56 terms

Accounting midterm 3

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times interest earned ratio
EBIT/interest expense; the higher the ratio, the better
debt-to-equity ratio
total liabilities/stockholders' equity
capital lease
looks like a sale from lessor to lessee; ownership and all benefits/risk transferred; requires both lease asset and liability on the balance sheet
operating lease
lessee recognizes rent expense, but no asset or long-term liability; no depreciation of leased asset; operating expense on the income statement
par
market rate = coupon rate; cash = interest expense
discount
market rate > coupon rate; cash < interest expense
premium
market rate < coupon rate; cash > interest expense
stockholders' equity (equation)
contributed capital + retained earnings
retained earnings
net income - dividends
contributed capital
stock + APIC
stock
preferred + common
APIC
preferred + common
common (authorized) stock
issued + unissued shares
issued shares
outstanding + treasury (repurchased)
earnings per share (EPS) ratio
net income/number of shares outstanding
common stockholders' rights
ability to vote, earn dividends, and right to share of liquidation
preferred stockholders' rights
preference of common stockholders for dividends, preference over CS in the event of liquidation, but no voting rights
treasury stock
outstanding shares that the company repurchases; contra-equity account
APIC (treasury stock)
can be credited or debited depending on share value (credit if higher than repurchase value, debit if lower than repurchase value)
dates for dividends
declaration date, date of record, payment date
declaration date
date that the Board of Directors announces the dividends
date of record
date on which a shareholder must own the stock in order to receive the dividend; no journal entry
payment date
date when firm pays the dividend to all shareholders on the date of record
dividend yield ratio
dividends per share/market price per share
stock dividend (definition)
stockholders receive additional shares of stock proportional to their current holdings instead of a cash dividend
small stock dividend
when the new stock distributed is less than 25% of the number of outstanding shares
large stock dividend
when the new stock distributed is greater than or equal to 25% of the number of outstanding shares
retained earnings (stock dividend)
number of shares outstanding x dividend x market price
stock split
increases shares issued and outstanding but does nothing to alter the proportionate holdings of the stockholders; no journal entry
par value (split)
old par value/stock split
number of shares issued (split)
old number of shares x stock split
why do companies issue stock dividends or split the stock?
to continue dividends but conserve cash; to reduce the market price per share of its stock
issue stock
assets +, liabilities 0, equity +
purchase treasury stock
assets -, liabilities 0, equity -
sell treasury stock
assets +, liabilities 0, equity +
declare cash dividend
assets 0, liabilities +, equity -
pay cash dividend
assets -, liabilities -, equity 0
stock dividend
assets 0, liabilities 0, equity 0
stock split
assets 0, liabilities 0, equity 0
market value
price one can buy or sell one share of stock for; varies with company performance and economy
redemption value
set price company is required to pay to retire preferred stock
liquidation value
required payment to preferred shareholders if the company liquidates
book value per share
common equity/number of common shares outstanding
return on equity
net income/average shareholders' equity
problems where you can only make a certain initial payment
FV = initial payment + monthly payment(PVA i = x, n = y)
total interest on a loan
cash paid - cost
face value
principal, or amount to be repaid
maturity date
date the principal will be repaid
coupon (stated interest) rate
determines the cash interest payments or coupon payments
contingent liabilities
potential liability that may or may not become an actual liability
probable liability
amount of loss can be reasonably estimated; record loss on the income statement and liability on the balance sheet
possible liability
disclose the loss in the footnotes to the financial statements
remote liability
do nothing
warranties
guarantee by vendor to fix or replace the item sold within a certain period; needs to be recorded as a liability b/c they are probable and can be reasonably estimated
lawsuits
recorded as loss (-SE) and liability (+L)
working capital
current assets - current liabilities
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