Journal Entries
Record the issuance of a $50,000 bond at face value
Debit Cash $50,000
Credit Bonds Payable $50,000
What is the mixture of liabilities and equity a company uses called?
Capital Structure
What ratio compares total liabilities to stockholders’ equity?
Debt-to-equity ratio
What account is credited when issuing no-par common stock?
Common Stock
Type of stock that receives dividend preference.
Preferred
Record the first monthly payment on a $25,000 installment note with $125 interest
Debit Interest Expense 125
Debit Notes Payable 462.13
Credit Cash 587.13
What type of financing involves borrowing money and paying interest?
Debt Financing
What ratio measures a company’s ability to meet interest payments?
Times interest earned ratio
What happens to stockholders’ equity when treasury stock is purchased?
it decreases
Type of bond that is backed by collateral.
Secured
Record the initial lease entry for a $15,000 present value lease
Debit Lease Asset 15,000
Credit Lease Payable 15,000
What is the tax advantage of debt financing over equity financing?
Interest is tax-deductible
Coca-Cola has $65,283 in liabilities and $21,098 in equity. What is its debt-to-equity ratio?
3.09
Record the journal entry for issuing 500 shares of $30 par preferred stock at $40 per share.
Debit Cash $20,000
Credit Preferred Stock $15,000
Credit Additional Paid-in Capital $5,000
Type of corporation that allows public investment.
Public
Record the issuance of 1,000 shares of $1 par common stock at $30 per share
Debit Cash $30,000
Credit Common Stock $1,000
Credit Additional Paid-in Capital $29,000
What is the term for a lease that gives the lessee the right to use an asset?
Lease asset
What does a higher times interest earned ratio indicate about a company’s financial health?
Greater ability to cover interest obligations
What is the effect of a 2-for-1 stock split on par value per share?
It is halved
Type of stock that a company repurchases.
Treasury
Record the purchase of 200 shares of treasury stock at $28 per share.
Debit Treasury Stock $5,600
Credit Cash $5,600
What is the name of the formal debt instrument used to borrow large sums of money?
Bond
What does a high debt-to-equity ratio suggest about bankruptcy risk?
Higher risk of Bankruptcy
What is the journal entry for reselling treasury stock below cost?
Debit Cash
Debit Additional Paid-in Capital
Credit Treasury Stock (at original cost)
Type of financing that includes IPOs and venture capital.
Equity