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Accounting 122
Exam 1: AppC: Investments; Chapter 9: Long-term liabilities
| Term | Definition |
|---|---|
| short-term investments | debt and equity securities that management expects to convert to cash within the next 3 to 12 months (or the operating cycle if longer); also called temporary investments or marketable securities; current assets |
| long-term investments | long-term assets not used in operating activities such as notes receivable and investments in stocks and bonds; noncurrent assets |
| debt securities or debt investments | a creditor relation such as investments in notes, bonds, and certificates of deposit; they are issued by governments, companies, and individuals |
| equity securities or equity investments | an owner relation such as investments in shares of stock issued by companies |
| debt investments (accounting) | normal debit balance; increase a Dr, thus decrease a Cr, BS, permanent, current asset |
| trading securities | investments in debt securities that the company intends to actively trade for profit; current assets |
| portfolio | a group of securities |
| unrealized gain or loss | gain (loss) not yet realized by an actual transaction or event such as a sale; temporary account |
| fair value adjustment - trading | a balance sheet account; current asset; permanent; with either a debit balance (fair value > cost) or credit balance (fair value < cost) |
| unrealized gain (or loss) | gain (loss) not yet realized by an actual transaction or event such as a sale; reported in the other revenues and gains (or expenses and losses) section on the income statement |
| hold-to-maturity (HTM) securities | debt securities that a company has the intent and ability to hold until they mature; no fair value adjustment; debt investment |
| available-for-sales (AFS) (fair value) | investments in debt securities that are not classified as trading securities or held-to-maturity securities; an unrealized gain or loss for the portfolio of AFS securities is not reported on the income statement; reported in the equity section on the BS |
| fair value adjustment - stock | permanent asset account that adjusts the reported value of the stock investments portfolio from its prior-period fair value to the current-period fair value; BS; increase a Dr, thus decrease a Cr |
| equity securities | long-term investment when the investor is able to exert significant influence over the investee; investors owning 20% or more (but less than 50%) of voting stock are presumed to exert significant influence |
| equity method | accounting method used for long-term investments when the investor has “significant influence” over the investee |
| equity method investments | a temporary account (closed to income summary at each period-end) and is reported on the income statement; not adjusted to fair value |
| equity securities with controlling influence | long-term investment when the investor is able to exert controlling influence over the investee; investors owning 50% or more of voting stock are presumed to exert controlling influence |
| consolidation method | used for long-term investments in equity securities with controlling influence |
| consolidated financial statements | financial statements that show all (combined) activities under the parent’s control, including those of any subsidiaries |
| parent | company that owns a controlling interest in a corporation (requires more than 50% of voting stock) |
| subsidiary | entity controlled by another entity (parent) in which the parent owns more than 50% of the subsidiary’s voting stock |
| debt investments - held to maturity (short term) | reported at cost (without any discount or premium amortization) |
| debt investments - trading (short term) | reported at fair value (with fair value adjustment to income) |
| debt investments - available-for-sale (short term) | reported at fair value (with fair value adjustment to equity) |
| stock investments - insignificant influence (short term) | reported at fair value (with fair value adjustment to income) |
| debt investments - held to maturity (long term) | reported at cost (with any discount or premium amortized) |
| debt investments - available-for-sale (long term) | reported at fair value (with fair value adjustment to equity) |
| stock investments - insignificant influence | reported at fair value (with fair value adjustment to income) |
| equity method investments - significant influence | reported at equity method (no fair value adjustment) |
| consolidated investments - controlling influence | consolidation method (no fair value adjustment) |
| comprehensive income | net change in equity for a period, excluding owner investments and distributions |
| other comprehensive income | net change in equity for a period, excluding owner investments and distributions; also called comprehensive income |
| liability | a probable future payment of assets or services that a company is presently obligated to make as a result of past transactions or events |
| current liabilities (short-term liabilities) | obligations due to be paid or settled within one year or the company’s operating cycle, whichever is longer |
| long-term liabilities | obligations not due to be paid within one year or the operating cycle, whichever is longer |
| known liabilities | obligations of a company with little uncertainty; set by agreements, contracts, or laws; also called definitely determinable liabilities |
| short-term note payable | current obligation in the form of a written promissory note |
| interest expense equation | I = p x r x n/360 |
| interest | difference between amount borrowed and the amount repaid |
| principal or face value | amount borrowed of the note |
| payroll liabilities | salaries and wages, employee benefits, and payroll taxes levied on the employer |
| gross pay | total compensation earned by an employee |
| net pay | gross pay less all deductions; also called take-home pay |
| payroll deductions | amounts withheld from an employee’s gross pay; also called withholdings |
| Federal Insurance Contributions Act (FICA) taxes | taxes assessed on both employers and employees; for Social Security and Medicare programs |
| Social Security taxes | withholdings to cover retirement, disability, and survivorship |
| Medicare taxes | withholdings to cover medical benefits |
| withholding allowances | the number of allowances, which reduce taxes owed to the government, the employee claims |
| voluntary deduction withholdings | come from employee requests, unions, or other agreements: charitable giving, medical, and life insurance premiums, pension contributions, and union dues |
| merit rating | rating assigned to an employer by a state based on the employer’s record of employment |
| current portion of long-term debt | portion of long-term debt due within one year or the operating cycle, whichever is longer; reported under current liabilities |
| estimated liability | obligation of an uncertain amount that can be reasonably estimated |
| employee benefits | additional compensation paid to or on behalf of employees, such as premiums for medical, dental, life, and disability insurance and contributions to pension plans |
| pension plans | agreements by employers to provide benefits (payments) to employees after retirement |
| vacation benefits | paid absences |
| warranty | agreement that obligates the seller to correct or replace a product or service when it fails to perform properly within a specified period |
| contingent liability | obligation to make a future payment if, and only if, an uncertain future event occurs |
| accounting for contingent liabilities | 1. Record liability. The future event is probable (likely) and the amount owed can be reasonably estimated. 2. Disclose in notes. The future event is reasonably possible (could occur). 3. No disclosure. The future event is remote (unlikely). |
| fixed expense | interest expense that does not vary due to short-term changes in sales or other operating activities |
| variable expense | expenses that change with sales volume |
| time interest earned | ratio of income before interest expense (and any income taxes) divided by interest expense; reflects risk of covering interest commitments when income varies |
| Form 941 | IRS form filed to report FICA taxes owed and remitted |
| federal depository banks | bank authorized to accept deposits of amounts payable to the federal government |
| Form 940 | IRS form used to report an employer’s federal unemployment taxes (FUTA) on an annual filing basis |
| Form W-2 | annual report by an employer to each employee showing the employee’s wages subject to FICA and Federal income taxes along with amounts withheld |
| payroll register | record for a pay period that shows the pay period dates, regular and overtime hours worked, gross pay, net pay, and deductions |
| payroll journal | entries to record payroll |
| payroll check | includes a detachable statement of earnings showing gross pay, deductions, and net pay |
| employee earnings report | record of an employee’s net pay, gross pay, deductions, and year-to-date payroll information |
| Form W-4 | withholding allowance certificate, filed with the employer, identifying the number of withholding allowances claimed |
| wage bracket withholding table | table of the amounts of income tax withheld from employees’ wages |
| payroll bank account | bank account used solely for paying employees; each pay period, an amount equal to the total employees’ net pay is deposited in it and the payroll checks are drawn on it |
| federal income taxes withheld | amount of tax that an employer is required to withhold from an employee’s paycheck; amount is determined by the number of exemptions that an employee claims and the income that is paid |
| deferred income tax liability | corporate income taxes that are deferred until future years because of temporary differences between GAAP and tax rules |
Created by:
ryanriggs18
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