ACTY 2110 - Study Guide #2 PDF

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Download ACTY 2110 - Study Guide #2 PDF

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Bond- interest bearing notes payable, large amounts of long-term capital Advantages- Stockholder control is not affected, tax savings result, ROCSE may be higher Disadvantages- must pay periodic interest, must repay the principal at the due date Issue Stock- No interest, Higher Income Tax Expense, Higher Net Income, Higher # of shares, Lower EPS Issue Bonds- Interest, Lower Income Tax Expense, Lower Net Income, Lower # of shares, Higher EPS Issue at Face Value- Cash, Bonds Payable then Interest Expense, Cash OR Interest Expense, Interest Payable then Interest Payable, Cash Issuing- BOD stipulates in Bond Indenture Determining Market Price- present Value, Current Market Price (Dollar, Length, Rate) Issue at Face Value- record liability when issued, record interest payment Cash, Bond Payable Issue at a Discount- Market Interest is higher than state interest Cash/Discount on Bonds Payable, Bonds Payable; Contra Account deducted from bonds payable; Increases interest expense over the life of bond Issue at a Premium- Market Interest is lower than stated rate; Cash, Bonds Payable/Premium on Bonds Payable; Reduction in the cost of borrowing, credits the bond premium to Interest Expense over the life of the bonds; Decreases interest expense over the life of the bond Redeeming Bonds at Maturity- Bonds Payable, Cash Redeeming Bonds Before MaturityWant to remove interest cost, eliminate carrying value, record cash padi, recognize gain/loss; Bonds Payable/Premium on Bonds Payable/Loss on Bond Redemption, Cash Convert to CS- Bonds Payable, Common Stock/Paid-Capital in Excess of Par- Common Stock Long-Term Notes PayableCash, Mortgage Payable then Interest Expense/Mortgage Payable, Cash Payment ScheduleSemiAnnual Interest Period, Cash Payment, Interest Expense (Principal * %), Reduction of Principal (Payment-Expense), Principal Balance (Principal-Reduction) Operating Lease- temporary use of the property, while lessor continues to own; Lessee records lease payment and lessor records payments as revenue; Rent Expense, Cash Capital Lease- lease transfers ownership of the property to the lessee, contains a bargain purchase option, equal to 75% or more of the economic life of the leased property, present value of the lease payments equals or exceeds 90% of the fair value of the leased property; Leased Asset - Equipment, Lease Liability Balance Sheet Long Term Liabilities, Bonds Payable/Less: Discount on Bonds Payable/Mortgage Payable/Lease Liability/Total Long-Term Liability Debt to Assets Ratio- % of the total assets provided by creditors Debt/Assets=Debt to Assets Ratio TImes Interest Earned= Income before income taxes and interest expense/Interest Expense Future Amount = Present Value X (1+Interest Rate) Amortization Amount=Bond Interest Expense (Carrying Value of Bonds at Beginning of Period*Effective-Interest Rate) - Bond Interest Paid (Face Amount of Bonds*Contractual Interest Rate) Balance Sheet- report in footnotes nature and amount of each, report current maturities of long-term debt as current liability, long-term solvency may be analyzed (Debt-to-Assets Ratio, Times Interest Expense) Simple Interest- Interest = Principal*Rate*Time Compound Interest- Principal amount at Beg, Annual Amount of Interest (Principal*%), Accum Amount at End (Principal+Interest) Present Value- Future Value / (1.0 + Interest Rate) Bearer(Coupon) Bonds- not registered in the name of the owner Bond Certificate- legal document name, face value, contractual interest rate, maturity date Bond Indenture- legal document set forth terms of the bond issue Bonds- form of interest-bearing notes payable issued by corporations, universities and governmental entities Callable Bonds- subject to redemption at a stated dollar amount prior to maturity at the option of the issuer Capital Lease- contractual agreement transfers substantially all benefits and risks of ownership to the lessee so that the lease is in effect a purchase of the property Contractual Interest Rate- the amount of cash interest the borrower pays and the investor receives Convertible Bonds- permit conversion into common stock at the bondholder’s option Debenture Bonds- issued against general credit of the borrower, unsecured bonds Debt-toAssets Ratio- percentage of total assets provided by creditors; computed as debt divided by assets Discount- difference between the face value of a bond and its selling price, when the bond is sold for less than its face value Face Value- amount of principal due at the maturity of the bond Long-Term Liabilities- obligations expected to be paid more than 1 year in the future Market Interest Rateinvestors demand for loaning funds to the corporation Maturity Date- final payment on the bond is due from the bond issuer to the investor Mortgage Bond- secured by real estate Mortgage Notes

Payable- mortgage that pledges title to specific assets as security for a loan Operating leasecontractual agreement giving the lessee temporary use of the property, with continued ownership of the property by the lessor Premium- difference between the selling price and the face value of a bond, when the bond is sold for more than its face value Registered Bonds- issued in the name of the owner Secured Bonds- specific assets of the issuer pledged as collateral Serial bonds- mature in installments Sinking Funds Bonds- specific assets set aside to redeem them Term Bonds- mature at a single specified future date Times Interest Earned- solvency measure that indicates a company’s ability to meet interest payments Time Value of Money relationship between time and money. $ today is worth more than $ promised in the future Unsecured Bonds- issued against general credit of the borrower, debenture bonds Effective Interest Method of Amoritization- Effective Interest Method of Amortization- periodic interest expense equal to a constant percentage of the carrying value of bonds Straight-Line Method of Amortization- allocating the same amount of interest expense per period...