Module 11 Flashcards
How do firms generate capital internally?
Operations
How do firms generate capital externally?
Borrow and New Owners
Whats #1 role of business?
To survive
What are some obligations of liability?
We sacrifice resources in future and agree to it now
What is current liability?
One operating cycle or less than a year
What is the Current Ratio?
Current Assets / Current Liabilities
What are some examples of Current Liabilities?
A/P , Bank Overdrafts Warranties
What is A/P?
Used for purchase inventory
Journal entry of A/P?
Dr Purchases, Cr A/P
What is a Short Term Note?
It is a legal IOU
How do we enter Note Payable when we borrow?
Dr Cash, Cr Note Payable
How do we enter Note Payable when it matures?
Dr Note Payable, Dr Interest Expense and Cr Cash
What is a Contingency?
Potential Liability that has occurred but we don’t know the outcome
What is an example of a Contingency?
A lawsuit
How do we journal enter a contingency?
Dr Loss on Damage Claim, Cr Estimated Liability for Damages
What is a Long - Term Liability?
It is reported in PV of promised payment and extends for a longtime
What is a Mortgage bearing note?
Property will be taken if loan is not paid, can be short or long, and dealing with one lender
What is a Bond?
A written promise to pay the face value with interest
Bond Issuing Process
Sells the Bond - Underwriter - Investor . Trustee watch this 3.
What are some advantages to Bond?
Do not effect shareholder control, can be very marketable and is tax deductable
What is disadvantage to a bond?
Requires principal and interest to be paid out at future date
What is a contract or nominal rate?
It is the stated interest rate
What if the bond’s contract rate is above market?
It is at premium
What if the bond’s contract rate is equal market?
At par value
What if the bond’s contract rate is below market?
At a discount
How do we amortize a bond? (SLine)
Bond Discount / # of periods
How do we calculate Bond Proceeds?
PV of principal repayment + PV of Interest Payments
