Business 20 Final Review
Terms in this set (52)
Strait line Depreciation=
(aquisition cost-salvage value)/life of asset
aquisition cost-accumulated depreciation
3 Costs incurred by manufacturers
Direct Materials, Direct labor, Manufacturing overhead
Representation of inflow of assets
control account that keeps track of accounts receivable such as credit lines held by customers
Allowance Method of accounting
an estimated amount of bad debt for a period before it occurs that is subtracted from accounts receivable
amount the investor will be paid when a bond matures
when original cost of asset is depreciated over its useful life
amount that can be obtained from resale of an asset at the end of its useful life
GAAP rule for recognizing costs for r&d
research and development costs must be recognized under the expense account, not as an asset as it is in europe
liabilities that will be paid off within the fiscal year of the company
Long term liabilites
liabilities that will not be paid off within the fiscal year such as bonds or annuities
face value of a bond/stock represents the principle amount as is stated on the stock/bond certificate
total liabilities/total stock holder equity
(acquisition cost-salvage value)/life
Acquisition cost- accumulated depreciation
Why is depreciation added to net income when cash from operating expenses is computed?
It is used to show the amount of income generated by operating activities
What are the costs of acquisition?
purchase price, taxes, transport and installation fees
How do you find the gain/loss of an asset at time of sale?
selling price-salvage value
What is the GAAP rule for recognition of r&d costs?
r&d costs must be recognized in the expense account because of the difficulty in predicting future benefits
What is the relationship between cost, accum depreciation, gain/loss and cash rec'd?
accum depreciation is subtracted from initial cost, gain/loss is the book value-sale price
What is a current liability?
An obligation held by a company that will be paid off within the fiscal year
What kind of transaction affect the current ratio?
a gain in assets such as inventory will cause ratio to fall, gain in receivables will cause it to rise
How do you compute interest?
How do you find Future Value of a single cash flow?
FV=P(1+i)^n for compounded or FV=PxRxT
How do you find Present value of an annuity of cash flows?
PV=P(1+i)^-n << compounded OR take PV=annuity amount x table factor
What are long term liabilities?
Obligations that will be fulfilled in more than a year such as a CD or a bond
What is depreciation?
The measure of the amount of money that goes out of a tangible asset as it is used
What is amortization?
The measure of the amount of money that goes out of an intangible asset as it is used over time
What is the relationship between, bond interest rates, market yield rates and bond pricing at a premium/discount?
market rate=face rate then bond is issued at face/par value, market rate > face rate then bond is issued at a discount, market rate < face rate then bond is issued at a premium
Effective interest rate=
annual interest expense/carrying value
What is carrying value?
What the bond currently sells for at the premium or discounted rate (subject to change over time)
What are the characteristics of an operating lease?
no transfer of title after period ends, does not last over 75% of assets life, lease will not be over 90% of asset value, recorded as an operating expense
What are the characteristics of a capital lease?
title transfere, long term, depreciation is accounted for, lease is shown as an asset or liability on balance sheet
What is par value of common stock?
an arbitrary amount such as $1 stated on the stock certificate that is mainly used to represent the legal capital of the coorporation, not the actual value of the stock itself on the market
How do you compute the number of shares outstanding for a company?
#of shares issued-# of shares held as treasury stock
What do retained earnings represent for a company?
Part of the net income that is not paid out to stockholders as dividends
What attributes does preferred stock have?
It is more secure, and more expensive than common stock. There is a guarentee that dividends will be paid and they are paid before common stock holders. Preferred share holders also get dibs on assets of a company
What attributes does common stock have?
More risky, can make profit when stock is sold in the open market, 2nd in line to receive dividends, can have voting rights
What are the effects of a stock split on the financial statement?
increased # of shares with par value reduced by half- this makes stock more available to a variety of investors and brings market price of stock down. Not in balance sheet but appears as a side note
Why would a firm want treasury stock?
To retain control of ownership, to have stock available for distribution to employees as bonuses and maintain a favorable market price
current assets/current liabilities
(cash+marketable securities+current receivables)/current liabilities
# of day's sales in inventory=
#days in period/inventory turnover ratio
Inventory turnover ratio=
# of day's sales in receivables=
#day's in a period/account receivables turnover
Account receivables turnover=
net credit sales/average account receivables
Return on equity=
net income- preferred dividends/ average stockholders equity
net sales/average total assets
total liabilities / stockholders equity
Return on assets=
net income+int exp or tax/ average total assets
When should revenue be recognized for income purposes?
When it is realizable, realized and earned
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