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Flashcards in Part 3 Review Deck (75)
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1

How do you calculate interest on notes payable?

Face value x Annual interest rate x Fraction of year

2

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)

3

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

4

A(n) ___ is an existing uncertain situation that might result in a loss depending on the outcome of a future event.

Contingent Liability

5

A contingent liability is recorded only if: The loss is ___ and the amount is ___.

Probably; Reasonably estimable

6

A disclosure is required only if a contingent liability can not be recorded and likelihood of payment is at least ___.

Reasonably possible

7

How is a contingent liability recorded?

Debit Loss; Credit Contingent Liability

 

8

What is the amount used when recording a contingent liability?

Lower amount of dollar range

9

What should be disclosed when recording a contingent liability?

Dollar amount of range

10

In order to record a warranty, the likelihood of payment must be ___ and the amount of payment must be ___.

Probable; Reasonably estimable

11

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)

12

When recording actual warranty expenditures, what journal entry should be recorded?

Debit Warranty Liability; Credit Cash

(Amount = actual warranty claims)

13

When should a contingent gain be recorded?

When the gain is certain

14

___ 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.

Vertical Analysis

15

___ is analyzing trends in financial statement data for a single company over time.

 

%Increase/Decrease = (Current-year amount - Prior-year amount) / (Prior-year amount)

Horizontal Analysis

16

How is liquidity indicated?

Current assets divided by current liabilities 

17

Gross Profit Ratio =

Gross Profit divided by Net Sales

18

Profit Margin = 

Net Income divided by Net Sales

19

___ is the mixture of liabilities and stockholders' equity a business uses.

Capital Structure

20

___ is borrowing money

Debt financing

21

___ is obtaining investment from stockholders

Equity financing

22

___ indicates what proportion of equity and debt the company is using to finance its operations.

Debt to equity ratio

23

Debt to equity ratio = 

Total liabilities divided by equity

24

___ are loans that require payment in monthly or quarterly installments rather than by a single amount at maturity.

Installment Notes

25

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)

26

___ bonds are backed by collateral.

Secured

27

___ bonds are not backed by collateral.

Unsecured

28

A(n) ___ bond issue matures on a single date

Term

29

A(n) ___ bond issue matures in installments.

Serial

30

A(n) ___ bond can be paid off early by the borrower.

Callable