Fundamental Financial Accounting Key Terms and Concepts Chapter 7 - Accounting For and Presentation of Liabilities

account payable annual percentage rate (APR) bond or bond payable bond discount bond indenture bond premium book value callable bonds call premium

A liability representing an amount payable to another entity, usually because of the purchase of merchandise or a service on credit. The effective (true) annual interest rate on a loan. A long-term liability with a stated interest rate and maturity date, usually issued in denominations of $1,000. The excess of the face amount of a bond over the market value of a bond (the proceeds of the issue). The formal agreement between the borrower and investor(s) in bonds. The excess of the market value of a bond (the proceeds of a bond issue) over the face amount of the bond(s) issued. The balance of the ledger account (including related contra accounts, if any), for an asset, liability, or owners' equity account. Sometimes referred to as carrying value. Bonds that can be redeemed by the issuer, at its option, prior to the maturity date. An amount paid in excess of the face amount of a bond when the bond is repaid prior to its established maturity date.

collateral trust bond A bond secured by the pledge of securities or other intangible property. consolidated financial Financial statements resulting from the combination of parent and subsidiary company financial statements. statements contingent liability contra liability convertible bonds coupon bond coupon rate current maturity of long-term debt debenture bonds or debentures deferred credit deferred tax liability discount loan A potential claim on a company's resources (i.e., loss), which depends on future events; must be probable and reasonably estimable to be recorded as a liability on the balance sheet. An account that normally has a debit balance that is subtracted from a related liability on the balance sheet. Bonds that can be converted to preferred or common stock of the issuer, at the bondholder's option. A bond for which the owner's name and address are not known by the issuer and/or trustee. Interest is received by clipping interest coupons that are attached to the bond and submitting them to the issuer. The rate used to calculate the interest payments on a bond. Sometimes called the stated rate. Principal payments on long-term debt that are scheduled to be paid within one year of the balance sheet date. Bonds secured by the general credit of the issuer but not secured by specific assets. An account with a credit balance that will be recognized as a revenue (or as an expense reduction) in a future period. See unearned revenue. A long-term liability that arises because of temporary differences between when an item (principally depreciation expense) is recognized for book and tax purposes. A loan on which interest is paid at the beginning of the loan period.

Key Terms and Concepts - Chapter 5 - Page 2 of 2

face amount FICA tax financial leverage gross pay interest calculationdiscount basis The principal amount of a bond. Federal Insurance Contribution Act tax used to finance federal programs for oldage and disability benefits (social security) and health insurance (Medicare). The use of debt (with a fixed interest rate) that causes a difference between return on investment and return on equity. The total earnings of an employee for a payroll period. Interest calculation in which the interest (called discount) is subtracted from the principal to determine the amount of money (the proceeds) made available to the borrower. Only the principal is repaid at the maturity date because the interest is, in effect, prepaid. Interest calculation in which the principal is the amount of money made available to the borrower. Principal and interest are normally repaid by the borrower at the maturity date, although interest may be paid on an interim basis as well. A mathematical term to describe the process of interpreting and relating two factors from a (present value) table to approximate a third factor not shown in the
table.

interest calculationstraight basis

interpolating long-term debt maturity date minority interest mortgage bond net pay noncontrolling interest note payable prime rate proceeds registered bond revolving line of credit serial bond stated rate term bond trustee of bonds unearned revenue working capital loan

A liability that will be paid more than one year from the balance sheet date. The date when a loan is scheduled to be repaid. Another term for noncontrolling interest. A bond secured by a lien on real estate. Gross pay less payroll deductions; the amount the employer is obligated to pay to the employee. An item that arises in the preparation of consolidated financial statements when some subsidiaries are less than 100 percent owned by the parent company; sometimes called minority interest in subsidiaries. A liability that arises from issuing a note; a formal promise to pay a stated amount at a stated date, usually with interest at a stated rate and sometimes secured by collateral. Can be short-term or long-term. The interest rate charged by banks on loans to large and most creditworthy customers; a benchmark interest rate. The amount of cash received in a transaction. A bond for which the owner's name and address are recorded by the issuer and/or trustee. A loan on which regular payments are to be made, but which can be quickly increased to a predetermined limit as additional funds must be borrowed. A bond that is to be repaid in installments. The rate used to calculate the amount of interest payments on a bond. Sometimes called the coupon rate. A bond that is to be repaid in one lump sum at the maturity date. The agent who coordinates activities between the bond issuer and the investors in bonds. A liability arising from receipt of cash before the related revenue has been earned. See deferred credit. A short-term loan that is expected to be repaid from collections of accounts receivable.