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66 Cards in this Set
- Front
- Back
Held to maturity securities are what?
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Debt securities (such as bonds) which a company will hold until maturity.
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Can you deduct interest expense on bonds?
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Yes, but not dividends.
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Registered bonds protect against what?
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Theft, loss. Unregistered bonds are known as bearer bonds.
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An annuity is a series of payments...
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at equal time intervals.
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How does a premium on bonds payable affect interest?
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A higher premium means a lower interest rate.
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Where are available for sale gains and losses reported?
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Equities section of the balance sheet. Marketable securities are reported on the income statement.
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Investments in held-to-maturity debt securities can be...
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current or long term assets.
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Does a lessee have substantially all of the benefits and risk of ownership in an operating lease?
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No. Benefits are available in a capital lease.
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Investments in trading securities are...
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short term investments.
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Which carries a lower interest rate, Secured or Unsecured loans?
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Secured.
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Available for sale securities are either current or long-term assets, depending upon...
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management's intent.
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When are term bonds scheduled to mature?
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At the end of the term.
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Who has an option to call a callable bond?
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The issuer.
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Do companies want a high or low rate of return?
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High.
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Trading securities are reported at..
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Market value.
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Define Parent and Subsidiary
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Blah.
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What is controlling influence?
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Generally >50% ownership.
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Define cash equivalents.
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Investments easily convertable to a known amount of cash. 3 mo. temporary investments.
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Define Trading Securities
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blah.
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When do you use cost method, and when do you use the equity method?
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Cost when you own, but have no controlling interest. Equity when you have a controlling interest.
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What does the payment of an installment note include?
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Payment towards principal and interest.
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Is the dividend on stock a tax deduction>
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No.
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Is the interest on coupon bonds taxable?
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General answer is yes.
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Gains and losses on trading securities are reported on the...
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income statement.
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Long term investments and available for sale securities are reported at market value on...
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the balance sheet.
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No gain or loss is reported when a convertible bond is converted to...
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company stock.
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Is an equity investment a creditor relationship?
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No, it is an ownership relationship.
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How do you record dividends received under the cost method?
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Debit cash, credit to Dividend Revenue. Report as income on the income statement.
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Define significant influence.
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~20%-50% The test is overruled by other evidence.
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What is an operating lease?
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Short term lease, in which lessor retains all of the benefits and liabilities of ownership.
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What makes up an installment note?
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Payments to principal and interest over a set period of time.
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What is a debenture bond?
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A bond from the issuer that is unsecured.
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What is a lease?
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Allows a fixed payment to hold property.
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Is cash worth more today than the same amount in the future?
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No.
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What makes for a gain in a security sale?
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Selling the security for more than basis.
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What is a bond?
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A debt security.
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Are long-term investments used for operating activities?
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Have to have current bonds or cash equivalents.
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When you have significant influence over an investee, this is a...
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long term investment.
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Can you foreclose on a mortgaged property, if payments are not made?
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Usually, yes.
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Investments in land not used as part of the business operations, are classified as...
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long term investments.
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How do you price a bond?
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100 = 100% of par. 88 = 88% of par.
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Compound an investment.
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10000 at 5% for two years: 11,025
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Compute carrying value of a bond...
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Present values of future cash flows at discounted rate.
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What is a consolidated financial statement?
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All parent corps + subsidiaries w/cash flows.
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Bonds have multiple lenders while notes have...
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few lenders.
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When a bond sells at a premium...
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market rate -> contract rate.
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Does issuing bonds affect owner control?
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No. Not unless the bonds are not paid.
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Callable bonds give...
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the issuing company the right to retire bonds before the maturity date.
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Equity method to record cash dividends...
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Debit cash, credit long term investment account.
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Define: Unsecured Bonds
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Bonds backed only by the issuer's credit rating and promise to pay...Also called debenture bonds.
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Define: Bearer Bonds
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Bonds made payable to whoever holds them.
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Define: Bond Indenture
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Contract between the bond issuer and the bond holders. Delineates rights.
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Define: Convertible Bonds
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Bonds that can be exchanged for a set number of the issuer's shares.
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Define: Coupon Bonds
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Bonds with interest coupons attached to their certificates. Coupons detached when they mature, and are redeemed at the bank.
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Define: Equity Method
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Accounting method used for long-term investments when the investor has significant influence over the investee.
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Define: Installment Note
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Liability requiring a series of periodic payments to the lender.
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Define: Market Rate
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Interest rate that borrowers are willing to pay, and lenders are willing to accept for a specific lending agreement, given the borrowers risk level.
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Define: Serial Bonds
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Bonds consisting of separate amounts that mature at different dates.
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Define Unrealized Gain/Loss
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The Gain/Loss has not been realized yet, because no transaction to do so has taken place (e.g. sale)
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Define: Return on Assets
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Ratio reflecting operating efficiency; net income divided by total assets.
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Define: Available for sale securities
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Investments in debt and equity securities that are not classified as trading or held to maturity securities.
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Define: Consolidated financials
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Financial statements that show all transactions under the parent corporation's control, including subsidiaries.
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Define: Held to maturity securities
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Debt securities that the company has the intent and ability to hold until they mature
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Define: Trading Securities
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Investments in debt and equity that the company intends to actively trade for profit.
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Define: Term Bonds
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Bonds scheduled for payment at a single, specified date.
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Define: Subsidiary
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Entity controlled by a parent corporation, in which the parent
owns >50% of the voting stock. |