Chapter 8 Concepts

Question 1

obligations the company owes that are due within one year of the balance sheet date

Answer 1

Current Liabilities

Question 2

are non-current obligations; this entails all obligations due after one year from the company’s balance sheet.

Answer 2

Long-term Liabilities

Question 3

having sufficient assets on hand to cover current obligations

Answer 3

Liquidity

Question 4

(i.e., current assets ÷ current liabilities) allows stakeholders to assess liquidity.

Answer 4

Current Ratio

Question 5

debt instruments that allow companies to raise large sums of capital

Answer 5

Bonds

Question 6

the bond is being sold to investors who will hold the bond

Answer 6

“Issued” Bonds

Question 7

the interest rate paid by the bonds (i.e., the contract rate) is the same as the market rate on the bond issuance date

Answer 7

Face Value / Par Value

Question 8

the bond’s contract rate is greater than the market rate, the bond will be issued at a ______

Answer 8

Premium

Question 9

the bond’s contract rate is less than the market rate, the bond will be issued at a ______

Answer 9

Discount

Question 10

Income before Interest Expense and Income Tax ÷ Interest Expense

Answer 10

Times-Interest Earned Ratio