Accounting: Chapter 9, 10, 11 Concepts

Card Set Information

Author:
hunter82
ID:
300994
Filename:
Accounting: Chapter 9, 10, 11 Concepts
Updated:
2015-04-17 23:48:43
Tags:
Accounting Concepts
Folders:

Description:
Study material of Accounting Chapter 9, 10, and 11
Show Answers:

Home > Flashcards > Print Preview

The flashcards below were created by user hunter82 on FreezingBlue Flashcards. What would you like to do?


  1. This refers to obligations that extend beyond 1 year.
    Long-term Debt
  2. This is a type of note that requires the issuing entity to pay the face value of the bond to the holder when it matures and usually to pay interest periodically at a specified rate.
    Bond
  3. This is when the borrower makes regular interest payments and then when a bondholder detached this form the debt contract and mailed it to the company on the interest payment date.
    Coupon Notes, Coupon Debentures, or Coupon Bonds
  4. This is what the required interest payments are called
    Coupon Payments
  5. This a debt instrument that require borrowers to pay the lender the face value and usually to make periodic interest payments.
    Bonds/Notes
  6. Amount of money the borrower agrees to repay at maturity.
    Face Value/Par Value/Principal
  7. Date on which the borrower agrees to pay the creditor the face (or par) value.
    Maturity
  8. Rate of interest paid on the face (or par) value. The borrowers pays the interest to creditor each period until maturity.
    Stated/Coupon/Contract Rate
  9. Market rate of interest demanded by creditors. This is a function of economic factors and the creditworthiness of the borrower. It may differ from the stated rate.
    Market/Yield Rate
  10. Secured debt provides collateral (such as real estate or another asset) for the lender. If the borrower fails to make the payments required by the debt, the lender can take steps to "repossess" the collateral.
    Secured Bonds
  11. Debt that does not have collateral is unsecured.
    Unsecured/Debenture Bonds
  12. Unsecured bonds that are relatively risky and, therefore, pay a high rate of interest to compensate the lender for the added risk.
    Junk Bonds
  13. Bonds that give the borrower the option to pay off the debt prior to maturity. Borrowers typically exercise this option when the interest being paid on the debt is substantially greater than the current market rate of interest.
    Callable Bonds
  14. Bonds that give the lender the option to convert the bond into other securities--typically shares of common stock. Lenders will typically exercise this option when the value of the shares of common stock is more attractive than the interest and principal payments supplied by the debt instrument.
    Convertible Bonds
  15. When a bond is sold at Premium (above Par) then the yield rate is less than the stated rate, and the interest expense is less than the interest paid pertaining to interest over the life of the bonds. True or False?
    True
  16. When a bond is sold at Par then the yield rate is greater than the stated rate, and interest expense is equal to the interest paid pertaining to the interest over the life of the bonds. True of False?
    • False:
    • Correct Answer: When a bond is sold at Par, then the yield rate and the stated rate are equal.
  17. When a bond is sold at Discount (below Par) then the yield rate is less than the stated rate, and the interest expense is greater than the interest paid pertaining to the interest over the life of the bonds. True or False?
    True
  18. In order to solve for Debt to Equity, you have to divide Total Liabilities by Total Equity. True or False?
    True
  19. In order to solve for Debt to Total Assets, you have to divide Total Liabilities by Total Equity. True or False?
    • False:
    • Correct Answer: In order to solve for Debt to Total Assets, you have to divide Total Liabilities by Total Assets.
  20. In order to solve for Long-Term Debt to Equity, you have to divide Long-Term Debt by Total Equity. True or False?
    True
  21. Total Assets is equal to the addition of Total Long Term Debt and Total Equity. True or False?
    • False
    • Correct Answer: Total Assets is equal to the addition of Total Liabilities and Total Equity
  22. These ratios focus on the company's ability to make interest payments.
    Coverage Ratios
  23. The two ratios that measure the relative size of Total Liabilities are the debt to equity ratio and debt to total asset ratio. True or False?
    True
  24. In order to calculate for the Times Interest Earned (Accrual Basis) then you must divide Interest Expense by Operating Income or Earning Before Interest and Taxes (EBIT). True or False?
    • False
    • Correct Answer: In order to calculate for the Times Interest Earned (Accrual Basis) then you must divide Operating Income or EBIT by Interest Expense.
  25. In order to calculate for Times Interest Earned (Cash Basis) you have to add Cash Flows from Operations, Taxes Paid, and Interest Paid and then divide that total by Interest Payments. True or False?
    True
  26. This a document that authorizes the creation of the cooperation, setting forth its name and purpose and the names of the incorporators.
    Articles of Incorporation
  27. This is known as the maximum number of shares the business may issue in each class of stock.
    Authorized Shares
  28. This is known as the number of shares actually sold to stockholders.
    Issued Shares
  29. This is the number of issued shares actually in the hands of the stockholders.
    Outstanding Shares
  30. The primary rights for owners of common stock are: not voting in the election of the board of directors (the board controls the operating and financial policies of the company), not sharing in the profits and dividends of the company, not keeping the same percentage of ownership if new stock is issued (preemptive right), and not sharing in the assets in liquidation in proportion to their holdings (this is referred to as the "residual claim" because common stockholders are only paid after all creditors and preferred stockholders are paid in full [which is very rare in liquidation]). True or False?
    • False:
    • Correct Answer: The information is all correct just opposite
  31. When owners of common stock keep the same percentage of ownership if new stock is issued is known as what?
    Preemptive Right
  32. When the owners of common stock share in the assets in liquidation in proportion to their holdings is known as what?
    Residual Claim
  33. This is known as the value of the stock increasing above the price initially paid (of course, it is also possible that the stock's value decreases if the company is unprofitable--this is a risk of owning stock)
    Stock Appreciation
  34. These are payments to a company's stockholders from earnings. These payments are usually in the form of cash, but noncash assets and stock can also be given as these.
    Dividends
  35. These generally pays a regular dividend. In this regard, these are similar to debt, with the __ __ dividend equating to interest payments. Additionally, the value of this, like the value of debt, is most closely tied to interest rate levels and the company's overall creditworthiness; the value of common stock, on the other hand is closely tied to the performance of the company. In this respect, this is a less risky investment than common stock. Holders of this also receive priority over common stockholders in the payment of dividends and the distribution of assets in the event of liquidation.
    Preferred Stock
  36. Preferred Stock frequently requires that the issuing corporation pay dividends to preferred stockholders before paying dividends to common stockholders. True or False?
    True
  37. Preferred Stock is not convertible into common shares if the preferred stockholder elects to do so and certain condition are satisfied. True or False?
    • False: 
    • Correct Answer: Preferred Stock is convertible into common shares
  38. If and when a corporation is dissolved, liquidating distributions are made to stockholders. Corporate charters frequently require the claims of preferred stockholders to be satisfied before those of common stockholders. Additionally, the charter may specify a liquidating amount for preferred shares. True or False?
    True
  39. The corporate charter can not authorize or even require the corporation to repurchase (or redeem) any preferred shares that are sold. In such cases, the charter usually fixes the call price (the amount to be paid to the preferred stockholders) and specifies a date on or after which the shares may or must be repurchased. Note that this feature is similar to the repaying of the principal on a loan at the maturity date--particularly when the charter does not require redemption at a specific date. True or False?
    • False:
    • Correct Answer: The corporation CAN authorize or even require the corporation to repurchase, and the note that this feature is similar to the repaying of the principal on a loan at the maturity date--particularly when the charter DOES require redemption at a specific date. All the other information is correct.
  40. Most preferred stock does not confer voting rights, which means that preferred stockholders, unlike common stockholders, cannot vote at stockholder's meetings. True or False?
    True
  41. The Dividend Preferences, Conversion Privileges, and Liquidation Preferences are advantageous for common stockholders while Call Provisions (redeemable) and Denial of Voting Rights is advantageous for preferred stockholders. True or False?
    • False:
    • Correct Answer: The first three listed are advantageous for preferred stockholders and the the last two are advantageous for common stockholders.
  42. This is known as the amount to be paid to the preferred stockholders.
    Call Price
  43. This is an arbitrary monetary amount printed on each share of stock that establishes a minimum price for the stock when issued, but does not determine its market value.
    Par Value
  44. The amount in excess of the par value is recorded in an account called...
    Additional Paid-In Capital
  45. Additional Paid-In Capital and Par Value are the first accounts shown in the stockholder's equity section of the balance sheet and taken together are known as...
    Capital Stock
  46. These are rights corporations grant employees and executives to buy stock at a set price as compensation for their services.
    Stock Options
  47. This is known as the compensation expense recorded by a company when they grant stock options depends on many factors including the price at which employees can buy the stock
    Exercise or Strike Price
  48. Corporations elect to grant stock options for two primary reasons. The first reason is because stock options allow cash-poor corporations to compete for top talent in the employee market. Second, stock options are believed to better align the incentives of the employee with those of the owners. Stock options help align these incentives because now an employee's personal wealth is tied to the success of the company's stock price--just like the owners. True or False?
    True
  49. This is when a corporation purchases its own previously issued stock, the stock that it buys is called...
    Treasury Stock
  50. Corporations purchase treasury stock for many reasons. One, to sell out the ownership of one or more stockholders. Two, to increase the size of corporate operations. Three, to increase the number of outstanding shares of stock in an attempt to increase earnings per share and market value per share. Four, to get rid of shares to be transferred to employees under stock bonus, stock option, or stock purchase plans. Five, to dissatisfy 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. Six, to increase vulnerability to an unfriendly takeover. True or False?
    • False:
    • Correct Answer: All the information is correct just opposite.
  51. This is known as stock that may be purchased on the open market, by a general offer to the stock-holders or by direct negotiation with a major stockholder.
    Tender Offer
  52. The payment of a cash dividend is preceded by an official announcement or declaration by the board of directors of the company's intention to pay a dividend. True or False?
    True
  53. This known as the __ on which a corporation announces its intention to pay a dividend on common or preferred stock.
    Declaration Date
  54. The ___ on which a stockholder must own one or more shares of stock in order to receive the dividend.
    Date of Record
  55. The ___ on which the dividend will actually be paid.
    Payment Date
  56. Preferred stock dividends remaining unpaid for 1 or more years are considered to be in...
    Arrears
  57. Most preferred stock is ___. The _ _ _ requires the eventual payment of all preferred dividends--both dividends in arrears and current dividends--before any dividends are paid to common stockholders.
    Cumulative Dividend Preference
  58. Preferred stock that pays dividends in excess of its stated dividend rate is called...
    Participating Preferred Stock
  59. Preferred Stock that cannot pay dividends in excess of the current dividends preference plus cumulative dividends in arrears, if any, is called..
    Non-participating Stock
  60. This provides that stockholders of participating preferred shares receive, in addition to the stated dividend, a share of amounts available for distribution as dividends to other classes of stock. __ __ __ may either be fully __ or partially __.
    Participating Dividend Preference
  61. This receives a share of all amounts available for dividends.
    Fully Participating Preferred Stock
  62. This receives a share of all amounts available for dividends, but the share is limited to a specified percentage of preferred par value.
    Partially Participating Preferred Stock
  63. In order to calculate for Return On Common Equity you have to add Net Income and Preferred Dividends and then multiply that total by the Average Common Stockholder's Equity. True or False?
    • False:
    • Correct Answer: In order to calculate for Return On Common Equity you have to SUBTRACT Net Income and Preferred Dividends and then DIVIDE that total by the Average Common Stockholder's Equity.
  64. In order to calculate for Earnings Per Share (ESP) you have to subtract Net Income and Preferred Dividends and then divide that total by Average Common Shares Outstanding. True or False?
    True
  65. This shows the growth in equity from operating activities
    Return on Common Equity
  66. This measures the net income earned by each share of common stock.
    Earnings Per Share (ESP)
  67. This considers the ratio of dividends paid to stock price. This is calculated by taking Dividends per Common Share and dividing that by Common Stock Price.
    Dividend Yield
  68. This calculates the proportion of dividends to earnings. This can be calculated by taking Common Dividends by Net Income.
    Dividend Payout
  69. To calculate this you have to take Common Stock Repurchases and divide it by Net Income.
    Stock Repurchase Payout
  70. To arrive at this you have to add Dividend Payout and Stock Repurchase Payout
    Total Payout (Summary)
  71. To calculate this you have to add Common Dividends and Common Stock Repurchases and divide it by Net Income (or Comprehensive Income)
    Total Payout (More direct)
  72. This is the cash inflows and outflows that relate to acquiring (purchasing or manufacturing), selling, and delivering goods or services. This also includes activities such as: cash sales to customers, collection of accounts receivable arising from credit sales, cash dividends received, interest received on investments in equity and debt securities. Cash outflows activities include payments: to suppliers, to employers for wages and salaries, to government for taxes, and to lenders for interest on debt
    Cash Flows from Operating Activities
  73. Operating Cash Flows correspond to the amounts of items that determine net income (revenue and expenses). However, the types are different because the income statement is accrual-based while the statement of cash flows is cash-based. True or False?
    • False
    • Correct Answer: Operating Cash Flows correspond to the TYPES of items that determine net income (revenue and expenses). However, the AMOUNTS are different because the income statement is accrual-based while the statement of cash flows is cash-based.
  74. This (or __ cash flows) are the cash inflows and outflows that relate to acquiring and disposing of operating assets and __ in other companies (current and long-term), lending money, and collecting loans. Cash inflows from these activities include cash received from the: sale of property, plant, equipment; collection of the principal amount of a loan (a note receivable), sale of __ in other companies. Cash outflows from these activities include payments made to: acquire property, plant, and equipment; purchase debt or equity securities of other companies as an __, and loan money to others (note receivable). In general, this relate to increase or decreases of long-term assets and __.
    Cash Flows from Investing Activities
  75. This (or ___ cash flows) relate to obtaining resources form creditors and owners, providing owners a return on their investment, and repaying creditors. Cash inflows from these activities include cash received from the: issuance of stock and issuance of debt (bonds or notes payable). Cash Outflows from these activities include cash payments to: repay the principal amount borrowed (bonds or notes payable), repurchase a company's own stock (treasury stock), and pay dividends. In general, this involves cash receipts and payments that affect long-term liabilities and stockholder's equity.
    Cash Flows from Financing Activities

What would you like to do?

Home > Flashcards > Print Preview