MGMT 200 EXAM #3 PURDUE UNIVERSITY

Interest expense is recorded in the period ___________, not in the period in which we pay it.

incurred

principle x interest rate x time (in years)

interest payable

a contingency is best described as a

potential liability

ford estimates engine warranty expense in the year a car is sold. this best follows which accounting principle?

matching principle

the balance in the warranty liability account is always equal to warranty expense

false

we do NOT record gain __________ until the gain is certain

contingencies

the mixture of debt and equity securities is generally the same for most companies

false

a debt to equity ratio of 1 means that half of the company's assets are financed by creditors

true

matures on a single date

term bond

allows the borrower or the company to repay the bonds before their scheduled maturity date at a specified call price

callable bond

bonds that are unsecured as to principal

debenture bonds

allow the bondholder or investor to convert each bond into a specified number of shares of common stock

convertible bonds

the rate quoted in the bond contract used to calculate the cash payments for interest

stated rate

a _______ occurs when the issue price of a bond is above its face amount

premium

the price of a bond is equal to the _________ __________ of the face amount plus the present value of the stated interest payments

present value

the market interest rate is _________ than the stated interest rate

greater

bonds payable should be reported as a long-term liability in the balance sheet at

carrying value

the cash payment each period is calculated as the ______ _______ times the stated interest rate

face value

= carrying value * the market interest rate

interest expense on bonds

when bonds are issued at premium (above face amount) the carrying value and the corresponding interest expense __________ over time

decrease

the carrying value, using the effective interest method, would increase each year if the bonds were sold at a _________

discount

_____ _______ benefit the bond investor

callable bonds

when using vertical analysis, we express income statement accounts as a percentage of _______

sales

when using vertical analysis, we express balance sheet accounts as a percentage of _____ ______

total assets

comparing the change in sales over time

horizontal analysis

current assets/current liabilities

current ratio

all publicly held corporations are regulated by __________

SEC (the securities and exchange commission)

the total number of shares available to sell, stated in the company's articles of corporation.

authorized stock

the number of shares that have been sold to investors

issued stock

the legal capital per share of stock that's assigned when the corporation is first established

par value

the total number of shares issued less treasury stock

outstanding common stock

the par value of shares issued is normally recorded in the ______ ______ _________

common stock account

a company ________ additional paid-in capital for the portion of the cash proceeds above par value received for the issuance of stock

credits

if a company issues 1,000 shares of $1 par value common stock fro $20 per share, which account would be credited?

additional paid-in capital

when a corporation is formed what document is filed with a state jurisdiction

articles of incorporation

shares receive priority for future dividends, if dividends are not paid in a given year

cumulative preferred stock

_________ ________ is most likely to have voting rights

common stock

decreases stockholders' equity; contra-equity account

treasury stock

a company's net income less dividends since the company first began operations

retained earnings

______________ ________ is listed before common stock on the balance sheet

preferred stock

a reduction of inventory represents an __________________ in cash

increase

a decrease in wages payable represents a ____________ in cash

decrease

what represents an increase in cash flows

increase in accounts payable

a company collected an accounts receivable. Which section would the transaction appear in on the statement of cash flows

operating activities section

how are dividends paid reported on the statement of cash flows

financing activities

a company issued common stock for cash. which section would the transaction appear on the statement of cash flows?

financing activities section

how is the issuance of common stock reported on the statement of cash flows

financing activities

the issuance of notes payable for borrowing is classified in the staten of cash flows as a:

financing activity

the purchase of treasury stock is classified in the statement of cash flows as an

financing activity

we report interest paid on bonds or notes payable with ______________ ________________ rather than financing activities

operating activities

total liabilities/ equity

debt to equity ratio

future value/(1+interest rate)^(n)

present value

formal debt instrument that obligates the borrower to repay a stated amount_--------principle/face amount----at a specified maturity date

the borrower also agrees to pay interest over the life of the bond

bonds

bonds are backed by collateral

secured

bonds (debentures) are not backed by collateral

unsecured

bond issue matures on a single date

term

bond issue matures in installments

serial

company (borrower) can pay off bonds early

callable

bondholder can convert bonds to common stock

convertible

current assets/current liabilities

current ratio

net income/net sales

profit margin

gross profit/net sales

gross profit ratio

total revenue-cost of goods sold

gross profit

maximum number of shares to issue

authorized stock

number of shares sold

issued stock

number of issued shares less shares bought back

outstanding stock

number of shares bought by the company

treasury stock

unissued shares, outstanding shares, treasury shares

authorized shares

outstanding shares, treasury shares

issued shares

shares can be exchanged for common stock

convertible

shares can be returned to the corporation at a fixed price

redeemable

shares receive priority for future dividends if dividends are not paid in a given year

cumulative

date on which board of directors declares the cash dividend to be paid

declaration date

specific date on which the company will determine who receives the dividend (registered owners of stock)

record date

date of the actual cash distribution

payment date

additional shares of a company's own stock given to stockholders as dividends

stock dividends

a large stock dividend that includes a reduction in the par or stated value per share

stock split

a debit balance in retained earnings

accumulated deficit