as a percentage of total assets.
___ is analyzing trends in financial statement data for a single company over time.
%Increase/Decrease = (Current-year amount - Prior-year amount) / (Prior-year amount)
How is liquidity indicated?
Current assets divided by current liabilities
Gross Profit Ratio =
Gross Profit divided by Net Sales
Profit Margin =
Net Income divided by Net Sales
___ is the mixture of liabilities and stockholders' equity a business uses.
___ is borrowing money
___ is obtaining investment from stockholders
___ indicates what proportion of equity and debt the company is using to finance its operations.
Debt to equity ratio
Debt to equity ratio =
Total liabilities divided by equity
___ are loans that require payment in monthly or quarterly installments rather than by a single amount at maturity.
What journal entry is made when recording a monthly payment of an installment loan?
Debit Interest Expense (Carrying value x interest rate x 1/12); Debit Notes Payable (difference); Credit Cash (monthly payment)
___ bonds are backed by collateral.
___ bonds are not backed by collateral.
A(n) ___ bond issue matures on a single date
A(n) ___ bond issue matures in installments.
A(n) ___ bond can be paid off early by the borrower.