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Chapter 10 Key Terms Quiz
Lon-Term Liabilities
18
Accounting
Undergraduate 3
09/01/2014

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Term
Long-term liability
Definition
An obligation that will not be satisfied within one year.
Term
Face value
Definition
The principal amount of the bond as stated on the bond certificate.
Term
Debenture bonds
Definition
Bonds that are backed by a general creditworthiness of the issurer and are not backed by a specific collateral.
Term
Serial bonds
Definition
Bonds that do not have the same due date. A portion of the bonds comes due each time period.
Term
Callable bonds
Definition
Bonds that may be redeemed or retired before their specified due date.
Term
Face rate of interest
Definition
The interest stated on the bond certificate. It is also called the nonimal or coupon rate.
Term
Market rate of interest
Definition
The interest rate that bondholders could obtain by investig in other bonds that are similar to the issuing firm's bonds.
Term
Bond issue price
Definition
The total of the present value of the cash flows produced by a bond. It is calculated as the present value of the annuity of interest payments plus the present value of the principal.
Term
Premium
Definition
The excess of the issue price over the face value of bonds. It occurs when the face rate on the bonds exceeds the market rate.
Term
Discount
Definition
The excess of the face value of bonds over the issue price. It occurs when the market rate on the bonds exceeds the face rate.
Term
Effective interest method of amortization
Definition
The process of transferrng a portion of premium or discount to interest expense. This method transfers an amount resulting in a constant effective interest rate.
Term
Carrying value
Definition
The face value of a bond plus the amount of unamortized premum or minus the amount of unamortized discount.
Term
Gain or loss on redemption
Definition
The difference between the carrying value and the redemption price at the time bonds are redeemed. This amount is presented as an income statement accoun.
Term
Operating lease
Definition
A lease that does not meet any of four criteria and is not recorded by the lessee.
Term
Capital lease
Definition
A lease that meets one or more of four criteria and is recorded as an asset by the lessee.
Term
Deferred tax (Appendix)
Definition
The account used to reconcile the difference between the amount recorded as income tax expense and the amount that is payble as income tax.
Term
Permanent difference (Appendix)
Definition
A difference between the accounting for tax purposes and the accounting for financial reporting purposes. This type of difference occurs when an item affects one set of calculation but not the other set.
Term
Temporary difference
Definition
A difference between the accounting for tax purposes and the acounting for financial reporting purposes. This type of difference affects both book and tax calculations but not in the same time period.
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