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Accounting Exam 3 Terms to know
Terms in this set (40)
represents claims for which formal instruments of credit are issued as evidence of debt
unconditional written promises by the company to pay a specific sum of money at a certain future date.
unconditional written promise by a borrower (maker) to pay a definite sum of money to the lender (payee) on demand or on a specific date
the fee charged for use of money over a period.
face value of the note
amount that the maker must pay on a note on its maturity date; typically, it includes principal and accrued interest if any.
discounted (non-interested bearing) note payable
amount a bond sells for below face value.
is a potential obligation that may be incurred depending on the outcome of a future event.
long term assets
Assets that are not intended to be turned into cash or be consumed within one year of the balance sheet date.
property, plant and equipment
1. must be tangible
2. must have a useful service life of more than one year.
3. be used in business operations rather than held for resale.
examples: buildings, machines, tools and office equipment
amount of plant asset cost allocated to each accounting period benefiting from the plant asset's use.
the title of the contra asset account which is credited when Depreciation Expense is recorded each accounting period.
is used to determine a plant asset's book value (or carrying value).
book value (carrying value)
recorded cost less accumulated depreciation.
salvage (or residual) value
amount of money the company expects to recover, less disposal costs, on the date a plant asset is scrapped, sold or traded in.
straight line depreciation
most widely used.
depreciation= asset cost- salvage value
# of accounting periods
units of activity depreciation
assigns all equal amounts of depreciation to each unit based on product manufactured or service rendered by an asset.
depreciation= asset cost- salvage value
TOTAL # of production
double declining balance
2 X straight line X book value of beginning year.
*depreciates the most within the first year.
the current tax depreciation system in the United States. Under this system, the capitalized cost (basis) of tangible property is recovered over a specified life by annual deductions for depreciation.
expenditures debited to an asset account or to an accumulated depreciation account
help to generate the current period's revenue rather than the future periods' revenues.
resources supplied by nature, such as ore deposits, mineral deposits, oil reserves, gas deposits, and timber stands.
exhaustion that results from the physical removal of a part of a natural resource.
have no physical characteristics that we can see and touch but represent exclusive privileges and rights to their owners.
superior entrepreneurial capacity or management know-how and customer loyalty.
systematic write-off of the cost of an intangible asset to expense.
on principal and on interest of prior periods
current worth of a future cash receipt and is the reciprocal of future value
a series of equal cash flows spaced equally in time.
is a long-term debt, or liability, owed by its issuer. often run for 20 years or more. usually issued in a large number.
in a given bond issue have maturities spread over several dates.
matures on the same date as all other bonds in a given bond issue.
unsecured bond backed only by a general credit worthiness of the issuer, not by a lien on any specific property.
bond that may be exchanged for shares of stock of the issuing corporation at the bondholders option
contains a provision that gives the issuer the right to call (buy back) the bond before the maturity date.
contract or loan agreement under which the bonds are issued. contains the interest rate, maturity date, maturity amount, possible restrictions, payment plans, and other provisions.
part of the legal documentation that makes up a bond, whether it is issued by a company or the government. They are usually intended to protect investors by providing some assurance on what the bond issuer will and won't do over the life of the bond.
market (effective) interest rate
minimum rate of interest that investors accept on bonds of a particular risk category
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