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Define current liability
A liability a firm expects to satisfy with a current asset (used within one year/period)
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When expense is probable and reasonably estimable, but the amount is in a range from X-Y, what do you record?
The lowest price, or the most probable price.
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Current Ratio
(Current Assets) / (Current Liabilities)
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Acid-Test (Quick) Ratio
(Cash + Short Term Investments + A/R) / Current Liabilities
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How do you find the future value?
FV = PV * FV Factor
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How do you find the present value?
PV = FV * PV Factor
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Define annuity
Any type of annually recurring payment
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Define simple interest
Interest you receive all at once
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When a bond is issued, what is the journal entry?
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When a interest is paid on a bond, what is the journal entry?
- Interest Expense XX
- Cash XX
- Bonds Payable [DIFFERENCE]
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When a bond matures, what is the journal entry?
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What is a secured bond?
A bond backed by an asset
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What is an unsecured bond?
A bond unbacked by an asset
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What is a term bond?
A bond where the issuer pays the principle amount to the bond holder at the END of the bond's life/term (most common)
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What is a serial bond?
The issuer pays principle amount to the bond holder in installments over the bond's life/term
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Sinking Fund Bonds
Issuer makes installment payments to a fund over the bond's life/term (company must set money aside)
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Bond Features: Callable & Convertible?
- Callable bonds - issuer has the option to pay bonds off early
- Convertible bonds - Bond owner has option to convert bonds into shares of common stock
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When a bond is issued at a premium, face value or discount...
It is issued for more than face value, at face value or less than face value
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Define a stated interest rate
The interest rate printed on the bond
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Define a market interest rate
The interest rate currently used by investors
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How do you calculate AMOUNT PAID on a bond at the end of the period?
- Stated Interest Rate * Face Value
- (consider how often interest is compounded)
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How do you calculate Interest Expense on a bond at the end of the period?
- Market Rate * Carrying Value
- (constant when issued at face value)
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Aspects of an Operating Lease
- -Record rent expense
- -Ignore interest rates
It's like an apartment, you just make payments to use it, you will never own it (it will never be an asset)
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Aspects of a capital lease...
- -Recognize A & L
- -Use interest rate
You make payments to pay for an item you will eventually deplete
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Debt-Equity Ratio
Total L / Total SE
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Return on Equity Ratio
NI / Avg SE
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Times Interest Earned Ratio
(NI + Interest Expense + Tax Expense) / Interest Expense
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Warranty Liability - what is it? What is the journal entry when created and then when used?
- It is an expense and a liability at the same time...you are preparing to fix a problem.
- Created:
- Warranty Expense XX
- Estimated Warranty Liability XX
- Used:
- Estimated Warranty Liability XX
- Cash XX
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Par Value - definition & journal entry
It is an outdated concept - subtracted from each share to make up your Additional Paid in Capital (APIC)
- Cash XX
- [Common/Preferred] Stock XX (# shares * par value)
- APIC XX (REMAINDER)
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DIVIDENDS
Date of....(3)
-Name
- JE
- Date of DeclarationRE XX
- Dividends Payable XX
- Date of Payment D/P XX
- Cash XX
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Stock Dividends
-Small vs. Large
-JE
- Small (< 25% of shares outstanding)
- RE XX (# shares * market price)
- C/S XX (# shares * par value)
- APIC XX (Remainder)
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- Large (≥ 25% of shares outstanding)
- RE XX (# shares * par value)
- C/S XX (# shares * par value)
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Return on Market Value of Equity Ratio (ROMVE)
NI / Market Value of Equity
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Earnings per Share Ratio (EPS)
NI / Avg # Shares Outstanding
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Price Earnings Ratio (PE)
Stock Price / Earnings per share
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What makes up the difference between ROE & ROMVE?
Intangible Assets
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What is the journal entry for repurchasing your own stock?
- Treasury Stock XX (# shares * sale price)
- Cash XX (equal)
If the sale price doesn't equal the purchase price, adjust with a gain/loss
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What is the journal entry for reissuing stock?
- When sale price > purchase price
- Cash XX (sale price * # shares)
- Treasury Stock XX (orig. purchase price * # shares)
- APIC XX (remainder)
- When sale price < purchase price
- Cash XX (sale price * # shares)
- APIC XX (remainder)
- Treasury Stock XX (orig. purchase price * # shares)
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Cash Flows Statement
-What is it?
A statement that describes changes in the cash account
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Cash Flows Statement- what is it's purpose?
To provide info about the operating performance of a firm....same purpose as the income statement
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What are the three sections of the CSF and what do they include?
- Operating - I/S stuff (rev, exp)
- Investing - Long term A & Current L,
- Financing - External Financing Activities (debt/equity)
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What are the two methods of CSF and what is the difference between the two?
- Direct - all three sections directly summarize cash inflows and outflows
- Indirect - The operating section adjusts N/I to derive operating cash flows
FINANCING AND INVESTING SECTIONS ARE THE SAME IN BOTH METHODS
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What are the four steps for preparing the CSF?
- Prepare the operating section
- Prepare the investing section
- Prepare the financing section
- Combine 3 sections and reconcile the net amount with cash balance reported in the balance sheet
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Preparing the Operating Section under in the Indirect Method
- Start with NI
- Adjust NI for "noncash" revenues/gains & exp/losses
- Adjust NI for changes in current assets and current liabilities
- Sum amounts to get net cash for Operating Activities
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Preparing the Operating Section under the Direct Method
Go down the IS adjusting each rev & exp item to a cash accountSum amounts to get net cash
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Two steps for preparing the investing & financing sections under both methods
- List inflows and outflows
- Sum amounts to get net cash for each of the 2 activities
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Cash Return on Assets Ratio
Operating Cash Flows / Avg. Total Assets
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Cash Return on Assets Ratio can be broken into:
Operating Cash Flows to Sales Ratio & Asset Turnover Ratio
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Operating Cash Flows to Sales Ratio
Operating Cash Flows / Net Sales
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Asset Turnover Ratio
Net Sales / Avg. Total Assets
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What T chart do you use to calculate Cash Received?
A/R
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What T chart do you use to calculate Cash Paid for Income Tax?
Income Tax Payable
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What T chart do you use to calculate Cash Paid for Supplies?
Use inventory to find purchases then plug purchases into A/P to find payment
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Which accounts should be taken at face value for adjustments on CSF?
Any A/P
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Payment of Employee Salaries
O - CO
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Sale of Land for cash
I CI
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Purchase of rent in advance
O - CO
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Collection of an A/R
O CI
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Purchase of Inventory
O CO
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Collection of Notes Receivable
I CO
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Payment of Income Taxes
O CO
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Sale of equipment for a note receivable
no entry
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Loan to another firm
I CO
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Payment of a long term note payable
F CO
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Purchase of treasury stock
F CO
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Under the operating direct method, skip _________________ and come back to it because it can be easily adjusted for all other ________ accounts after other reconciliation.
operating expenses, prepaid
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