chapter nine notes Flashcards
current liability
maturity of 1 year or less
non-current liability
maturity of more than a year
debt is considered ______ than equity
RISKIER
what is a legal obligation that must be repaid?
interest
how are liabilities measured?
at their current cash equivalent (what the creditor would accept to cancel the debt immediately)
working capital
current asset-current liability
current ratio
current asset/current liability
current liabilities expected to be paid…
- using a current asset (usually cash)
2. within one year or operating cycle (WHICHEVER IS LONGER)
accounts payable
trade accounts payable
accrued liabilities
wages payable
sales taxes payable
payroll taxes payable
interest payable
unearned revenue
deferred revenues
current maturities of long term debt
portion of long term debt that will be due within next year should be classified as current liability
estimated (CONTINGENT) liabilities
based upon the probability of something
record contingent liabilitiies
probable and estimated
contingent liabilities (add to footnotes)
probable and cannot be estimated (50/50 chance)
do nothing
remote
if a liability is a lawsuit, warranty, or a guarantee it is…
probable and can be estimated RECORD
what is the entry to record a contingent liability
(dr) expense xxx
(cr) estimated liability xxx
interest bearing note
principle and interest due at maturity
to record issuance of an interest bearing note
(dr) cash xxx
(cr) note payable xxx
to record payment at maturity of an interest bearing note
(dr) notes payable xxx
(dr) interest expense xxx
(cr) cash xxx
effective interest rate
interest expense/cash proceeds
non-interest bearing note
interest is deducted in advance
what implies that a note is non-interest bearing?
implied/implicit interest rate
discounted
to record issuance of a non-interest bearing note
(dr) cash xxx
(dr) discount on note payable xxx
(cr) note payable xxx
to record payment at maturity of a non-interest bearing note
(dr) interest expense xxx
(cr) discount note payable xxx
(dr) note payable xxx
(cr) cash xxx
what is the carrying value of a note?
the actual amount that you owe
discount on note payable
contra liability account (represents eventual interest expense)
simple interest
interest accrued over time on the principle only
compound interest
principle + accumulated interest earns/incurs interest in future
the more often interest is compounded, the more quickly it…
grows
interest is usually expressed as what?
an Annual Percentage Rate (APR)
present value of a single sum
one lump sum received/paid at the END of the term
present value
PV=FV*PV$1(n,%)
present value of an annuity
PVOA=PMT*PVOA$1(n,%)
annuities
series of equal periodic payments
ordinary annuity
payment or receipt that is made at the end of each period
car payment, house payment, etc.
what is the order of the headlines of the amortization table?
date cash payment interest expense principle reduction carrying value
