Lecture 16

Question 1

r and t have to be the same ___ _ ___

Answer 1

number of units

Question 2

r (monthly) =

Answer 2

r (annual) / 12

Question 3

n (monthly) =

Answer 3

n (years) * 12

Question 4

liabilities

Answer 4

obligations to pay cash or to provide goods and services in the future as a result of past transactions or events

Question 5

LT liabilities

Answer 5

fall due more than 1 year beyond BS date

reclassify portion due next year as current liability

Question 6

current liabilities

Answer 6

fall due within 1 year, shown in nominal terms

sometimes combined into “accrued liabilities” when reported

Question 7

sales tax payable

Answer 7

taxes collected by firm on behalf of the gov.

sales tax DOES NOT impact IS

Question 8

sales tax journal entry

summarize sales transactions

Answer 8

cash

    sales tax revenue
    sales tax payable

Question 9

journal entry - disbursement of sales tax to state

Answer 9

sales tax payable

      cash

Question 10

income taxes payable

Answer 10

income taxes due to the gov based on firms earnings for the period

Question 11

income tax journal entry

Answer 11

income tax exp

      income tax payable

Question 12

warranty expense

Answer 12

part of COGS, recorded in same period as sales revenue

estimated based on historical and projected warranty claim rates and costs-per-claim

Question 13

journal entry - warranty expense

Answer 13

warranty expense

      est. warranty payable

Question 14

journal entry - warranty expenditures

Answer 14

warranty payable

      cash

Question 15

EB warranty payable

Answer 15

BB + warranty expense - warranty claims

Question 16

note

Answer 16

non-interest bearing note requires that the borrower make a single payment to the lender on the maturity date

Question 17

LT obligations - essential future

Answer 17

require borrower to make a contractual series of 1+ cash payments to the lender in the future

Question 18

mortgage

Answer 18

mortgage note requires borrower to make a series of equal periodic payments over the term of the mortgage

Question 19

bond

Answer 19

interest bearing note, requires borrower to make series of equal periodic payments over the term of the bond agreement and a single relatively larger lump-sum payment on maturity date

Question 20

interest

Answer 20

payment for cost of using lenders funds

Question 21

principal

Answer 21

a (partial) repayment of the original amount borrowed

Question 22

net book value of liability

Answer 22

current + noncurrent portion of BS

full amount of a liability - amount already paid

measured at PV

Question 23

different names for net book value of liability

Answer 23

book value, carrying value

ex. mortgage payable, bonds payable, note payable

Question 24

int exp on LT liabilities each period =

Answer 24

(net book value of liability) * (interest rate when note was issued)

Question 25

interest per compounding period

Answer 25

(amount of loan) * (annual interest rate) * (compounding interval [months] / 12 months)

Question 26

value of note on date of issuance =

Answer 26

PV of future payment

Question 27

net book value of note liability of date of issuance =

Answer 27

PV of future payments using (historical) interest rate determined when note was issued

Question 28

add interest to _________

Answer 28

amount of the note payable liability

since interest is not paid

Question 29

for notes, amount of interest and amount of liability ___ each period

Answer 29

increases

Question 30

@end of last interest compounding interval, the amount of the note payable will be ___

Answer 30

the amount of the payment to be made at that time

Question 31

journal entry - reclassification

Answer 31

note payable (etc)

     current portion of LT debt

Question 32

value of mortgage on date of issuance =

Answer 32

PV of future payments

Question 33

net book value of mortgage liability on date of issuance =

Answer 33

PV of future payments using (historical) interest rate when the mortgage was issued

Question 34

after mortgage payment, the amount of the liability ___

Answer 34

decreases

Question 35

for mortgage, amount of interest and liability ___ each period

Answer 35

decreases

Question 36

after the last payment, the amount of the mortgage liability will be

Answer 36

0

Question 37

journal entry - interest for note

Answer 37

int exp

   note payable

Question 38

journal entry - interest for mortgage

Answer 38

int exp

    mortgage payable

Question 39

journal entry - payment of mortgage

Answer 39

mortgage payable

     cash

Question 40

current portion of mortgage

Answer 40

compare PV of mortgage payments w/PV 1 year later

Question 41

for sales tax, cash =

Answer 41

sales revenue + taxes