Test 1 Flashcards
What does a Bond Indenture mean?
Contract
What is the Stated Rate?
rate written in the terms of the bond indenture
What is the Effective Rate?
rate that provides an acceptable return commensurate with the issuer’s risk
How are Costs of Issuing Debt (e.g. engraving, printing, commissions…) treated?
As a deferred charge (not expensed) and amortized over the life of the bond
What is the rule with company incorporation?
incorporated in one state, but may do business in multiple
many companies are incorporated in Delaware
Who owns residual interest in a corporation?
stockholders
What are the two categories of Stockholder’s Equity?
Contributed Capital = stock + APIC
Earned Capital = retained earnings
What are the types of Common Stock?
Authorized = Maximum number of shares that can be issued to the public
Issued = sold
Outstanding
Treasury Stock: issued, sold, required by the company
Unissued = never been sold
What happens with direct costs of issuing stock?
reduction in APIC
What are the journal entries for Dividends?
Date of Declaration: Liability (JE)
Date of Record: NO JE
Date of Payment: JE
What are the types of dividends?
Cash (reduced SE, reduces cash)
Property (reduces SE, reduces non-cash asset)
Liquidating (reduces SE, reduced APIC, reduces cash)
Stock (reduces RE, increases common stock)
Is an entry recorded in a stock split?
No
What happens in a Small Stock Dividend
<20-25% of CS
transfers fair value of common stock from retained earnings
What happens in a Large Stock Dividend
> 20-25% of CS
par value transferred from retained earnings to common stock (similar to stock split)
What is a Premium
market rate < stated rate
