accounting final

Companies purchase treasury stock to:

-Increase net assets by buying low and selling high -Support the company's stock price -Avoid a takeover -Reward valued employees with stock

common long term liabilities

-Long-term notes payable -Mortgages payable

corporations issue 2 different classes of stock:

-common stock -preferred stock

Disadvantages of a corporation (4)

-double taxation -cost of setup -separation of ownership and management -government regulation is expensive

advantages of corporations (5)

1. Limited liability 2. Ability to raise more money 3. continuous life 4. Ease of ownership transfer 5. no mutual agency between stockholders and corporation

what are the 2 main controls for payroll?

1. controls for efficiency 2. controls to safeguard payroll disbursements

Corporation

A business organized under state law that is a separate legal entity

stock certificates

A certificate issued by a corporation showing the ownership of a specified number of shares in the corporation

memorandum entry

An entry in the journal that notes a significant event, but has no debit or credit amount

how is interest computed?

Balance x interest rate x time

preferred stock can be:

Cumulative or Noncumulative

Accounts payable, sales tax payable and unearned revenue are examples of ________ __________.

Current liabilities

How do you report a probable contingency when the expense cam NOT be estimated?

Describe the situation in a note to the financial statements

How do you report a reasonably possible contingency?

Describe the situation in a note to the financial statements

EPS equation

EPS = (Net Income - Preferred Dividends) / (Weighted Average number of Common Shares Outstanding)

Stockholders' rights: vote

Each share carries one vote

The final segment of an income statement reports the company's __________ ___ _________.

Earnings per share

important ratios used for comparison are:

Earnings per share, price/earnings ratio, and rate of return on common stockholder's equity

bonds payable

Long-term debts issued to multiple lenders called bondholders, usually in increments of $1,000 per bond

Notes payable, mortgage payable, and bonds payable are examples of ___________________.

Long-term liabilities

are bonds a short term or long term liability?

Long-term liability

Social security (FICA) tax includes:

OASDI and Medicare

unemployment compensation taxes

Payroll tax paid by employers to the government

How do you report a probable contingency when the expense CAN be estimated?

Record an expense and a liability based on estimated amounts

Stockholders' rights: liquidation

Right to receive a proportionate share of any assets remaining after liquidation

callable bonds

The company may call, or pay off, the bonds at a specified price

maturity date

The date on which an investment becomes due for payment.

Warranty expense is recorded in the same period as the related revenue because of which principle?

The matching principle

authorized stock

The maximum number of shares of stock that the corporation may issue

legal capital

The portion of stockholders' equity that cannot be used for dividends.

When is there a gain on retirement of bonds?

When it is paid off prior to maturity date

When is a bond sold at a premium?

When the stated interest rate is greater than the market interest rate

Treasury stock

a company's stock that it has previously issued and later reacquired

preferred stock - dividend in arrears

a dividend that has not been paid for the year

Contingent Liability

a potential liability that depends on some future event

Straight-Line Amortization Method

allocates an equal amount of bond discount or premium to each interest period

present value of money

amount person would invest now to receive a greater amount in the future

net pay

amount the employee gets to keep

When can bonds be retired?

at or before maturity date

carrying amount of bonds (carrying value)

bonds payable minus the discount

term bonds

bonds that all mature at the same time

secured bonds

bonds that give bondholders the right to take specified assets of the issuer if the issuer fails to pay principal or interest

serial bonds

bonds that mature in installments at regular intervals

how does a corporation retire its stock?

canceling the stock certificates

3 forms of dividend payments

cash, stock, and other property

why do companies issue stock dividends?

continue dividends, but conserve cash. reduce the market price per share of its stock. reward investors.

the first section of the income statement reports _____________.

continuing operations

prior period adjustment

corrections to retained earnings for errors of an earlier period

Federal insurance contributions act (FICA)

created the social security tax

treasury stock has a normal ______ balance. (debit or credit?)

debit (contra equity account)

Liabilities

debts owed to creditors

3 dates of cash dividends

declaration date, date of record, and payment date

a stock split (increases or decreases?) the par value and market value per share.

decreases

amortization schedule

details each loan payment's allocation between principal and interest and the beginning and ending balances of the loan.

Contra account to bonds payable

discount on bonds payable

How do you report a remote contingency?

do not disclose

Financial leverage

earning more income on borrowed money than the related interest expense

retirement of bonds involves paying the ____ value of bonds.

face

a bond can be issued at 3 values:

face value, discount, and premium

required payroll withholding deductions

federal and state income tax and social security tax

continuing operations helps investors make predictions about what?

future earnings

Discontinued Operations

gains and losses occur when a company sells or disposes of an identifiable division

large stock dividend

greater than 20-25% of issued and outstanding stock

what does the amount that is withheld depend on?

gross pay and number of claims

warranty

guarantee products against defects

income tax withholding

income tax deducted from gross pay

stock split (increases or decreases?) the number of issued and outstanding shares of stock

increases

optional payroll withholding deductions

insurance premiums, retirement plan contributions, and charitable contributions

stated interest rate

interest rate that determines the amount of cash interest the borrower pays and the investor receives each year

issued stock

issued by a corporation

how do companies raise capital?

issuing stock

small stock dividend

less than 20-25% of issued and outstanding stock

long-term liabilities

liabilities owed in more than a year

payroll is what kind of account?

liability

mortgages payable

long-term debts that are backed with a security interest in specific property

Price Earnings Ratio

market price per share/earnings per share

at what point does the carrying value = the face value?

maturity

current liabilities

must be paid within one year or within the entity's operating cycle

deficit

negative amount in retained earnings

can retired stock be reissued?

no

Is sales tax an expense of the business?

no (it is a current liability. Companies collect it and then forward to the state)

stated value stock

no-par stock that has been assigned an amount similar to par value

2 basic sources of stockholders' equity are:

paid in capital and retained earnings

stock may carry a ___ value or may be __-____ stock.

par, no-par

Pension plan

provides benefits to retired employees

stated rate

rate printed on bond

market interest rate

rate that investors demand to earn for loaning their money

time value of money

recognition that money earns interest over time

Earnings Per Share (EPS)

reports the amount of net income for each share of the company's outstanding common stock

capital stock

represents a stockholder's ownership

appropriations of retained earnings

retained earnings restrictions recorded by journal entries

Stockholders' rights: preemptive right

right to maintain their proportional ownership

Stockholders' rights: dividends

right to receive a proportionate part of any dividend

stocks of public companies are bought and sold on a _________ ______________.

stock exchange

outstanding stock

stock held by stockholders

stock dividends only affect

stockholders' equity accounts

4 types of bonds

term bonds, serial bonds, secured bonds, and debentures

face value

the amount a borrower must pay back to the bondholders on the maturity date

issue price

the amount a corporation receives from issuing stock

declaration date

the board of directors announces the intention to pay the dividend and a liability is created

risk that borrowing by issuing bonds payable carries

the company may be unable to pay off the bonds and related interest

payment date

the date the dividend is paid to the stockholders

date of record

the day on which the company checks its records to identify shareholders of the company

stock split

the division of a single share of stock into more than one share

What is the basis of recording contingent liabilities?

the likelihood of future events (remote, reasonably possible and probable)

future value

the value of an investment at the end of a specific time frame

gross pay

total amount of salary, wages, commissions, and bonuses earned by the employee during the pay period

A company can sell its stock directly to stockholders, or it can use the services of an _______________.

underwriter

debentures

unsecured bonds backed only by the credit worthiness of the bond issuer

Stockholders' rights (4)

vote, dividends, liquidation, preemption

common examples of estimated liabilities:

•Bonus plans •Vacation pay •Health and pension expense benefits •Warranties