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Questions and Answers
What does liquidity refer to?
What does liquidity refer to?
- Issuing bonds at par value
- Paying interest on notes payable
- Having enough assets to cover short-term obligations (correct)
- Having enough assets to cover long-term obligations
What is the formula for calculating interest expense on a note payable?
What is the formula for calculating interest expense on a note payable?
Interest Expense = Note Face Amount x Interest Rate x Time Note is Outstanding
A company purchases goods by issuing a 2-month note of $40,000 with an interest rate of 9% on March 1. What is the interest expense on April 30?
A company purchases goods by issuing a 2-month note of $40,000 with an interest rate of 9% on March 1. What is the interest expense on April 30?
$600
What is the journal entry to record the payment of the note in the previous question on April 30?
What is the journal entry to record the payment of the note in the previous question on April 30?
If a company's year-end is December 31 and it issued a 2-month note of $40,000 with an interest rate of 9% on December 1 of Year 1. What is the adjusting journal entry for year-end?
If a company's year-end is December 31 and it issued a 2-month note of $40,000 with an interest rate of 9% on December 1 of Year 1. What is the adjusting journal entry for year-end?
What is the difference between a bond's market rate and its contract rate?
What is the difference between a bond's market rate and its contract rate?
When a bond is issued at par value, what does that mean?
When a bond is issued at par value, what does that mean?
When a bond is issued at par value, the company debits Bonds Payable and credits Cash.
When a bond is issued at par value, the company debits Bonds Payable and credits Cash.
If a company issues bonds with a par value of $500,000 and an 8% interest rate payable semiannually, how much interest expense is recorded each semiannual period?
If a company issues bonds with a par value of $500,000 and an 8% interest rate payable semiannually, how much interest expense is recorded each semiannual period?
Cosmo Corporation issues 12%, 10-year bonds with a par value of $450,000 that pay interest semiannually. How much money does Cosmo Corporation get in exchange for issuing the bonds?
Cosmo Corporation issues 12%, 10-year bonds with a par value of $450,000 that pay interest semiannually. How much money does Cosmo Corporation get in exchange for issuing the bonds?
Cosmo Corporation issues 12%, 10-year bonds with a par value of $450,000 that pay interest semiannually. How much interest will investors receive annually?
Cosmo Corporation issues 12%, 10-year bonds with a par value of $450,000 that pay interest semiannually. How much interest will investors receive annually?
Cosmo Corporation issues 12%, 10-year bonds with a par value of $450,000 that pay interest semiannually. How much cash will the company have to pay for each bond interest payment?
Cosmo Corporation issues 12%, 10-year bonds with a par value of $450,000 that pay interest semiannually. How much cash will the company have to pay for each bond interest payment?
If the market rate is higher than the bond's contract rate, the bond will be issued at a premium.
If the market rate is higher than the bond's contract rate, the bond will be issued at a premium.
The times-interest-earned ratio measures the ability of a company to meet its interest obligations with operating income.
The times-interest-earned ratio measures the ability of a company to meet its interest obligations with operating income.
What is the difference between shares authorized and shares issued?
What is the difference between shares authorized and shares issued?
Treasury stock is a contra equity account.
Treasury stock is a contra equity account.
When a company declares a stock dividend, it debits Dividends Payable and credits Cash
When a company declares a stock dividend, it debits Dividends Payable and credits Cash
What is the difference between a small stock dividend and a large stock dividend?
What is the difference between a small stock dividend and a large stock dividend?
Stock splits change the total number of shares outstanding but do not affect the total stockholders' equity.
Stock splits change the total number of shares outstanding but do not affect the total stockholders' equity.
Which of the following is not a component of the Times-Interest-Earned Ratio?
Which of the following is not a component of the Times-Interest-Earned Ratio?
In horizontal analysis, all numbers are converted into a percentage of total revenue or total assets of the same year.
In horizontal analysis, all numbers are converted into a percentage of total revenue or total assets of the same year.
Trend analysis focuses on changes in financial performance across multiple accounting periods, comparing each period to a base year.
Trend analysis focuses on changes in financial performance across multiple accounting periods, comparing each period to a base year.
Which of the following is not a component of the DuPont framework?
Which of the following is not a component of the DuPont framework?
A high Equity Multiplier indicates that a company relies heavily on debt financing.
A high Equity Multiplier indicates that a company relies heavily on debt financing.
Cash flow from operating activities is typically negative in the start-up stage.
Cash flow from operating activities is typically negative in the start-up stage.
Cash flow from investing activities is typically negative in the growth stage.
Cash flow from investing activities is typically negative in the growth stage.
Cash flow from financing activities is typically positive in the maturity stage.
Cash flow from financing activities is typically positive in the maturity stage.
Cash flow from operating activities is typically positive in the decline stage.
Cash flow from operating activities is typically positive in the decline stage.
Investing activities involve transactions that affect long-term liabilities, such as notes payable, bonds payable, and equity.
Investing activities involve transactions that affect long-term liabilities, such as notes payable, bonds payable, and equity.
Net cash provided by operating activities can be calculated using both the direct and indirect methods.
Net cash provided by operating activities can be calculated using both the direct and indirect methods.
Reconciling the statement of cash flows involves examining how individual line items changed from one period to the next.
Reconciling the statement of cash flows involves examining how individual line items changed from one period to the next.
Which of the following is not a source of cash flow?
Which of the following is not a source of cash flow?
Flashcards
Current Liabilities Definition
Current Liabilities Definition
Obligations due within one year of the balance sheet date.
Long-Term Liabilities Definition
Long-Term Liabilities Definition
Obligations due after one year from the balance sheet date.
Liquidity
Liquidity
A company's ability to meet its short-term obligations.
Current Ratio
Current Ratio
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Interest Expense on a Note Payable
Interest Expense on a Note Payable
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Accrued Interest
Accrued Interest
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Bonds
Bonds
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Issuing Bonds
Issuing Bonds
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Par Value
Par Value
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Contract Rate
Contract Rate
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Market Rate
Market Rate
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Bond Issued at Par Value
Bond Issued at Par Value
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Journal Entry for Bond Issuance at Par
Journal Entry for Bond Issuance at Par
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Bond Interest Expense
Bond Interest Expense
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Bond Issued at a Premium
Bond Issued at a Premium
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Bond Issued at a Discount
Bond Issued at a Discount
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Times-Interest Earned Ratio
Times-Interest Earned Ratio
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Common Stock Issuance
Common Stock Issuance
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Par Value of Stock
Par Value of Stock
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Paid-in Capital in Excess of Par Value
Paid-in Capital in Excess of Par Value
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Authorized Shares
Authorized Shares
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Issued Shares
Issued Shares
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Outstanding Shares
Outstanding Shares
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Treasury Stock
Treasury Stock
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Dividend Declaration Date
Dividend Declaration Date
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Record Date
Record Date
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Payment Date
Payment Date
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Stock Dividend
Stock Dividend
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Small Stock Dividend
Small Stock Dividend
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Large Stock Dividend
Large Stock Dividend
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Stock Split
Stock Split
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Basic Earnings Per Share (EPS)
Basic Earnings Per Share (EPS)
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Study Notes
Liabilities
- Current liabilities are obligations due within one year.
- Long-term liabilities are obligations due after one year.
- Classifying liabilities as current or long-term helps assess a company's liquidity.
- Interest Expense is calculated as: Note Face Amount x Interest Rate x Time Note is Outstanding.
Notes Payable
- Interest expense is recorded in the period the interest is accrued.
- Example entries for calculating interest expense and recording note payments are illustrated.
Bonds Payable
- Bonds are debt instruments for raising capital.
- Bonds issued at par value have the contract rate equal to the market rate.
- The journal entry for issuing bonds at par value is debiting cash and crediting bonds payable.
- Bonds typically pay interest semiannually.
- The journal entry for interest expense on a bond is debiting interest expense and crediting cash.
Equity
- Stock is often issued above par value.
- Issued stock increases total shares outstanding
- Issued stock increases total equity.
- Treasury stock is a contra-equity account.
- Dividend declaration, record, and payment dates are important dates in dividend accounting.
Horizontal Analysis
- Stakeholders use horizontal analysis to compare financial performance over time.
- Financial statement items are compared to a base year.
- The changes in financial statement items are calculated in both dollar and percentage terms to gauge trends.
Vertical Analysis
- Vertical analysis expresses each item on a financial statement as a percentage of a base amount for that statement.
- Income statement items are expressed as a percentage of revenue.
- Balance sheet items are expressed as a percentage of total assets.
Return on Equity (ROE)
- ROE is a profitability measure calculated as net income divided by total equity.
- DuPont framework analyzes ROE components (profit margin, asset turnover, equity multiplier)—higher ratios indicate better performance.
Statement of Cash Flows
- The statement of cash flows explains the sources and uses of cash during a period.
- Cash flow activities are categorized into operating, investing, and financing.
- The statement's purpose is to reconcile beginning and ending cash balances.
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Description
This quiz covers key concepts related to liabilities and equity in accounting, including current and long-term liabilities, notes payable, bonds payable, and stock issuance. Test your understanding of how these elements influence a company's financial health and liquidity.
