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ACCT207 > Exam 3 Concepts > Flashcards

Exam 3 Concepts Flashcards

1
Q

If a company has a ___________ ___________ they will pay the debit within one year or within the operating cycle.

A

current liability

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2
Q

__________ _________ is a written promissory note.

A

Notes Payable

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3
Q

_________ ___________ are received before the company delivers goods or provides services.

A

Unearned Revenue

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4
Q

A company _________ pertains to:

  1. Salaries
  2. Wages
A

payroll

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5
Q

**Payroll tax expense **results from 3 taxes that governmental agencies levy on employers:

  1. FICA tax
  2. Federal Unemployment Tax
  3. State Unemployment Tax
A

^^^

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6
Q

Bonds are a form of interest-bearing _______ ________.

A

notes payable

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7
Q

When a corporation issues bonds, it is __________ money.

A

borrowing

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8
Q

A ________ bond is where there is collateral.

A

secured

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9
Q

An ________ bond is where there is **NO **collateral, it is just issued against general credit.

For example, Apple can issue 80+ billion worth of bonds because they can afford to pay it back.

A

unsecured

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10
Q

A _______ bond is one that can be converted into stock.

A

convertible

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11
Q

A ________ bond is one that a company can buy back (redeem) at a stated dollar amount *prior *to maturity.

A

callable

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12
Q

A bond ______ lists:

  1. Name of company who issued
  2. Face Value
  3. Maturity Date
  4. Contractural (stated) interest
A

certificate

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13
Q

When the _______ ______ changes, the market value of the bond changes.

A

interest rate

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14
Q

A bond is _______ when it is paying less than the market.

A

discounted

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15
Q

When a bond is paying more than the market, there is a ________.

A

premium

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16
Q

Major types of current liabilities:

  1. Notes Payable
  2. Accounts Payable
  3. Sales Tax Payable
  4. Unearned Revenues
  5. Accured Liabilities
    • Taxes
    • Salaries
    • Wages
    • Interest Payable
A

^^^

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17
Q

When do companies record sales tax payable?

A

At the time that the sale occurs.

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18
Q

Sales taxes are **NOT **an ________ to the company.

A

expense

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19
Q

Companies record the current maturities of long-term debt as a _______ liability in the balance sheet.

A

current

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20
Q

When companies issue bonds, they _______ Cash for the Cash Proceeds and _______ Bonds Payable for the face value of the bonds.

A

debit; credit

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21
Q

Bonds discounts and bond premium are ________ over the life of the bond.

A

amortized

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22
Q

When companies redeem bonds at maturity, they ______ cash and ______ Bond Payable for the face value of the bonds.

A

credit; debit

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23
Q

Companies that redeem bonds _______ maturity:

  1. Eliminate the carrying value of the bonds at the redemption date.
  2. Record the cash paid, and
  3. Recognize the gain or loss on redemption
A

before

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24
Q

Companies can report the amount of each liability in the balance sheet or in schedules in the ________________________________.

A

notes accompanying statements

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25
Q

The statement of cash flows classifies cash receipts and cash payments as _______, _________, and _________ activities.

A

operating, investing, financing

26
Q

_________ activities include the cash effects of transactions that create revenues and expenses. They help determine net income.

A

Operating

27
Q

_______ activities include

(a) cash transactions that involve the purchase or disposal of investments and property, plant, and equipment, and
(b) lending money and collecting the loans.

A

Investing

28
Q

______ activities include

(a) obtaining cash from issuing debt and repaying the amounts borrowed
(b) obtaining cash from stockholders, repurchasing shares, and paying dividends

A

Financing

29
Q

Operating activities include _______ _______ items.

A

income statement

30
Q

Investing activities include changes in _______ and __________________.

A

investments and long-term assets

31
Q

Financing activities include changes in ________________ and _________ ________.

A

long-term liabilities and stockholder’s equity

32
Q

**Operating activities **

Cash inflows:

From sale of….

From interest…

A

goods or services

received and dividends received

33
Q

Operating activities:

Cash outflows:

To _______ for inventory.

To employees for _______.

To _______ for taxes.

To _______ for interest.

To others for _______.

A

suppliers

wages

government

lenders

expenses

34
Q

Investing Activities

Cash inflows:

From sale of ______.

From sale of investments in ____ or equity securities of other entities.

From collection of _____ on loans to other entities.

A

PPE

debt

principal

35
Q

Investing Activities:

Cash Outflows:

To purchase ______.

To ______ investments in _____ or other equity securities of other entities.

To ______ loans to other entities.

A

PPE

purchase; debt

make

36
Q

Financing Activities

Cash Inflows:

From ______ of ______ _______.

From issuance of ______ (bonds and notes).

A

sale; common stock

debt

37
Q

Financing Activities:

Cash Outflows:

To ______ as dividends.

To ______ long-term debt or reacquire capital stock (treasury stock).

A

stockholders

redeem

38
Q

SIGNIFICANT NONCASH ACTIVITIES

  1. Direct Issuance of common stock to purchase assets
  2. Conversion of bonds into common stock
  3. Direct issuance of debt to purchase assets
  4. Exchanges of plant assets
A

^^^^

39
Q

Companies do not report in the body of the statement of cash flows significant financing and investing activities that do not affect cash. Instead, they report these activities in either a ______ _______ at the bottom of the statement of cash flows or in a separate note or ________ _______ to the financial statements. The reporting of these noncash activities in a separate schedule satisfies the _____ _________ _________.

A

seperate schedule

supplementary schedule

full disclosure principle

40
Q

The sum of the _________, __________, and __________ sections equals the net increase or decrease in cash for the period.

This amount is added to the beginning cash balance to arrive at the ending cash balance—the same amount reported on the balance sheet.

A

operating, investing, and financing

41
Q

In a company’s _______ phase, the company continues to show negative cash from investing and positive cash from financing activities.

A

growth

42
Q

In a company’s ________ phase, net cash provided by operating activities and net income are approximately the same.

A

maturity

43
Q

In a company’s maturity phase, a company begins to:

  1. Pay ________
  2. Retire _______
  3. Buy back _______
A

dividends

debt

stock

44
Q

During a company’s introductory phase, why do companies have negative net cash provided by operating activities?

A

Companies usually spend more on inventory than the amount expensed for cost of goods sold because they are building up inventory and their cash collections frequently lag the amount reported for sales.

45
Q

During a company’s ________ _______, net cash provided by operating activities decreases.

Cash from investments might become positive as the company sells off excess assets.

Cash from financing activities might be negative as the company buys back stock and redeems debt.

A

decline phase

46
Q

3 Major Steps in Preparing the Statement of Cash Flows:

  1. Determine net cash provided/used by operating activities by converting net income from an accrual basis to a cash basis
  2. Analyze changes in noncurrent asset and liability accounts and record as investing and financing activities, or disclose as noncash transactions
  3. Compare the net change in cash on the statement of cash flows with the change in the cash account reported on the balance sheet to make sure the amounts agree
A

^^^

47
Q

To convert net income from an accrual basis to a cash basis you can use either of the two methods:

  1. ________ method, and
  2. ________ method

Both methods arrive at the same total amount for “Net cash provided by operating activities.” They differ in how they arrive at the amount.

A

indirect

direct

48
Q

The _______ _______ adjusts net income for items that do not affect cash to determine net cash provided by operating activities.

A

indirect method

49
Q

The ______ _____ shows operating cash receipts and payments.

A

direct method

50
Q

98% of companies prefer the _______ method because it:

  1. Is easier and less costly
  2. Focuses on the differences between net income and net cash flow from operating activities
A

indirect

51
Q

A company does NOT report sales taxes as an expense. It simply forwards to the government the amount paid by the customer

A

^^

52
Q

______ _______ have specific assets of the issuer pledged as collateral for the bonds.

A

Secured bonds

53
Q

______ ______ are issued against the general credit of the borrower.

Larger corporations with good credit ratings use these.

A

Unsecured Bonds

54
Q

Bonds that the issuing company can redeem (buy back) at a stated dollar amount prior to maturity are ________ ________.

A

callable bonds

55
Q

The _______ _________ is the date that the final payment is due to the investor from the issuing company.

A

maturity date

56
Q

A Bond issued above face value is a _______ and a Bond issued below face value is a ________.

A

discount

premium

57
Q

When the contractual interest rate and the market interest rate are the same, ________________.

A

bonds sell at face value

58
Q

Bond prices vary inversely with changes in the market interest rate. As market interest rates decline, bond prices ________.

A

increase

As market demand decreases, price increases.

59
Q

The carrying value (book value) of bonds issued at a discount is determined by subtracting

A

Balance of the Discount account - Bonds Payable Account

60
Q

The sale of bonds above face value causes the total cost of borrowing to be ______________________ because the borrower is not required to pay the bond premium at the maturity date of the bonds.

A

less than the bond interest paid

61
Q

A bond premium is considered to be a ___________________ that reduces bond interest expense over the life of the bonds.

A

reduction in the cost of borrowing

62
Q

Two common types of off-balance-sheet financing result from:

  1. Unreported contingencies and
  2. Lease transactions.
A
  1. common contingencies include lawsuits. If it is probable that the company will lose the suit then it should accrue the loss.
  2. Capital leases are treated like a debt-financed purchase-increasing both assets and liabilities

ACCT207 (4 decks)

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