Chapter 8 Financial Accounting Flashcards
What are 2 other names for principal (In Bond Terms)
Face Value
Par Value
What lease would we want and why?
Operational lease because we do not have to share a lot of information from an accounting standpoint
Issuing Bonds at a Premium
If stated interest rate of bonds is greater that market interest rate, bondholders will pay MORE than face value for bond
Unsecured (debenture) Bonds
Backed only by the good faith of the issuing company
Interest Expense on Bonds Issued at a Premium
The company pays interest based on only the face value even though it received more than face value
Lease
Rental agreement in which tenant agrees to make rent payments to the property owner
Unearned Revenues
Customers makes payments before receiving product or service
Current Liabilities
Obligations due with one year of balance sheet date
What are 4 types of bonds?
Term Bonds
Serial Bonds
Secured (mortgage) bonds
Unsecured (debenture) bonds
What does Carrying Amount =
Face Value
Less Discount Balance
Lessor
The person who owns the property
Interest (In Bond Terms)
Company must pay bondholders interest in regular intervals over the term of the bond
What 3 things does the Stated Interest Rate include?
Printed on the bond certificate
Determines amount of cash interest
Remains Constant
What are 3 characteristics of Operating Lease?
Usually short term or cancelable
Lessor retains risk and rewards of owning asset
Lessee records rent expense when payments are made
Estimated Warranty Payable
Companies guarantee products through warranty agreements
Market Interest Rate
Rate investors demand for loaning money which changes frequently
Time Value of Money
When money has more value if you hold it in your hand rather than the future
Interest Expense on Bonds Issued at a Discount
The company must pay interest based on the face value even though it received less than face value
Term Bonds
All bonds in an issue mature at one specific date
When accounting for Contingent Liabilities, the chances of future events being assessed as UNLIKELY what happens to the accounting?
Do not report
Bonds Payable
Groups of notes payable issued to multiple lenders called bondholders
Short Term Notes Payable
Common form of financing where company incurs interest expense
When a company raises money by issuing bonds or notes what 3 things happen?
Does not dilute control of company
Results in higher earnings per share
More debt increases risk
What are the 2 categories of Leases
Operating
Capital
Principal (In Bond Terms)
Amount borrowed and usually in $1000 units
Sales Tax Payable
Tax levied by state on retail sales which company collects from customer and pays to government
Convertible Bonds
Bondholders may exchange bonds for companies stock
In order to raise capital, what do companies do?
Sell bonds to public
Warranty Expense
Estimated in same period as sale of product and follows the matching principle
When accounting for Contingent Liabilities, the chances of future events being assessed as probable what happens to the accounting?
Record liability if amount can be estimated
If a company needs funds, what 2 ways can they raise money?
Issuing Stock
Issuing Bonds or Notes
Accounts Payable
Amount owed for products and services purchased on account
Contingent Liabilities
Potential liability that depends on a future event arising out of past events
When a company raises money by issuing stock what 3 things happen?
No liabilities or interest expense
Less risky
More Costly
Serial Bonds
Bonds in the issue mature installments
Underwriter (In Bond Terms)
A securities firm that purchases the bond issue and resells to clients
Secured (mortgage) Bonds
Bondholders have right to company assets if interest and principal is not paid
Issuing Bonds at a Discount
If stated interest rate of bonds is less than market interest rate, bondholders will not pay face value for bond
What are 2 differences between Bond Premium and Bond Discount?
Bond Premium
- issued price above face value
- stated rate of interest is greater than market rate of interest
Bond Discount
- Issue price below face value
- stated rate of interest is less than market rate of interest
What is an example of a Long Term Liability?
Bonds
What are the 2 current liabilities that are estimated or amount is unknown?
Estimated Warranty Payable
Contingent Liabilities
What is attractive to investors in terms of convertible bonds?
Investors like lower interest rates
What is are 2 examples of an operating lease?
A college student signing a lease for an apartment
- An airline renting a plane
When accounting for Contingent Liabilities, the chances of future events being assessed as REASONABLY probable what happens to the accounting?
Include in notes to financial statements
Payroll Liabilities
Salaries and wages paid to employees which includes income taxes
Accrued Liabilities
Expense incurred but not yet paid, which is often an adjusting entry that includes salaries and interest payable
What are 6 Current Liabilities of Known Account?
Accounts Payable Short Term Notes Payable Sales Tax Payable Accrued Liabilities Payroll Liabilities Unearned Revenues
Lessee
The person who takes out the lease
Maturity Date
Date bond is due, which is mainly due in terms of 5, 10 or 20 years
