CH 8
On November 1, 2024, a company borrows $50,000 from a local bank and signs a six-month, 6% promissory note.
Task: Record the journal entry for the issuance of the note on November 1, 2024.
What is....
Debit: Cash $50,000
Credit: Notes Payable $50,000
Each monthly payment on an installment note consists of these two components
What are interest and a reduction of the outstanding loan balance (principal)?
This type of business entity is a legal entity separate from its owners and even pays its own income taxes.
What is a corporation?
When performing vertical analysis on an income statement, all dollar amounts are expressed as a percentage of this specific item.
What is Net Sales?
These are the days and times of the normal weekly SI Sessions
What are:
Tuesdays @ 2pm-3pm
Thursdays @ 5pm-6pm
When a loss is categorized with this likelihood, meaning the chance of it occurring is very slight, no journal entry or disclosure is required.
What is "Remote"?
To calculate the interest expense for a single month on an installment note, you multiply the carrying value by the interest rate and then by this fraction.
What is 1/12?
This component of equity represents a company's own issued stock that it has since repurchased.
What is treasury stock?
This is the mathematical formula used to calculate the percentage increase or decrease in horizontal analysis.
What is (Current year amount – Prior year amount) / Prior year amount?
This is the time period that is used to consider something a current liability.
What is payable within one year(12 months)?
In a scenario where a loss is probable but the amount cannot be reasonably estimated, this is the required action for the financial statements.
What is "Disclosure in the notes"?
This table is used to show the breakdown of each installment payment into interest and principal reduction over the life of a loan.
What is an amortization schedule?
In the event a company is dissolved, stockholders have the right to share in the distribution of these after creditors and preferred stockholders are paid
What are assets?
What is the formula for the Current Ratio, and what does it measure?
The current ratio is calculated as Current Assets divided by Current Liabilities. It measures a company's ability to pay its current obligations using its current assets.
This bond issue always matures on a single date.
(A bond characteristic)
What is a term bond?
On December 10, a company receives $1,200 in advance from a customer for a one-year service contract that begins on January 1 of the following year.
Task: Record the initial journal entry on December 10.
What is...
Debit: Cash $1,200
Credit: Deferred Revenue $1,200
This term refers to the specific mixture of liabilities and stockholders' equity a business uses to fund its operations.
What is capital structure?
When a company purchases treasury stock, what is the effect on the accounting equation (Assets = Liabilities + Stockholders' Equity)?
What is...
Assets decrease (Cash goes down).
Stockholders' Equity decreases (Treasury Stock is a contra-equity account, so increasing it reduces total equity).
This formula requires you to divide 365 days by the Accounts Receivable Turnover Ratio.
Average Collection Period?
This type of common stock is defined as shares issued and held by investors
What is outstanding stock?
A retailer sells a piece of equipment for $2,000 cash plus 7% sales tax.
Task: Record the journal entry for this sale.
What is...
Debit: Cash $2,140
Credit: Sales Revenue $2,000
Credit: Sales Tax Payable $140
Calculation: $2,000 × 7% = $140 in sales tax.
One major advantage of debt financing is that this specific cost is tax-deductible, unlike dividends paid on equity.
What is interest expense?
On January 1, a company repurchases 1,000 shares of its own $1 par value common stock for $15 per share.
The Task: Record the journal entry for this purchase.
Debit: Treasury Stock $15,000
Credit: Cash $15,000
(Note: Treasury stock is recorded at cost, regardless of the original par value.)
This is the Inventory Turnover Ratio formula
What is (Cost of goods sold/Average Inventory)?
Horizontal analysis examines trends for ___ over time
What is a single company?