Flashcards
Ch 7 Accounting Flash Cards
Cards in this deck (29)
- 1Accrued Liabilities definitionAccrued liabilities are incurred in the current period and, there-fore, must be recognized in the current period.
- 22 types - Accrued LiabilitiesAccruals for routine contractual liabilities - wages, interest, income tax
Accruals for contingent liabilities - lawsuits, warranties, environmental disasters - 3Contingent liabilitiesDepend on the occurrence of a future uncertain event in order to determine whether a liability exists and, if so, in what amount.
- 4Journal entry to for accrued liability and paymentDebit expense, credit liability
Debit liability, credit cash - 5Financial statement affects of not accruing liabilityFailure to recognize this liability and associated expense would understate liabilities on the balance sheet and overstate income in the current period
- 62 Conditions on contingent liabilities1. Probable
2. Estimable - 7Types of contingent liabilitiesGuarantees on the debt of another entity.
Lawsuits (only for losses, never for lawsuits where the company stands to win).
Product warranties and recalls.
Environmental disasters and remediation. - 8Journal entry for warranty contingent liabilityCurrent period:
Debit expense (based on % and cost), credit warranties payable
When repaired:
Debit warranties payable, credit inventories - 9Interest expensePrincipal * Annual Rate * Portion of Year Outstanding
- 10Current Maturities of Long-Term DebtPrincipal payments that must be made during the upcoming 12 months on long-term debt (such as for a mortgage or a maturing bond) are reported as current liabilities called current maturities of long‑term debt.
- 11Bonds Payable definitionThe borrower receives cash and agrees to pay it back with interest. Generally, the entire face amount (principal) of the bond is repaid at maturity (at the end of the bond’s life) and interest payments are made in the interim (usually semiannually).
- 12Coupon (contract or stated) rateIs stated in the bond contract; it is used to compute the dollar amount of interest payments that are paid (in cash) to bondholders during the life of the bond issue
- 13Market (yield or effective) rateThis is the interest rate that investors expect to earn on the in-vestment in this debt security; this rate is used to price the bond
- 14Present value of expected cash flowsThe bond price, both its initial sales price and the price it trades at in the secondary market subsequent to issuance.
- 15AnnuityPeriodic interest payments (usually semiannual) during the bond’s life; they are equal in amount and made at regular intervals.
- 16PrincipalSingle payment of the face amount of the bond at maturity; this is called a lump‑sum because it occurs only once
- 17Bond sold at ParCoupon rate = market rate
- 18Bond sold at discountCoupon rate < market rate
- 19Bond sold at premiumCoupon rate > market rate
- 20Initial journal entry for bondsDebit cash
Credit long term debit - 21AmortizationAn amortized bond is one where the discount amount being amortized becomes part of its interest expense over the life of the bond. If a bond is issued at a discount—that is, offered for sale below its par or face value—the discount must be treated either as an expense, or it can be amortized as an asset.
- 22Gain or Loss on Bond RepurchaseNet Bonds Payable - Repurchase Payment
- 23Present value of a single amount(1) the right to receive an amount of money now, its present value, is worth more than the right to receive the same amount later, its future value;
(2) the longer we must wait to receive an amount, the less attractive the receipt is; (3) the greater the interest rate the greater amount we will receive in the future - 24Current liabilityObligations that require payment within the coming year or operating cycle, whichever is longer
- 25How are current liabilities settledSettled with existing current assets or operating cash flows
- 26AccrualRecognition of an event in the financial statements even though no related external transaction has occurred
- 27Why are accruals importantVital to the fair presentation of the financial condition of a company as they impact both the recognition of revenue and the matching of expenses.
- 28Whats the relationship between a bond’s coupon rate and its market interest rate (yield) rateIn general, there is an inverse relation between the bond’s market rate and the bond’s market price.
- 29—
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- Accounting Flashcards on Ch 7 Accounting Flash Cards, created by Christine Sanwald on 05/08/2017.
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- Christine Sanwald
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