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ACFM 322 Exam 1
| Term | Definition |
|---|---|
| Liabilities | Probable future sacrifices of economic benefits arising from present obligations to transfer goods or provide services to other entities in the future as a result of past transactions or events |
| Current Liability | Liability expected to be satisfied with current assets or by the creation of current liabilities; an obligation payable within one year (or current cycle) |
| Maturity | Liabilities payable within 1 year are recorded at their ____________ amounts |
| Accounts Payable | Obligations to suppliers of merchandise or of services purchased on account |
| Notes Payable | Designated by a formal, written promissory note; often long-term and interest-bearing |
| Non-Committed Line of Credit | Informal agreement giving a prearranged limit |
| Committed Line of Credit | More formal agreement, usually requires payment of a commitment fee |
| Noninterest-Bearing Note | When the interest info is not explicitly stated but is instead included in the amount that must be paid back to the lender; note was "discounted' |
| Secured Loans | Loans involving collateral as security for repayment of the loan |
| Pledging | When accounts receivable serve as collateral |
| Factoring | When accounts receivable are sold to a finance company |
| Commercial Paper | Unsecured notes with a maturity date of 1-270 days; often bought by other businesses; short-term business to business loans |
| Accrued Liabilities | Expense already incurred but not yet paid |
| Sales Tax Payable | Sales tax collected from customers by the seller; current liability payable to government |
| Loss Contingency | Existing uncertainty involving potential loss, depending on whether a future event occurs |
| Probable, Reasonably Possible, Remote | Categories of Likelihood |
| Known, Reasonably Estimated, Not Reasonably Estimated | Categories of the Amount |
| Liability + Disclosure Note | Probable + Reasonably Estimable (or more) = |
| Disclose in Notes | Probable + No Estimate = |
| Liability with Lowest Amount Recorded, Other Possibilities Disclosed | Probable + Range of Estimates = |
| Disclose in Notes (With Estimate, if possible) | Reasonably Possible = |
| Warranties | Can be classified as current or part current and part long-term |
| Expected Cash Flow Approach | Used when a warranty obligation spans more than 1 year and you can associate probabilities with possible cash flow outcomes |
| Extended Warranty Contracts | Revenue is deferred and recognized as revenue over the contract period & costs incurred are recorded in the period in which they occur |
| Subsequent Events | No entry for conditions which did not exist at year-end. However, if it is a material amount, the condition must be disclosed in notes |
| Employee Costs | Federal & state income taxes, FICA, insurance premiums, and retirement/savings plans |
| Employer Costs | Federal & state unemployment tax, FICA, and fringe benefits |
| 3 Payroll Related Journal Entries | Salaries Expense (for wages) + net cash to employees Payroll Tax Expense Salaries Expense (for fringe benefits) |
| Debenture Bond | Backed by the "full faith and credit" of the issuing corporation |
| Subordinated Debenture Bond | Not entitled to receive any liquidation payments until other claims on other specified debt issues have been satisfied |
| Mortgage Bond | Backed by a lien on specific real estate owned by the issuer |
| Bond Indenture | Document that describes the specific promises made to bondholders |
| Callable | Most corporate bonds are ___________, meaning they can be bought back early |
| Serial Bonds | Retired in installments during all or part of the life of the bond issue |
| Convertible Bond | Retired as a consequence of bondholders choosing to convert them to stock; can be exchanged for shared of stock at the option of the bondholder |
| Stated Rate | Coupon/face rate; determines cash payments |
| Market Rate | Effective Rate; determines price of a bond |
| Premium | When a bond sells for more than the face amount |
| Discount | When a bond sells for less than the face amount |
| Zero Coupon Bond | Bond that pays no periodic interest payments |
| Effective Interest Method | Market Rate x Outstanding Balance of Bond/Debt |
| Straight-Line Method | Discount or premium is allocated equally over the term |
| Debt Issue Costs | Cost of issuing debt securities, fees associated with it |
| Debit Discount account and amortized over the term to maturity | How are debt issue costs handled? |
| Private Placement | Selling debt securities to a single investor |
| Implicit Rate of Interest | Interest rate understood in the agreement |
| Imputing | Deciding what the appropriate rate should be |
| Substance Over Form | Economic essence of a transaction should prevail over its appearance |
| Installment Notes | Involve a series of equal payments that each include a portion for principal and for interest |
| Dividing | Payment is calculated by __________ the loan amount by a discount factor |
| 0 | Balance of an installment note is ______ at the maturity date |
| Long-Term Debt | Typically recorded as a single amount (net of any discount or premium) |
| Disclosed | Fair value of financial instruments must be ___________ in the financial statements or the notes |
| Nature of the Debt, Interest Rates, Maturity Dates, Call Provisions, Conversion Options, Restrictions Imposed, Assets Pledged as Collateral, and Amounts Payable for each of the next 5 years | Notes should include: |
| Financing | For the issuer: issuing bonds or notes is a ________ activity in the cash flow statement |
| Investing | For the investor: buying bonds/notes is a _________ activity in the cash flow statement |
| Operating | Interest expense and interest revenue are considered __________ activities in the cash flow statement |
| Early Extinguishment of Debt | When debt of any kind is retired prior to its scheduled maturity date |
| Gain or Loss | A difference between the outstanding balance and the amount paid represents a ______ or _______ |
| Book Value | When a bondholder exercises a conversion option, new shares are issued at the _____________ of the bonds |
| Induce | Some companies try to ___________ conversion, through a call provision or by making a better offer |
| Stock Warrant | Gives the investor an option to purchase a stated number of shares of common stock at a specified option price often within a given period of time |
| Fair Value of Liabilities | Changes in interest rates cause changes in the ____________________ |
| Issuance | The fair value option must be elected at the time of ___________ |
| Income Statement as a Gain/Loss | Changes in fair value will be reported on the _____________________ |
| Increases | A credit in the fair value adjustment account _____________ the carrying value of that debt |
| Lease | Contractual arrangement where a lessor provides a lessee the right to use an asset for a specified period of time in exchange for period cash payments during the term of it |
| Lessor | Owner of the asset |
| Lessee | User of the asset |
| ROU Asset & Lease Payable | On the lessee's balance sheet, the right to use the asset is recorded as a __________________ & the obligation to make periodic cash payments over lease period is recorded as a _________________ |
| Reduces upfront cash needed, Lease payments are often lower than installment loan payments, Offers flexibility and lower costs on disposal of asset, Leasing might offer protection against the risk of declining values, Leasing might offer tax advantages | What are the 5 advantages of leasing? |
| Costs more than outright buying it | What is the biggest disadvantage of leasing? |
| Finance/Sales-Type & Operating | What are the 2 types of leases? |
| Financing & Sales-Type | A lease that resembles a sale of an asset is classified as a _________ lease for the lessee and a _____________ lease for the lessor |
| Specifies ownership transfers to lessee, Contains a purchase option lessee is reasonably certain to exercise, Term is for major part of asset's life, PV >= FV, Customized and has no alternative use to lessor at end of lease | Finance lease criteria (one must be met): |
| Operating | A lease that resembles a rental agreement is classified as an __________ lease |
| Installment | Accounting for a finance lease is similar to accounting for an ______________ purchase |
| Lease Term | Amortization period is restricted to the ____________ unless the lease provides for title transfer or BPO (for a finance/sales-type lease) |
| Debit ROU Asset & Credit Lease Payable Debit Lease Payable & Credit Cash | Journal Entry for the Lessee to record the start of the lease and the first payment (Finance/Sales-Type) |
| Debit Lease Receivable & Credit Asset Debit Cash & Credit Lease Receivable | Journal Entry for the Lessor to record the start of the lease and the first payment (Finance/Sales-Type) |
| Debit Interest Expense & Lease Payable & Credit Cash | Journal Entry for the Lessee to record the second payment with interest (Finance/Sales-Type) |
| Debit Cash & Credit Lease Receivable & Interest Revenue | Journal Entry for the Lessor to record the second payment with interest (Finance/Sales-Type) |
| Debit Amortization/Depreciation Expense & Credit ROU Asset | Journal Entry for the Lessee to record amortization/depreciation (Finance/Sales-Type) |
| No Entry for Amortization/Depreciation | Journal Entry for the Lessor to record amortization/depreciation (Finance/Sales-Type) |
| Debit Lease Receivable & Credit Sales Revenue Debit COGS & Credit Asset | Journal Entry for the Lessor if it manufactured the asset (Finance/Sales-Type) |
| Direct Financing Lease | If a lessee lacks control of an asset, they have an operating lease...but there is an exception: |
| Direct Financing Lease | When a third party is paid to guarantee all or part of the residual value |
| Interest + Amortization of the ROU Asset = Lease Payment | Accounting equation for an Operating Lease |
| Debit ROU Asset & Credit Lease Payable Debit Lease Payable & Credit Cash | Journal Entry for the Lessee to record the start of the lease and the first payment (Operating) |
| Debit Cash & Credit Deferred Revenue | Journal Entry for the Lessor to record the start of the lease and the first payment (Operating) |
| Debit Interest Expense & Lease Payable & Credit Cash | Journal Entry for the Lessee to record the second payment with interest (Operating) |
| Debit Deferred Revenue & Credit Lease Revenue Debit Cash & Credit Deferred Revenue | Journal Entry for the Lessor to record the second payment with interest (Operating) |
| Debit Amortization Expense & Credit ROU Asset | Journal Entry for the Lessee to record amortization/depreciation (Operating) |
| Debit Depreciation Expense & Credit Accumulated Depreciation | Journal Entry for the Lessor to record amortization/depreciation (Operating) |
| Residual Value of Leased Asset | Estimate of the asset's commercial value at the end of the lease term |
| Purchase Option | Lease contract provision that gives the lessee the option to purchase the leased asset during or at the end of the lease term at a specified exercise price |
| Bargain Purchase Option (BPO) | If the exercise of the option is reasonably certain |
| Must be an identified asset & Lessee must have the right to control the use of the asset | When does a contract meet the definition of a lease? |
| Non-Lease Component | If the charge represents a transfer of a good/service to the lessee apart from the leased asset it qualifies as a ______________________ and is separated from the lease payment |
| Expensed & Factored | Maintenance is generally ___________; taxes & insurance are ___________ into the lease payments |
| Initial Direct Costs | Costs that are associated directly with consummating a lease, essential to acquire the lease, & would not have been incurred had the lease agreement not occurred |
| Recorded as a selling expense in a sales-type lease that includes selling profit OR Deferred & expensed over lease term in a sales-type lease with no selling profit or in operating lease | If initial direct costs are incurred by lessor, they are: |
| Selling Profit | Fair Value > Cost/Carrying Value, recognized by lessor at beginning of term |
Created by:
MOWGaming04
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