A304 EXAM 3 STUDY QUESTIONS
capital structure - Answers :mixture of debt and equity to finance operations
debt - Answers :borrowed from creditors
equity - Answers :invested by owners
debt is _______ than equity bc - Answers :risker:
-debt payments are legal obligations
-creditors can force bankruptcy
-creditors can require sale of assets
liabilities recorded at - Answers :current cash equivalent
current cash equivalent - Answers :cash amount a creditor would accept to settle the
liability immediately
present value - Answers :value owed, not amount paid
interest expense for short-term notes payable - Answers :amt. owed*annual interest
rate*# of months/12
non-interest bearing note - Answers :-no payments of principal or interest until maturity
date
-accrue interest expense and interest payable every period
-liability balance increases throughout loan
installment notes - Answers :-fixed payments of principal and interest each period
-loan balance decreases each period
-interest expenses decreases each period
bonds/notes payable - Answers :-payments of periodic interest payments and a large
payment at maturity date
-interest payments every period
short-term non-interest bearing loan - Answers :amount owed = amount originally
borrowed
no PV calculated
long-term non-interest bearing loan - Answers :PV of loan = amount of original loan
balance
installment loans examples - Answers :car loans
mortgage loans
, notes payable bond value - Answers :(principal payment*PV) + (interest payments*PV
annuity)
contingent liabilities - Answers :potential liabilities created as a result of a past event
and will be resolved when one or more events occurs or fails to occurs
contingent liabilities examples - Answers :lawsuits
product warranties
environmental issues
probable contingent liability - Answers :highly likely
-record as liability
reasonably possible contingent liability - Answers :more than remote but less than likely
-disclose in note
remote contingent liability - Answers :slight to no chance
-disclosure not required
range of contingent liability recorded at - Answers :low end of range
GAAP probable contingent liability - Answers :>70%
likely
IFRS probable contingent liability - Answers :>50%
more likely than not
bonds - Answers :issued to the investing public when borrowing a large amt. from a
bank is not possible/impractical
liquidity - Answers :ability to convert investments to cash when trading bonds
advantages of bonds - Answers :-stockholders maintain control->bondholders don't vote
or get dividends
-interest expense is tax deductible
disadvantages of bonds - Answers :-interest payments paid
-bonds must be repaid
bond issuers - Answers :-borrow money
-records liability "bond payable"
cost of borrowing - Answers :market rate of interest at date of bond issued
-cost doesn't change
price of bond - Answers :amount of money borrowed
capital structure - Answers :mixture of debt and equity to finance operations
debt - Answers :borrowed from creditors
equity - Answers :invested by owners
debt is _______ than equity bc - Answers :risker:
-debt payments are legal obligations
-creditors can force bankruptcy
-creditors can require sale of assets
liabilities recorded at - Answers :current cash equivalent
current cash equivalent - Answers :cash amount a creditor would accept to settle the
liability immediately
present value - Answers :value owed, not amount paid
interest expense for short-term notes payable - Answers :amt. owed*annual interest
rate*# of months/12
non-interest bearing note - Answers :-no payments of principal or interest until maturity
date
-accrue interest expense and interest payable every period
-liability balance increases throughout loan
installment notes - Answers :-fixed payments of principal and interest each period
-loan balance decreases each period
-interest expenses decreases each period
bonds/notes payable - Answers :-payments of periodic interest payments and a large
payment at maturity date
-interest payments every period
short-term non-interest bearing loan - Answers :amount owed = amount originally
borrowed
no PV calculated
long-term non-interest bearing loan - Answers :PV of loan = amount of original loan
balance
installment loans examples - Answers :car loans
mortgage loans
, notes payable bond value - Answers :(principal payment*PV) + (interest payments*PV
annuity)
contingent liabilities - Answers :potential liabilities created as a result of a past event
and will be resolved when one or more events occurs or fails to occurs
contingent liabilities examples - Answers :lawsuits
product warranties
environmental issues
probable contingent liability - Answers :highly likely
-record as liability
reasonably possible contingent liability - Answers :more than remote but less than likely
-disclose in note
remote contingent liability - Answers :slight to no chance
-disclosure not required
range of contingent liability recorded at - Answers :low end of range
GAAP probable contingent liability - Answers :>70%
likely
IFRS probable contingent liability - Answers :>50%
more likely than not
bonds - Answers :issued to the investing public when borrowing a large amt. from a
bank is not possible/impractical
liquidity - Answers :ability to convert investments to cash when trading bonds
advantages of bonds - Answers :-stockholders maintain control->bondholders don't vote
or get dividends
-interest expense is tax deductible
disadvantages of bonds - Answers :-interest payments paid
-bonds must be repaid
bond issuers - Answers :-borrow money
-records liability "bond payable"
cost of borrowing - Answers :market rate of interest at date of bond issued
-cost doesn't change
price of bond - Answers :amount of money borrowed
