ACCT 2301 Exam 4 Review – Chapters 10-12

This set of flashcards covers key terms and concepts essential for understanding topics in accounting as reviewed in Chapters 10-12.

Debt Financing

Financing obtained through borrowing funds that must be repaid with interest.

Equity Financing

Financing obtained by selling shares of the company, representing ownership in the company.

Bond

A fixed income instrument that represents a loan made by an investor to a borrower.

Amortization

The process of spreading out a loan into a series of fixed payments over time.

Carrying Value

The value at which an asset is recognized on the balance sheet, including any amortization or depreciation.

Installment Note

A loan that is repaid over time with a set number of scheduled payments.

Treasury Stock

Shares that were issued by a company and later repurchased, typically to be held in the company's treasury.

Dividends

Payments made by a corporation to its shareholders, usually as a distribution of profits.

Interest Expense

The cost of borrowing money, typically expressed as a percentage of the principal.

Bond Issuance

The process of selling bonds to investors to raise capital.

Net Income

The total profit of a company after subtracting expenses, taxes, and costs, also known as net profit.

Retained Earnings

The cumulative amount of net income that a company retains, rather than paying out as dividends.

Amortization Table

A schedule detailing each payment on a loan, breaking down principal and interest.

Common Stock

Equity shares that represent ownership in a corporation, typically with voting rights.

Preferred Stock

A class of stock that provides dividends before common stockholders and usually without voting rights.

What is Bond Financing?

Bond financing refers to borrowing money through bonds instead of issuing stock, allowing companies to avoid ownership dilution while benefiting from tax-deductible interest.

What are the advantages of Bond Financing?

Advantages include no ownership dilution, tax-deductible interest, and the ability to leverage profits.

What are the disadvantages of Bond Financing?

Disadvantages include the obligation to pay interest and principal, as well as the risk of default.

What does it mean for a bond to be issued at par?

When bonds are issued at par, they are sold at their face value.

What characterizes bonds issued at a discount?

Bonds sold at a discount are sold below their face value when the market interest rate is greater than the stated interest rate.

What does it mean for bonds to be issued at a premium?

Bonds sold at a premium are sold above their face value when the market interest rate is less than the stated interest rate.

What is the journal entry for issuing bonds at a discount?

Debit: Cash, Debit: Discount on Bonds Payable, Credit: Bonds Payable.

What is the entry for interest payments on bonds?

Debit: Bond Interest Expense, Credit: Cash.

What is the purpose of the statement of cash flows?

The statement of cash flows shows cash receipts and payments over a period, helping evaluate a company's ability to pay debts, dividends, and make investments.

What are the three sections of cash flows?

The three sections are Operating Activities, Investing Activities, and Financing Activities.

What is the formula for Earnings Per Share (EPS)?

EPS = (Net Income - Preferred Dividends) ÷ Weighted Average Common Shares.

What is the purpose of Treasury Stock?

Treasury stock represents shares that were bought back by the company, reducing total stockholders' equity.

What is the effect of issuing stock above par?

When issuing stock above par, the entry includes a credit to Paid-in Capital in Excess of Par in addition to Common Stock.