Chapter 10

Question 1

accrued liabilities

Answer 1

the responsibility to pay an expense that has built up over time

Question 2

actuary

Answer 2

a statistician who performs calculations related to human lifespans. i.e. computing company liabilities for pensions and post-retirement benefits

Question 3

amortization table

Answer 3

a schedule that indicates installment payments divided into interest payments and payment of principal

Question 4

bankruptcy

Answer 4

legal status of a business that has no cash or immediately liquid assets. usually managed by the U.S. Bankruptcy Court.

Question 5

bonds payable

Answer 5

long-term debt security that subdivides large amounts debts into manageable transferable $1000 dollar increments

Question 6

capital lease

Answer 6

a lease contract with the intent of the lessee to eventually purchase the leased property. recorded as an asset

Question 7

collateral

Answer 7

assets that have been marked to cover specific liabilities. can be seized if the borrower is unable to repay creditor

Question 8

commitments

Answer 8

agreements to fulfill future transactions. they are not recorded as a liability since the transaction has not occurred yet, but they may be recorded in notes to the financial statement

Question 9

convertible bond

Answer 9

bond that may be traded for a specific number of a company’s stock shares

Question 10

debt service

Answer 10

combined cash required for repayment of both the principal and interest for a specific period

Question 11

deferred income taxes

Answer 11

liability account to pay income taxes hat have been pushed back to a future years income tax return

Question 12

estimated liabilities

Answer 12

liabilities that are known to exist but must be recorded as estimated amounts

Question 13

junk bonds

Answer 13

bonds that involve a larger risk of default. they must pay higher than normal interest rates in order to look more attractive to investors

Question 14

lessee

Answer 14

the tenant or person who pays to rent the leased property

Question 15

lessor

Answer 15

the person who owns the leased property and leases it to someone else

Question 16

leverage

Answer 16

when a company uses borrowed money to finance operations

Question 17

loss contingency

Answer 17

situations where it is uncertain whether a loss will occur and a future event will resolve the uncertainty. i.e. lawsuits. disclosed in notes

Question 18

maturity date

Answer 18

date which the liability becomes due

Question 19

off-balance sheet financing

Answer 19

arrangement where resources are financed without obligation for future payments such as an operating lease

Question 20

operating lease

Answer 20

basically a rental agreement. the lessor retains most of the risk and reward

Question 21

payroll taxes

Answer 21

taxes imposed on an employer based on employee salary and wages. includes social security, medicare, unemployment taxes and workers comp.

Question 22

pension fund

Answer 22

fund managed by independent trustee where the company makes periodic payments. used to make pension payments to retired employees

Question 23

post retirement benefits

Answer 23

benefits payed to retired workers.

Question 24

present value of future amount

Answer 24

amount of money an investor would pay today to receive a future amount based on rate of return

Question 25

principal amount

Answer 25

unpaid balance of obligation that does not include any interest charges for that period

Question 26

sinking fund

Answer 26

cash set aside by a company used to repay bond issues at maturity date

Question 27

special purpose entity

Answer 27

entities that are established by corporations to accomplish specific purposes. often used to borrow money and transfer it to the sponsor as an off-balance sheet fund.

Question 28

underwriter

Answer 28

investment banking firm that handles the sale of corporate stocks and bonds to customers

Question 29

workers’ comp

Answer 29

state-mandated insurance program insuring victims of job-related injuries. usually funded by a small percentage of each employee’s wages/salaries