Chapter 10 review - Chapter 9 Payroll Taxes- Current Ratio-...

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Unformatted text preview: Chapter 9 Payroll Taxes- Current Ratio- An important indicator of a companys ability to meet its current obligations- Current Assets / Current Liability = Current ratio Account payable turnover ratio- Measures how quickly management is paying trade accounts- Cost of goods sold/ Average account payable = Accounts payable turnover ratio Notes payable Contingent Liability- Potential liabilities that arise because of events or transactions that have already occurred. Working capital- = Current assets- current liabilities- Long-term liabilities- Creditors often require the borrower to pledge specific assets as security for the long-term liability.- Significant debt needs are often filled by issuing bonds to the public- Relatively small amounts can be filled by Banks, Insurance company, pension plan Operating and Capital Leases- Operating Leases: Short-term leases; no liabilities or assets. - Capital leases: Long-term leases; meets one of the 4 criteria; results in o Capital Lease Criteria o 1. Lease term is 75% or more of the assets expected economic life. o 2. Ownership of asset is transferred to lessee at end of lease. o 3. Lease permits lessee to purchase the asset at a price that is lower than its fair market value. o 4. The present value of the lease payments is 90% or more of the fair market value of the asset when the lease is signed. Chapter 9 Present Value- The present value of a single amount is the worth to you today of receiving that amount some time in the future.- An annuity is a series of consecutive equal periodic payments.- Present Value X interest rate = Interest Chapter 10 Bonds- Are long-term debt. - Advantages of bonds: - Stockholders maintain control because bonds are debt, not equity.- Interest expense is tax deductible.- The impact on earnings is positive because money can often be borrowed at a low interest rate and invested at a higher interest rate.- Disadvantages of bonds: - Risk of bankruptcy exists because the interest and debt must be paid back as scheduled or creditors will force legal action.- Negative impact on cash flows exists because interest and principal must be repaid in the future.- Vocabulary - 1. Face Value (Maturity or Par Value, Principal) - 2. Maturity Date- 3. Stated Interest Rate - 4. Interest Payment Dates- 5. Bond Date- Other Factors:- 6. Market Interest Rate- 7. Issue Date- Types of bonds o Debenture: an unsecured bond; no assets are specifically pledged to guarantee repayment. o Callable bonds: may be called for early retirement at the option of the issuer. o Convertible bonds: may be converted to other securities of the...
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This note was uploaded on 10/21/2009 for the course H ADM 223 taught by Professor Pstrebel during the Spring '07 term at Cornell University (Engineering School).

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Chapter 10 review - Chapter 9 Payroll Taxes- Current Ratio-...

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