ACG 4111 test 1 Study Guide Solutions

ACG 4111 test 1 Study Guide Solutions trade notes payable - ANSWER-different from notes payable because they are recognized by a written promissory note characteristics of a liabilitiy - ANSWER--are probable, future sacrifices -arise from present obligations -result from past transactions or events accounts payable - ANSWER-obligations to suppliers of merchandise or services purchased on open account notes payable - ANSWER--bank loans -most are short term but they become renewed becoming long-term line of credit - ANSWER--allows a company to borrow cash without having to follow formal loan proedures and paperwork -noncommitted-informal -committed-the company must pay a committement fee to the bank to keep it available ©EMILLECT 2024/2025 ACADEMIC YEAR. ALL RIGHTS RESERVED FIRST PUBLISH OCTOBER 2024 Page 2/6 interest - ANSWER-face amount*annual rate*time to maturity secured loans - ANSWER-a specified asset of the borrower is pledged as collateral or security for the loan commercial paper - ANSWER-unsecured notes by other companies as ST investment, sold in small amounts of 25,000 and usually backed by a line of credit sales tax - ANSWER--represent liabilities until remitted (paid) -comes out of the cash we receive from the customer to be a callable bond - ANSWER--creditor can demand it at any time even if they won't -there is an existing violation you can refinance short-term obligations to long-term - ANSWER-1) the firm must intend to refinance on a long-term basis 2) the firm must actually have demonstrated the ability to refinance on a long-term basis GAAP categorizations for liability - ANSWER--probable: confirming event is likely to occur (accrue) -resonably possible: the chance the confirming event will occur is more than remote but less than likely (disclose) ©EMILLECT 2024/2025 ACADEMIC YEAR. ALL RIGHTS RESERVED FIRST PUBLISH OCTOBER 2024 Page 3/6 -remote: the chance the confirming event will occur is slight when to accrue a liability - ANSWER-probable that the event will occur and the amount can be resonable estimated loss contingencey - ANSWER--to accrue must be finalized before financial year ends; if not you must disclose it in the financial statements bond indenture - ANSWER-specific promises made to bondholders debunture bonds - ANSWER--secured by the full faith and credit; no specific assets are pledged as security -what most bonds are today callable - ANSWER-the company issuing the bonds can buy back the bonds from the bondholders before their scheduled maturity date serial bonds - ANSWER-bonds are retired in installments during all or part of their life convertible bonds - ANSWER-are retired as a consequence of bondholder choosing to convert them into shares of stock detachable warrants - ANSWER-gives the investor an option to purchase a stated number of