See debenture bond.
See debenture bond.
A bond with collateral.
Our Explanation of Future Value of a Single Amount will show you the power of compounded interest on a single deposit. You will see how the future value tables can be useful as well as the rule of 72.
This current liability account reports the amount of interest the company owes as of the date of the balance sheet. (Future interest is not recorded as a liability.)
assume that a company uses the accrual basis of accounting. If the company borrows $100,000 on December 15 and agrees to pay interest on the 15th day of each month at the rate of 1% per month, the interest expense for...
asset) and credit Interest Revenue (or Income). Example of Accrued Interest Let’s assume that on December 16, a company borrows $20,000 from its bank at an annual interest rate of 6%. The first interest payment is due...
This account is a non-operating or “other” expense for the cost of borrowed money or other credit. The amount of interest expense appearing on the income statement is the cost of the money that was used...
.] Example of Interest Payable Let’s assume that on December 1 a company borrowed $100,000 at an annual interest rate of 12%. The company agrees to repay the principal amount of $100,000 plus 9 months of interest when...
See compound interest.
An amount earned by a company on its interest bearing bank accounts or other investments. The amount should be reported as Interest Revenues, Interest Income, or Investment Revenues in the accounting period in which the...
What is interest income? Definition of Interest Income Interest income is the amount of interest earned on investments (that promise to pay interest) and/or compensation for agreeing to receive cash payments from...
as part of the asset’s cost Example of Capitalized Interest Assume that a company is constructing an addition to its present manufacturing building. Its bank is lending the company $320,000 at an annual interest rate...
Interest on interest. For example, if $1,000 is deposited in an account earning interest of 6% per year the account will earn $60 in the first year. In year two the account balance will earn $63.60 (not $60.00) because...
A financial ratio that compares a company’s interest expense to the company’s income before interest expense and income taxes. It is an indicator of the likelihood that interest payments will be made in the...
See interest revenues.
Under the accrual basis of accounting, the Interest Revenues account reports the interest earned by a company during the time period indicated in the heading of the income statement. Interest Revenues account includes...
The current asset that represents the amount of interest revenue that was reported as earned, but has not yet been received.
Our Explanation of Present Value of an Ordinary Annuity uses the appropriate present value factors for discounting a stream of equal cash amounts occurring at equal time intervals. An important feature is the use of loan...
table for various combinations of n and i are referred to as future value __________ factors. 4. In the future value of 1 table, n refers to the number of __________ periods of time, such as months, quarters, years. 5....
A technique for estimating the number of years or the interest rate necessary to double your money. Divide 72 by the interest rate and you will have the approximate number of years needed to double your money. If your...
between interest expense and interest payable, let’s assume that a company borrows $200,000 on November 1 at an annual interest rate of 6%. The company is required to pay each month’s interest on the 15th day of the...
an annualized interest rate of 18% (1.5% per month multiplied times 12 months). A vendor’s invoice having an early payment discount of “1/10, net 30” means that 1% can be saved if the amount owed is remitted...
, you can calculate the __________ interest rate by using a present value of an ordinary annuity factor. 9. Which of the following present value of an ordinary annuity (PVOA) factors are larger? PVOA Factors For 10%...
A multi-column listing of the amounts needed to eliminate a balance in a systematic manner over the life of the item. For example, an amortization schedule for a 15-year mortgage loan would show the 180 payments. The...
will occur, you can compute the __________ interest rate by using a present value calculation. 9. Which present value factor is larger: the PV of 1 factor for 10% or the PV of 1 factor for 12%? PV Of 1 Factor For 10%...
Our Explanation of Present Value of an Ordinary Annuity uses the appropriate present value factors for discounting a stream of equal cash amounts occurring at equal time intervals. An important feature is the use of loan...
What is a basis point? A basis point is a hundredth (1/100) of a percentage point. Expressed another way, one percentage point is equal to 100 basis points. This means that if an interest rate drops by 1/2 of a...
to as a contra-liability account. Examples of Contra-Liability Accounts Some contra-liability accounts include: Discount on Bonds Payable Bond Issue Costs Discount on Notes Payable The debit balances in the above...
date. However, if the depositor insists on withdrawing the money before the maturity date, the financial institution will assess a penalty—usually the loss of interest. Since the depositor agreed to a maturity date,...
What is a fringe benefit rate? Definition of Fringe Benefit Rate A fringe benefit rate is a percentage that results from dividing the cost of an employee’s fringe benefits by the wages paid to the employee for the...
A single overhead rate for assigning all of the manufacturing production and service department costs to products. This rate is less accurate than departmental rates if a company manufactures a diverse group of...
The combined federal and state income tax rate that applies to an additional amount of taxable income.
A variance arising in a standard costing system that indicates the difference between the standard cost of direct labor for the good output (standard hours times standard rate) and the standard cost of the actual hours...
What is a predetermined overhead rate? Definition of Predetermined Overhead Rate A predetermined overhead rate is often an annual rate used to assign or allocate indirect manufacturing costs to the goods it produces....
What is a burden rate in inventory? I assume that the burden rate in inventory refers to a manufacturer’s indirect manufacturing costs, which are also referred to as factory overhead, indirect production costs, and...
What is a bond sinking fund? Definition of Bond Sinking Fund A bond sinking fund is a corporation’s noncurrent asset that is restricted for the purpose of redeeming or buying back its bonds payable. Bonds that require...
details. The $50,000 is a lump sum payment. Sometimes the term lump sum payment merely indicates a single payment. For example, the maturity value of a bond might be referred to as a lump sum payment in order to...
What is the interest coverage ratio? Definition of Interest Coverage Ratio The interest coverage ratio is a financial ratio used as an indicator of a company’s ability to pay the interest on its debt. (The required...
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