Accounting Chapters 9-13

capital structure

the mixture of debt and equity a business uses

assets payable turnover

cost of costs sold/average accounts payable

suggests how quickly management pays suppliers. A high ratio normally suggests that a company is paying its suppliers in a timely manner.

accrued liabilities

expenses that have been incurred before the end of an accounting period but have not yet been paid

Employee income tax

employers are required to with hold income taxes for each employee. It remains a liability until the amount is paid to the government. emp

employee and employer FICA taxes

social security taxes are often called this because they are required by the federal insurance contributions act. They are imposed in equal amounts on both employees and employers.

employer unemployment taxes

employees are charged unemployment taxes through the federal unemployment tax act and state unemployment tax acts. inte

interest for the period

principal amount x annual interest rate x number of months/12 months

contingent liability

when the exact amount will not be known until a future date. Its created when a company offers a warranty with a product it sells. Whether or not something appears on a few factors

1) the probability of a future economic sacrifice

2) the ability of management to estimate the amount of the liability

liquidity

the ability for a company to meet its current obligations

working capital

the dollar difference between current assets and current liabilities

lessor

the party that owns the asset

lessee

the party that pays for the right to use the asset

finance/ope rating lesses

longer term leases

5 steps to consider

1)the lease transfers ownership of the underlying asset to the lessee by the end of the lease term

2)the lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise

3)the lease term is for the major part of the remaining economic life of the underlying asset

4)the present value of the sum of the lease payments and any residual value guaranteed by the lessee equals or exceeds sustainability all the fair value of the underlying asset.

5)the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lesser at the end of the lease term

Short-term lease

a 12 month or less (including expected renewals and extensions) that does not contain a purchase option that the lease is expected to exercise

present value

the current value of the amount to be received in the future: a future amount discounted for compound interest

1/(1+i)^n

where i is interest and n is period

or fv/(1+r)^t

future value

the sum to which an amount will increase as the result of compound interest.

PV*(1+r)^t

annuity

a series of consecutive payments characterized by

1) an equal dollar amount each year

2) interest periods of equal length

3)same interest rate each period

Liabilities

debts or obligations of the entity that result from past transactions, which will be paid with assets or services lon

long term notes payable

companies can raise capital from a number of financial service organizations in a private placement

liabilities measurement

liabilities are recorded at their current cash equivalent, which is the cash amount a creditor would accept to settle the liability immediately.

time value of money

value of one dollar today is not the same as one dollar a year from now. This is because people are willing to pay a price for having money now. Also risk and inflation.

simple interest

interest earned does not increase the principal amount earning interest.

compound interest

earning interest on interest. Adds interest earned to principal amount, so the base that can earn interest increases.

single amount

the present value of a single amount is the worth to you today of receiving that amount sometime in the future.

present value concepts

1) value today (present value)

2)the value in the future (future value)

3)the interest rate

4)the time period

present value of annuity

the value today of a series of payments to be received or paid out in the future

future value of annuity

the value of a series of regular payments a the end of the annuity period.

issuance price

the present value of a bond.

Is determined by the PV od the bond, using the market interest rate.

cash payments in the bond indenture

1)cash interest payments over the life of the bond (annuity)

2)repayments of principal at the maturity date (single payment)

bond terms

1)principal (AKA par value, face value, maturity value)

2)repayment of principal at the maturity date (single payment)

authorized shares

the maximum number of shares of stock a corperation can issue as spesified in the charter

issued shared

the total number of shares of stock that have been sold

treasury stock

shares that have been bought back. A contra equity account

outstanding shares

represent the total number of shares owned by stockholders on any particular date

earnings per share

net income (any preferred dividends should be subtracted from net income) / weighted average number of common shares outstanding

it is the amount of earnings attributable to a single share of outstanding common stock

common stock

held by investors who are the “owners” of a corperation

par value

a normal value per share established in the corperate charter

legal capital

the permanent amount of capital deferred by state law that must remain invested in the business serves as a cushion for creditors

no-par value stock

capital stock that has no-par value as specified in the coperate charter. Legal capital is deferred by state law.

dividend yield

dividends per share/ market price per share

reflects the return on investment absent any capital appreciation or said differently, the return attributed solely to the dividend a company pays de

declaration date

is the date on which the board of directors officially approves the dividend. As soon as the board declares a dividend, a liability is created and must be recorded.

record date

follows the declaration date; is the dare on which the corporation prepares the list of correct stockholders who will receive the dividend payment. The dividend is payable only to those names listed on the record date. No journal entries made on this date.

payment date

the date on which cash is dispersed to pay the dividend liability.

requirement for payment of a cash dividend

sufficient retained earnings or net income sufficient cash sto

stock dividend

is a distribution of additional shares of company’s own stock to its stockholders on a prorata basis at no cost to the stockholder