Chapter #7 Flashcards
definition of current liabilities
obligations that are due within 1 year or less
long term liabilities
obligations that ared ue after 1 year
types of liabilities
estimate liabilities
definitely determinable liabilities
estimated liabilities
obligations that have some uncertainty in the amount to record for the obligations
e.g. warranty
definitely determinable liability
obligations that can be exactly measured
e.g. notes payable
what do companies provide warranties as
a sale or marketing tool
what kind of liability is created when a warranty expense is created
warranty payable
in which statement does warranty expense show up
income statement
as what kind of activity is the decrease in assets due to warranty payable recorded as
in the statement of cash flows as operating expense
long-term note payable
company borrows money from a bank for longer than a year
what does note payable include
principle
annual interest rate
due date or maturity date
term of the note -> how long is money borrowed for
steps of calculating mortgage rate
calculate interest for 1st year
subtract interest from annual cash payment = amount of mortgage reduction
subtract amount of mortgage reduction from original mortgage = mortgage for second year
same steps except use of mortgage of second year -> different interest…
what is a bond
interest bearing long-term note payable
issued by corporations, universities, governmental agencies
how are interests of bonds payable paid
semiannually
what does a bond certificate say
a promise to pay interest during the term of the bond and principle when bond is mature
bondholder receive those
what does a bond certificate include
principle
stated interest rate
maturity date
what is capital structure
combination of debts (borrowing of money) and equity (contributions of stockholders) to finance a business
what does the debt-to-equity ratio measure
company´s debt position and it´s ability to meet its interest
debt-to-equity-ratio
total liabilities/total shareholder´s equity
