# Shared Flashcard Set

## Details

Long-Term Liabilities
Financial Accounting Chapter 10
23
Accounting
11/25/2012

Term
 Long-Term Liability 4 Types
Definition
 An obligation that will not be satisfied within one year or the current operating cycle1) Bonds 2) Notes 3) Leases 4) Deferred Taxes
Term
 Face Value
Definition
 Principal amount of the bond as stated on the bond certificate
Term
 Bond
Definition
 a security or financial instrument that allows firms to borrow money and repay the loan over a long period of time (term)
Term
 Debenture bonds
Definition
 bonds that are not backed by specific collateral
Term
 Serial bonds
Definition
 do not all have the same due date; a portion of the bonds comes due each time period
Term
 Collateralized bond
Definition
 Bonds backed by specific assets
Term
 Convertible bonds
Definition
 Bonds that can be converted into common stock at a future time
Term
 Callable bonds
Definition
 bonds that may be retired before their specified due date
Term
 Face Rate of Interest (stated, nominal, contract, coupon)
Definition
 the amount of interest that will be paid each interest period
Term
 Market rate of interest (effective, bond)
Definition
 The rate that investors could obtain by investing in other bonds that are similar to the issuing firm's bonds
Term
 Bond issue price
Definition
 the present value of the annuity of interest payments plus the present value of the principal
Term
Definition
 excess of the issue price over the face value of the bonds
Term
 Discount
Definition
 The excess of the face value of bonds over the issue price
Term
 Market rate >=< Face Rate
Definition
 Market Rate=Face Rate-- issued at face value amountMarket Rate > Face Rate-- issued at a discountMarket Rate< Face Rate-- issued at a premium
Term
 Amortization
Definition
 process of transferring an amount from the discount or premium account to interest expense each time period to adjust interest expense
Term
 Effective interest method of amortization SETUP
Definition
 Cash Interest (Column 1) = Bond Face Value X Face RateInterest Expense (Column 2) = Carrying Value X Market RateDiscount Amortized (Column 3)= Interest Exp - Cash IntCarrying Value (C4) = Face Value- Unamortized Discount
Term
 Gain or loss on redemption of a bond
Definition
 Gain = Carrying Value - Redemption PriceLoss = Redemption Price - Carrying Value
Term
 Operating Lease
Definition
 does not meet any of the four criteria and is not recorded as an asset by the lessee. (rent expense) (disclosed in notes)
Term
 Capital Lease
Definition
 Recorded as an asset. Depreciates over time
Term
 Lease Criteria (4)
Definition
 - transfers ownership of property- contains a bargain-purchase option-term is 75% of property's life- present value of payments is >90% of property's fair market value
Term
 Debt-To-Equity Ratio
Definition
 how much creditors contributed compared to owners Total Liabilities/Stockholders' Equity
Term
 Times Interest Earned Ratio
Definition
 ability to pay the interest of their debtIncome Before Interest and Tax/Interest Expense
Term
 Debt Service Coverage Ratio
Definition
 ability to repay principal on loanscash flow from operations bfor int. and tax/ interest and principal payment
Supporting users have an ad free experience!