Century 21 Accounting – Ch. 18 – Flashcards
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interest expense
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interest incurred on borrowed funds
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non-operating expenses
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expenses that are not related to a business's normal operations
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capital expenditures
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purchases of plant assets used in the operation of a business
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collateral
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assets pledged to a creditor to guarantee repayment of a loan
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bond
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a long-term promise to pay a specified amount on a specified date and to pay interest at stated intervals
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bond issue
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all bonds representing the total amount of a loan
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stated interest rate
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the interest rate used to calculate periodic interest payments on a bond
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equity financing
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obtaining capital by issuing additional stock in a corporation
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par value
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a value assigned to a share of stock
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issue date
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the date on which a business issues a note, bond, or stock
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preferred stock
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a class of stock that gives the shareholders preference over common shareholders in dividends along with other rights
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cost of capital
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the ratio of interest and dividend payments to the proceeds from debt and capital financing
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financial leverage
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the ability of a business to use borrowed funds to increase its earnings
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true
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a line of credit provides a business with immediate access to cash to pay for unexpected emergencies, such as repairs from storm damage
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true
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interest rates are often based on the prime interest rate
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false
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a line of credit does not have to be repaid as long as the business pays its monthly interest
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true
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a business that is unable to pay its account when due may be asked to sign a promissory note
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false
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a business should sign a note for an extension of time on an account payable rather than borrow funds against a line of credit or obtain a loan
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true
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the portion of net income not paid as a dividend is an internal source of capital
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true
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a loan application should include a business plan describing how the borrowed funds will be used and how they will be repaid
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true
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if the borrower is unable to repay the loan, the creditor can take the collateral and sell it to pay off the debt
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true
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a portion of the monthly payment on a note payable reduces the outstanding loan principal
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true
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bonds generally have extended terms such as 5, 10, or 20 years.
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false
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a corporation usually sells its bonds directly to individual investors on a public securities exchange
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true
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the face value is the amount to be repaid at the end of the bond term
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true
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a corporation makes bond interest payments by writing a single check to its agent who then writes individual checks to bondholders
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true
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an advantage of selling stock is that the additional capital becomes a part of a corporation's permanent capital.
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false
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a disadvantage of selling stock is that dividends must be paid to stockholders
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true
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a disadvantage of selling stock is that the ownership is spread over more shares and more owners
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true
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preferred stock is typically described by referring to the stock's dividend rate and par value
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true
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unpaid dividends on preferred stock may have to be paid before common stockholders receive any dividends
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true
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a business should only raise capital if the projected increase in earning exceeds the cost of capital
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true
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debt financing is often extended for a term similar to the useful life of the assets purchased
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true
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the spreading of the control over the business through the issuance of new stock is known as dilution of control
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true
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a business having a high level of debt is said to be highly leveraged
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cost accounting
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the field of accounting that identifies and measures costs
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