Chapter 18 Flashcards
The payment of an operating expense necessary to earn revenue
Revenue expenditure
Obtaining capital by borrowing money for a period of time
Debt financing
A bank loan agreement that provides immediate short-term access to cash
Line of credit
Interest rate charged to the banks most credit worthy customers
Prime interest rate
Interest incurred on borrowed funds
Interest Expense
expenses that are not related to a business’s normal operations
Non-operating expenses
Purchases of plant assets used in the operation of the business
Capital expenditures
Assets pled to a creditor to guarantee repayment of the loan
Collateral
A long-term promise to pay a specified amount on a specified date to pay interest as stated intervals
Bond
All bonds representing the total amount of the loan
Bond issue
The interest-rate used to calculate periodic interest payments on a bond
Stated interest rate
Obtaining capital buy issuing additional stock in a corporation
Equity financing
A value assigned to a share of stock
Par value
The date on which a business issued a note bond or stock
Issue date
A. Class of stock that gives the share holders preference over common share holders in dividends along with other rights
Preferred stock
The ratio of interest and dividend payments to the proceeds from debt and capital financing
Cost of capital
The ability of a business to use borrowed funds to increase its earnings
Financial leverage
A line of credit provide a business immediate access to cash to pay for unexpected emergencies such as repairs from storm damage
True
Interest rates are often based on the prime interest rate
True
A line of credit does not have to be paid as long as the business pays monthly interest
False
A business that is unable to pay its account when due may be asked to sign a promissory note
True
A business should sign for an extension of time on an account payable rather than borrow funds against a line of credit or obtain a loan
False
The Portion of net income not paid as a dividend is an internal source of capital
True
A loan application should I clue a business plan describing how the borrowed funds will be used and how the will be repaid
True
Of the borrow is unable to repay the loan the creditor can take the collateral and sell it pay off the debt
True
A portion of the monthly payment on a note payable reused the outstanding loan principal
True
Bonds generally have extended terms such as 5 10 or 20 years
True
A corporation usually sells its bonds directly to individual investors on a public securities exchange
True
The race value is the amount to be repaid at the end of the bond term
True
A corporation makes bond interest payments by writing a single file check to its agent who then writes individual checks to the bond holders
True
An advantage of selling stock is that the addition capital becomes part of a corporations permanent capital
True
A disadvantage of selling stock of that the dividends must be paid to the stockholders
False
A disadvantage of selling stock is that the ownership is spread over more shores and more owners
True
Preferred stock is typically described by referring to the stocks dividend rate and par value
True
Unpaid dividends on preferred stock may have to be paid before common stockholders receive any dividends
True
A business should only raise capital if the projected increase in earnings exceeds the cost of capital
True
Debt financing is often extended for a term similar to the useful life of the assets purchased
True
The spreading of the control over the business through the issuance of new stock is known as loss of control
False
A business having a high level of debt is said to be highly leveraged
True
Drew cash on line of credit
CR journal
Debit cash
Credit line of credit
Signed s note to start company for an extension of time on its account payable
G journal
Debit acts pay and acts pay stark
Credit long term notes pay
Paid cash for the maturity value of a note
Cp journal
Debit interest expense and long term notes pay
Credit cash
Singed a bank note
CR
debit cash
Credit long term notes pay
Paid cash for monthly loan payment
CP
Debit long term notes pay and interest expense
Credit cash
Issued bondsy
CR
Debit cash
Credit bonds pay
Paid cash for interest on bonds
CP
Debit interest expense
Credit cash
Sold common stock at par value
CR
Debit cash
Credit capital stock common
Sold common stock at above its par value
CR
Debit cash
Credit capital stock common and paid in capital in excess of par common
Sold preferred stock at par value
CR
Debit cash
Credit capital stock preferred
