acct final

what are bonds

promises to pay future interest and principal to a creditor in exchange for cash today

The shares that used to be in the hands of stockholders but were bought back

reacquired shares

when entering into long-term lease, companies have to

recognize asset and liability

Dividends do what to retained earnings?

reduce

what does at maturity mean

repayment of face value of bonds

when are stock warrant primarily used

when bonds are sold

treasury stock

when previously issued stock is bought back by the company

why do companies issue bonds

when they need to borrow huge sums of money

when sold at premium: what is yield compared to stated rate and interest over the life of the bonds

yield < stated rate; interest expense < interest paid

when bonds sold at discount: what is yield compared to stated rate and interest over the life of the bonds

yield > stated rate, interest expense > interest paid

when bonds sold at par: what is yield compared to stated rate and interest over the life of the bonds

yield=stated rate, interest expense=interest paid

If bonds are issued at 103.25, this means that a. a $1,000 bond sold for $1,032.50 b. a $1,000 bond sold for $103.25 c. the bonds are sold at discount d. the bond rate of interest is 10.325% of the market rate of interest

a

what is corporate charter also called

articles of incorporation

If bonds were initially issued at a discount, the carrying value of the bonds in theissuer's books will a. decrease at the bonds approach their maturity rate b. increase as the bonds approach their maturity date c. fluctuate throughout the bonds' life d. remain constant throughout the bonds' life

increase as the bonds approach their maturity date

large stock dividend, what value is it recorded at

increase shares outstanding by 25% or more, record at par value

small stock dividend, what value is it recorded at

increase shares outstanding by less by 25%, record at market value

value of preferred stock is tied to

interest rates and credit worthiness of company

The number of shares actually shares actually sold to stockholders

issued shares

what does it mean to permanently retire a treasury share

it will no longer be traded

what advantages does leasing provide over purchasing

less cash needed too sign a lease than to purchase, leases offer protection against obsolescence, tax advantages allow lower cost financing

Retains substantially all of the risks and obligations of ownership

lessor

probable future sacrifices of economic benefits

liabilities

what happens to the changes in par value and the number of outstanding shares for stock splits

merely noted in the corporations records

what is considered a large stock dividend

more than 25% of issued shares

if lease is under one year, do you make a journal entry

no - recorded as rent expense

Even when state law permits the issuance of no-par stock (stock without a par value), it frequently requires that

no-par stocks have a stated (legal) value, set by the corporation, in order to establish the corporation's stated or legal capital.

what kind of entry is required form a stock split

none - because no account balances change

what are long-term liabilities and what do they include

obligations expected to be paid after one year; include long-term notes payable, bonds payable, and capital leases

Is advantageous because it offers an option for off-balance-sheetfinancing (liability won't show up on the balance sheet)

operating lease

The number of shares in the hands of stockholders

outstanding shares

what do stock splits decrease

per share par value (or stated value) with no decrease of retained earnings

what is value of common stock tied to

performance of company

common stock has what kind of right and what does that mean

preemptive right - right to maintain same % of ownership

who gets priority in payment of dividends and distribution of assets in the event of liquidation

preferred

who gets no right to vote

preferred stock

in order to pay dividends, a company must have the following

- Sufficient cash • Sufficient earnings/net income • Sufficient balance in Retained Earnings

Corporations purchase treasury stock from shareholders for many reasons:

1. to buy out the ownership of one or more stockholders 2. to reduce the size of corporate operations 3. to reduce the number of outstanding shares of stock in an attempt to increase earnings per share and market value per share 4. to acquire shares to be transferred to employees under stock bonus, stock option, or stock purchase plans 5. to satisfy the terms of a business combination in which the corporation must give a quantity of shares of its stock as part of the acquisition of another business 6. to reduce vulnerability to an unfriendly takeover

what do corporate charters include

1.Document authorizing creation of corporation. 2. Name and purpose of corporation. 3. Maximum number of authorized shares of stock that may be issued or sold. 4. Par value of stock - arbitrary amount printed on each stock certificate that establishes minimum price for stock but doesn't determine market value. 5. Under most corporate charters, the balance of a corporation's retained earnings represents an upper limit on the entity's ability to pay dividends

why does a company issue preferred stock

Company needs capital but doesn't want to increase its debt on the balance sheet

When a company purchases treasury stock for $6,000 and then reissues it for $5,000, the difference of $1,000 is:

a decrease in stockholders' equity

what is recorded when a leases extends beyond one year

a lease liability along with right of use asset

most preferred stock issues fix their divided rate as

a percentage of par value

what is a long-term lease

a purchase of the leased asset

preferred stock generally pays

a regular dividend

What is the second step when using effective interest rate? a. Calculate bond interest expense b. Calculate interest paid c. Calculate amortization

a. calculate bond interest expense

Recognized by adjusting entries and usually represent the completed portion ofactivities that are in process at the end of the period.

accrued liabilities

stock dividends distribute ____ to ____

additional shares to stockholders

stock splits transfer _____ to _____

additional shares to stockholders without changing equity

What does par mean? a. Yield rate = stated rate b. Interest expense = interest paid c. Face value = amount of cash receivedd. All of the above

all of the above

what are "net assets" and what is equation

assets left after paying creditors; assets - liabilities = net assets = SE

when company is borrowing money (issuing bonds) what must they account for three basic cash flows

at issuance, annual or semi-annual interest payment, at maturity

The maximum number of shares allowed to be sold

authorized shares

How to find interest expense: a. Total / # payments b. Carrying value * effective rate * time c. Face * rate * time

b.

The portion of long-term debt due within one year should: a. be paid immediately b. be reclassified as a current liability c. be classified as a long-term liability d. not be separated from the long-term portion of debt

b. be recalssified as a current liability

what is the effective interest rate method

based on compound interest calculations. required by GAAP

why are bonds sold to investors in $1,000 increments

because the total amount borrowed is too large for a single lender

Which of the following is true of the Effective Interest Rate Method? a. Interest expense must always equal interest paid b. Interest expense is the same every period c. Interest paid each period is the face value multiplied by the stated interest rate divided by the number of periods d. The interest expense for each period is equal to a constant percentage ofthe carrying value

c. interest paid each period is the face value multiplied by the stated interest rate divided by the number of periods

When bonds are issued at a discount, the interest expense for the period is theamount of interest payment for the period a. plus the premium amortization for the period b. minus the premium amortization for the period c. plus the discount amortization for the period d. minus the discount amortization for the period

c. plus the discount amortization for the period

What is paid-in capital? a. The amount the company owns of its stock b. The retained earnings or deficit c. The amount of money paid for ownership

c. the amount of money paid for ownership

contributed capital

capital contributed by shareholders, preferred stock and common stock +APIC

A non-cancelable agreement that is in substance a purchase of theleased asset

capital lease

uses the asset during the term of the lease

capital lease

Which of the following is NOT true? a. Carrying value equal to face value at maturity b. Carrying value is decreased over the life when there is a discount c. Unamortized premiums are added to face value to get carrying value d. Carrying value is decreased over the life when there is a premium

carrying value is decreased over the life when there is a discount

interest expense for effective interest rate=

carrying value x market rate x time period

what does at issuance mean

cash received when bonds are sold/issued

cash dividends distribute ____ to ____

cash to stockholders

what is stockholders' equity

claim against the "net assets" of a corporation

what is primary type of stock issued

common stock

what stock has voting rights

common stock

An obligation whose amount, timing, or recipient depends on future events

contingent liabilities

what kind of account is treasury stock - what kind of balance

contra equity account - normal debit balance

4 components of SE

contributed capital, retained earnings, accumulated other comprehensive income, treasury stock

current dividend preference

current dividends must be paid to preferred stockholders before any dividends are paid to common stockholders.

obligations that require the firm to pay cash or another current asset, create anew liability, or provide goods or services within the longer of 1 year or oneoperating cycle.

current liabilities

The result of using the effective interest method of amortization of the discounton bonds is that a. the cash interest payment is greater than the interest expense b. the amount of interest expense decreases each period c. the interest expense for each amortization period is constant d. a constant interest rate is charged against the debt carryingvalue

d. a constant interest rate is charged against the debt carrying value

What is NOT a common source of stockholders' equity for a corporation? a. Retained earningsmb. Treasury stockmc. Paid-in capitalmd. Dividends

d. dividends

date of declaration

date on which a corporation announces its intention to pay a dividend on common or preferred stock and it becomes a liability to the company

date of record

date on which a stockholder must own one or more shares of stock in order to receive the dividend

date of payment

date on which the dividend will actually be paid

deficit balance in RE=

debit balance in RE

unamortized discounts on bond payable should be reported on the balance sheet of the issuer as

direct deduction from the face value of the debt

retained earnings

earnings retained in the company and not dsistributed to shareholders as dividends

interest payment equation

face value of bonds x stated rate x time period

what are accumulated other comprehensive income

gains and losses from certain non-owner transactions

what are stock option usually used for

given to employees and executives as compensation for their services

cumulative dividend preference

requires the eventual payment of all preferred dividends—both dividends in arrears and current dividends—before any dividends are paid to common stockholders. (Current plus dividends in arrears paid before common stockholders.)

what do common stock holders get assets wise

residual claim to assets after creditors and preferred shareholders are paid in full in the event of liquidation

what is the straight-line method

simple approximation of effective interest amortization. equal amounts of premium or discount are amortized to interest expense each period.

The interest rate identified in the bond indenture is called either

stated rate, coupon rate, or contract rate, nominal rate

How does a shareholder benefit from holding common stock

stock appreciation (increase in market value), dividends

what is stated capital or par value (legal capital)

the amount of capital that, under state law, cannot be returned to the corporation's owners unless the corporation is liquidated.

what is the journal entry when a treasury stock is retired

the common stock account is debited for the par value of the stock and the additional paid-in capital account is reduced for any excess of the purchase price of the treasury shares over par.

When a company purchases treasury stock, what happens to stockholders' equity?

the cost of treasury stock reduces stockholders' equity

what happens in a short term lease

the lessor retains substantially all of the risks and obligations of ownership, while the lessee uses the asset during the term of the lease

what do stock splits increase

the number of outstanding shares without changing the proportionate ownership of corporation

what is a stock warrant

the right granted by a corporation to purchase a specified number of shares of its common stock at a stated price and within a stated time period.

what is a stock option

the right to buy stock at a set price

when a corporation is created, a corporate charter document is prepared in accordance with

the state laws of the state of incorporation

what is the share in profits as common stock

through dividends

what is a contra SE account

treasury stock= normal debit balance