UCBUGBA102ATopic07PracticeQuestionsSolns

UCBUGBA102ATopic07PracticeQuestionsSolns - Topic07...

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Topic07 Long-Term Liabilities Question 1. In a short sentence, define the following terms: a. Secured Note Payable is a note where specific assets are pledged as collateral. b. Deferred Income Taxes Payable are tax obligations arising from timing differences between reporting revenue and expense items on the financial statements according to GAAP and reporting them on tax returns filed according to the internal revenue code. c. Convertible Bonds are bonds issued with the provision that the holder has the option to convert them to stock at some future date. d. Financial Leverage refers to the tendency of return on equity to increase faster than return on assets due to the use of outside debt. Positive financial leverage is achieved when the return on assets of the company is larger than the cost of debt. When the reverse is true, negative financial leverage results. e. Discounted Cash Flow Value is the process of adjusting a stream of future cash flows to their equivalent in today’s dollars based on an assumed earnings rate (opportunity cost). Question 2. In a short sentence, explain the difference between the following concepts:
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