Chapter 7: Liabilities Flashcards

1
Q

Liabilities

A

Obligations of the entity;
probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events

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2
Q

working capital loan

A

A short-term loan that is expected to be repaid from collections of accounts receivable.

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3
Q

maturity date

A

The date when a loan is scheduled to be repaid.

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4
Q

revolving line of credit

A

A loan on which regular payments are to be made but which can be quickly increased up to a predetermined limit as additional funds are borrowed.

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5
Q

note payable

A

A liability that arises from issuing a note; a formal promise to pay a stated amount at a stated date, usually with interest at a stated rate and sometimes secured by collateral. Can be short-term or long-term.

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6
Q

prime rate

A

The interest rate charged by banks on loans to large and most creditworthy customers; a benchmark interest rate.

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7
Q

discount loan

A

A loan on which interest is paid at the beginning of the loan period.

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8
Q

interest calculation—straight basis

A

Interest calculation in which the principal is the amount of money made available to the borrower. Principal and interest are normally repaid by the borrower at the maturity date, although interest may be paid on an interim basis as well.

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9
Q

annual percentage rate (APR)

A

The effective (true) annual interest rate on a loan.

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10
Q

interest calculation—discount basis

A

Interest calculation in which the interest (called discount) is subtracted from the principal to determine the amount of money (the proceeds) made available to the borrower. Only the principal is repaid at the maturity date because the interest is, in effect, prepaid.

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11
Q

interpolating

A

A mathematical term that describes the process of interpreting and relating two factors from a (present value) table to approximate a third factor not shown in the table.

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12
Q

proceeds

A

The amount of cash (or equivalent value) received in a transaction.

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13
Q

contra liability

A

An account that normally has a debit balance that is subtracted from a related liability on the balance sheet.

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14
Q

current maturity of long-term debt

A

Principal payments on long-term debt that are scheduled to be paid within one year of the balance sheet date.

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15
Q

account payable

A

A liability representing an amount payable to another entity, usually because of the purchase of merchandise or a service on credit.

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16
Q

unearned revenue (deferred credit)

A

A liability arising from receipt of cash before the related revenue has been earned.

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17
Q

gross pay

A

The total earnings of an employee for a payroll period.

18
Q

net pay

A

Gross pay less payroll deductions; the amount the employer is obligated to pay to the employee.

19
Q

FICA tax

A

Federal Insurance Contribution Act tax used to finance federal programs for old age and disability benefits (Social Security) and health insurance (Medicare).

20
Q

capital structure

A

mix of debt and stockholder’s equity used to finance the acquisition of the firm’s assets

21
Q

long-term debt

A

A liability that will be paid more than one year from the balance sheet date

22
Q

financial leverage

A

The use of debt (with a fixed interest rate) that causes a difference between return on investment and return on equity.

23
Q

bond or bond payable

A

A long-term liability with a stated interest rate and maturity date, usually issued in denominations of $1,000.

24
Q

face amount

A

The principal amount of a bond.

25
Q

bond premium

A

The excess of the market value of a bond (the proceeds of a bond issue) over the face amount of the bond(s) issued.

26
Q

bond discount

A

The excess of the face amount of a bond over the market value of a bond (the proceeds of the issue).

27
Q

stated rate/coupon rate

A

The rate used to calculate the amount of interest payments on a bond.

28
Q

callable bonds

A

Bonds that can be redeemed by the issuer, at its option, prior to the maturity date.

29
Q

call premium

A

An amount paid in excess of the face amount of a bond when the bond is repaid prior to its established maturity date.

30
Q

bond indenture

A

The formal agreement between the borrower and investor(s) in bonds.

31
Q

trustee of bonds

A

The agent who coordinates activities between the bond issuer and the investors in bonds.

32
Q

registered bond

A

A bond for which the owner’s name and address are recorded by the issuer and/or trustee.

33
Q

coupon bond

A

A bond for which the owner’s name and address are not known by the issuer and/or trustee. Interest is received by clipping interest coupons that are attached to the bond and submitting them to the issuer. Coupon bonds, or bearer bondsor unregistered bonds,are no longer issued, although some are still outstanding.

34
Q

debenture bonds or debentures

A

Bonds secured by the general credit of the issuer but not secured by specific assets.

35
Q

mortgage bond

A

A bond secured by a lien on real estate.

36
Q

collateral trust bond

A

A bond secured by the pledge of securities or other intangible property.

37
Q

term bond

A

A bond that is to be repaid in one lump sum at the maturity date.

38
Q

serial bond

A

A bond that is to be repaid in installments

39
Q

convertible bond

A

A bond that can be converted to common stock of the issuer at the bondholder’s option.

40
Q

deferred tax liability

A

A long-term liability that arises because of temporary differences between when an item (principally depreciation expense) is recognized for book and tax purposes.

41
Q

noncontrolling (minority) interest

A

The portion of equity in a less than 100 percent owned subsidiary not attributable, directly or indirectly, to the parent company; frequently called minority interest. Reported within equity, but separate from the parent company’s equity, in the consolidated balance sheet; previously reported as a liability by most companies.

42
Q

contingent liability

A

A potential claim on a company’s resources (i.e., loss) that depends on future events; must be probable and reasonably estimable to be recorded as a liability on the balance sheet.