ACC FINAL EXAM
maximum number of shares that can be issued
Authorized stock represents the:
market rate of interest was less than the stated rate at the time of issue.
Bonds are sold at a premium if the
treasury stock definition
previously issued stock that is repurchased by the issuing corporation
interest amortizations
process used to determine the amount of interest to be recorded in each of the periods the liability is outstanding
secured bonds
provides collateral for the lender; If the borrower fails to make the payments required by the debt, the lender can take steps to ''repossess'' the collateral
stated/coupon/contract rate
rate of interest paid on the face value; the borrower pays the interest to the creditor each period until maturity
Stockholders' Equity
represents the owners' claims against the assets of a corporation after all liabilities have been deducted
bond
type of note that requires the issuing entity to pay the face value of the bond to the holder when it matures and usually pay interest periodically at a specified rate
junk bonds
unsecured bonds that are relatively risky and, therefore, pay a high rate of interest to compensate the lender for the added risk.
leverage
use of borrowed capital to produce more income than needed to pay the interest on a debt
discount
when a bond sells at a price below face value
premium
when a bond's selling price is above face value
The beginning-of-period balance to yield the amount of interest for the period
What is interest rate multiplied by?
Total stockholders' equity stays the same
What is the effect of a stock dividend on stockholders' equity?
Liabilities are increased.
When a company declares a cash dividend, which of the following is true?
The cost of the treasury stock reduces stockholders' equity.
When a company purchases treasury stock, which of the following statements is true?
decrease the Common Stock account balances by the original issue price.
When a company retires its own common stock, the company must:
at the present value of the future cash flows
When are bonds issued?
plus the discount amortization for the period.
When bonds are issued at a discount, the interest expense for the period is the amount of interest payment for the period
minus the premium amortization for the period.
When bonds are issued at a premium, the interest expense for the period is the amount of interest payment for the period
increase in assets and an increase in liabilities
When bonds are issued by a company, the accounting entry typically shows an
shareholder's equity
Where is treasury stock reported on the balance sheet?
dividends payable
Which of the following is not a component of stockholders' equity?
the cash available and the retained earnings balance
Which of the following should be considered when a company decides to declare a cash dividend on common stock?
The entire principal amount of most bonds mature on a single date.
Which of the following statements regarding bonds payable is true?
Helps avoid the issue of insider trading
Why can't a company record gains and losses with transactions in its own stock?
an extra dividend is declared
With regard to preferred stock, its stockholders may have the right to participate, along with common stockholders, if
preferred stock definition
a class of stock that generally does not give voting rights, but grants specific guarantees and dividend preferences
effective interest rate method
interest expense= carrying value X yield rate X time (years)
straight-line method (interest expense)
interest paid, -premium amortization, +discount amortization
long-term leases
must recognize an asset and liability at the time the lease is signed
long-term debt
obligations that extend beyond one year
Times interest earned (accrual basis)
operating income/interest expense
intangible assets
patent, goodwill, trademark
a specified dividend rate, value of PS is closely tied to interest rate levels and the company's' overall creditworthiness
preferred stock features
it believes the stock is overvalued.
A company would repurchase its own stock for all of the following reasons except:
voting rights, own the residual interest of the company, CS owners take the highest risk with the highest reward for these company investments
Common stock features
liabilities
How are bonds reported on the balance sheet?
Discounts: less than a year-current liability, more than a year-long term liability. Premiums: months-current, years-long term
How are the discounts and premiums reported on the balance sheet?
When interest rates rise, bond prices generally fall. When interest rates fall, bond prices generally rise
How do market interest rates affect bond prices?
Total liabilities MINUS total assets
How is stockholder's equity reported on the balance sheet?
a $1,000 bond sold for $1,012.50.
If bonds are issued at 101.25, this means that
A portion of each installment bond payment pays down the principal balance
Installment bonds differ from typical bonds in what way?
the par value of the stock at the time of the dividend
The large stock dividend is valued using what?
an addition to a long-term liability.
The premium on bonds payable account is shown on the balance sheet as
the market value of the stock at the time of the dividend
The small stock dividend is valued using what?
a stock dividend
Total stockholders' equity does not change as a result of?
the balances
What DOES change within the individual stockholder's equity accounts?
a contra liability
What best describes the discount on bonds payable account?
interest rate
a percentage of the principal that must be paid in order to have use of the principal
Current Liabilities
accounts payable, salaries payable
stated value
amount assigned to a corporation's stock for internal accounting purposes when the stock has no par value
Dividends
amounts paid periodically by a corporation to its stockholders as a return of their invested capital, represent retained earnings-not an expense
par value
an amount printed on each share of stock that established a minimum price for the stock when issued, does not determine market value
revenues
anything revenue
common stock definition
basic ownership interest in a corporation
bond interest expense is deductible for tax purposes, while dividends paid on stock are not
bonds are a popular source of financing because
current assets
cash, inventory, accounts receivable
Bonds Payable
contains the amount owed to bond holders by the issuer
expenses
cost of goods sold, anything expenses
unsecured/debenture bonds
debt that does not have collateral
short-term leases
do not recognize an asset or liability at the time the lease is signed
Liabilities
everything payable, bonds, long-term notes, debentures, capital leases, and unearned revenue
interest payment
face value X interest rate X time (years)
market/yield rate
function of economic factors and the creditworthiness of the borrower
callable bonds
gives the borrower the option to pay off the debt prior to maturity; borrowers use this option when the interest being paid on the debt is substantially greater than the current market rate of interest
convertible bonds
gives the lender the option to convert the bond into other securities; lenders use this option when the value of the shares of common stock is more attractive than the interest payments supplied by the debt instrument.
retained earnings
the accumulated earnings (or losses) over the entire life of the corporation that have not been paid out in dividends
face value
the amount of money that a borrower must repay at maturity; AKA par value or principal
additional paid-in capital
the amount received in excess of the par value
maturity
the date on which a borrower agrees to pay the creditor the face value
authorized shares
the maximum number of shares a company may issue in each class of stock
outstanding shares
the number of issued shares actually in the hands of stockholders
issued shares
the number of shares actually sold to stockholders
reduces size of corporation operations, buys out ownership of one or more stockholders, reduces the number of outstanding shares
treasury stock (reasons)
