Accounting 102-Chapter 10 Long-Term Liabilities

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  1. Long-term liability
    An obligation that will not be satisfied within one year or the current operating cycle.
  2. Bond
    A bond is a security or financial instrument that allows firms to borrow money and repay the loan over a long period of time.
  3. Face value
    The principal amount of the bond as stated on the bond certificate. (par value)
  4. Collateral
    Collateral represents the assets that back the bonds in case the issuer cannot make the interest and principal payments and must default on the loan.
  5. Debenture bonds
    Bonds that are not backed by specific collateral.
  6. Secured Bond
    The certificate indicates specific assets that serve as collateral in case of default.
  7. Serial bonds
    Bonds that do not all have the same due date; a portion of the bonds comes due each time period.
  8. Callable bonds
    Bonds that may be redeemed or retired before their specified due date.
  9. Face rate of interest
    The rate of interest on the bond certificate.

    Alternate term: Stated rate, nominal rate, contract rate, coupon rate.
  10. Market rate of interest
    The rate that investors could obtain by investing in other bonds that are similar to the issuing firm's bonds.

    Alternate term: Effective rate, bond yield.
  11. Bond issue price
    The present value of the annuity of interest payments plus the present value of the principal
  12. Premium
    The excess of the issue price over the face value of the bonds.

    Premium= Issue Price - Face Value

    Is an addition to the bonds payable liability on the balance sheet.
  13. Discount
    The excess of the face value of bonds over the issue price.

    Discount = Face Value - Issue Price

    Is a deduction to the bonds payable liability and thus is a contra-liability.
  14. Effective interest method of amortization
    The process of transferring a portion of the premium or discount to interest expense; this method results in a constant effective interest rate.Alternate term: Interest method.
  15. Carrying value
    The face value of a bond plus the amount of unamortized premium or minus the amount of unamortized discount.Alternate term: Book value.
  16. Gain or loss on redemption
    The difference between the carrying value and the redemption price at the time bonds are redeemed.
  17. Operating lease
    A lease that does not meet any of the four criteria and is not recorded as an asset by the lessee.
  18. Capital lease
    A lease that is recorded as an asset by the lessee.
  19. Deferred tax
    The account used to reconcile the difference between the amount recorded as income tax expense and the amount that is payable as income tax.
  20. Permanent difference
    A difference that affects the tax records but not the accounting records, or vice versa.
  21. Temporary difference
    A difference that affects both book and tax records but not in the same time period.Alternate term: Timing difference.
Card Set
Accounting 102-Chapter 10 Long-Term Liabilities
Long-Term Liabilities
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