chapter nine notes

Question 1

current liability

Answer 1

maturity of 1 year or less

Question 2

non-current liability

Answer 2

maturity of more than a year

Question 3

debt is considered ______ than equity

Answer 3

RISKIER

Question 4

what is a legal obligation that must be repaid?

Answer 4

interest

Question 5

how are liabilities measured?

Answer 5

at their current cash equivalent (what the creditor would accept to cancel the debt immediately)

Question 6

working capital

Answer 6

current asset-current liability

Question 7

current ratio

Answer 7

current asset/current liability

Question 8

current liabilities expected to be paid…

Answer 8

1. using a current asset (usually cash)

2. within one year or operating cycle (WHICHEVER IS LONGER)

Question 9

accounts payable

Answer 9

trade accounts payable

Question 10

accrued liabilities

Answer 10

wages payable
sales taxes payable
payroll taxes payable
interest payable

Question 11

unearned revenue

Answer 11

deferred revenues

Question 12

current maturities of long term debt

Answer 12

portion of long term debt that will be due within next year should be classified as current liability

Question 13

estimated (CONTINGENT) liabilities

Answer 13

based upon the probability of something

Question 14

record contingent liabilitiies

Answer 14

probable and estimated

Question 15

contingent liabilities (add to footnotes)

Answer 15

probable and cannot be estimated (50/50 chance)

Question 16

do nothing

Answer 16

remote

Question 17

if a liability is a lawsuit, warranty, or a guarantee it is…

Answer 17

probable and can be estimated RECORD

Question 18

what is the entry to record a contingent liability

Answer 18

(dr) expense xxx

(cr) estimated liability xxx

Question 19

interest bearing note

Answer 19

principle and interest due at maturity

Question 20

to record issuance of an interest bearing note

Answer 20

(dr) cash xxx

(cr) note payable xxx

Question 21

to record payment at maturity of an interest bearing note

Answer 21

(dr) notes payable xxx
(dr) interest expense xxx
(cr) cash xxx

Question 22

effective interest rate

Answer 22

interest expense/cash proceeds

Question 23

non-interest bearing note

Answer 23

interest is deducted in advance

Question 24

what implies that a note is non-interest bearing?

Answer 24

implied/implicit interest rate

discounted

Question 25

to record issuance of a non-interest bearing note

Answer 25

(dr) cash xxx
(dr) discount on note payable xxx
(cr) note payable xxx

Question 26

to record payment at maturity of a non-interest bearing note

Answer 26

(dr) interest expense xxx
(cr) discount note payable xxx

(dr) note payable xxx
(cr) cash xxx

Question 27

what is the carrying value of a note?

Answer 27

the actual amount that you owe

Question 28

discount on note payable

Answer 28

contra liability account (represents eventual interest expense)

Question 29

simple interest

Answer 29

interest accrued over time on the principle only

Question 30

compound interest

Answer 30

principle + accumulated interest earns/incurs interest in future

Question 31

the more often interest is compounded, the more quickly it…

Answer 31

grows

Question 32

interest is usually expressed as what?

Answer 32

an Annual Percentage Rate (APR)

Question 33

present value of a single sum

Answer 33

one lump sum received/paid at the END of the term

Question 34

present value

Answer 34

PV=FV*PV$1(n,%)

Question 35

present value of an annuity

Answer 35

PVOA=PMT*PVOA$1(n,%)

Question 36

annuities

Answer 36

series of equal periodic payments

Question 37

ordinary annuity

Answer 37

payment or receipt that is made at the end of each period

car payment, house payment, etc.

Question 38

what is the order of the headlines of the amortization table?

Answer 38

date
cash payment
interest expense
principle reduction
carrying value