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fundamentals financial accounting

Questions and Answers of Fundamentals Financial Accounting

What is the difference between an accrual and a prepayment?LO8
Which type of adjustment will (a) increase both assets and revenues, (b) increase revenues and decrease liabilities, (c) increase expenses and decrease assets, and (d) increase both expenses and
How is the amount for an interest expense (or interest revenue) adjustment determined?LO10
Describe the effect on the financial statements when an adjustment is prepared that records (a) unrecorded revenue and (b) unrecorded expense.LO11
On the basis of what you have learned about adjustments, why do you think that adjusting entries are made on the last day of the accounting period rather than at several times during the accounting
What is the purpose of closing entries?LO14
Describe the four steps in the closing process.LO15
Identify each of the following categories of accounts as temporary or permanent: assets, liabilities, equity, revenues, expenses, dividends declared. How is the distinction between temporary and
Why are only the statement of financial position accounts permanent?LO17
List the seven steps in the accounting cycle in the order in which they occur and explain what occurs at each step of the accounting cycle.LO18
Describe the qualitative characteristics, assumptions, principles, and constraints that underlie accounting.- The fundamental qualitative characteristics of accounting information are:-
Explain the relationships among economic events, transactions, and the expanded basic accounting equation.- A company's business activities (operating, investing, and financing) consist of many
Analyze the effect of business transactions on the basic accounting equation.- This is Step 1 of the accounting cycle.- Transaction analysis is the process of determining the economic effects of a
Discuss the role of accounts and show how debits and credits are used in the double-entry accounting system using T-accounts.- An account is a record of increases and decreases in each of the basic
Prepare journal entries for transactions.}- This is Step 2 of the accounting cycle.- A journal entry represents the debit and credit effects of a transaction in the accounting records.- A journal
Explain why transactions are posted to the general ledger.- This is Step 3 of the accounting cycle.- To overcome the difficulty of determining account balances listed chronologically in the journal,
Prepare a trial balance and explain its purpose.}- This is Step 4 of the accounting cycle.- The trial balance is a list of all active accounts, in the order they appear in the ledger, and each
What is the conceptual framework of accounting? LO3
Identify the characteristics of useful information. LO3
Discuss the trade-offs that may be necessary between the qualitative characteristics. LO6
Distinguish between comparability and consistency. LO9
Describe the constraints on providing useful information. LO9
Identify the four assumptions that underlie accounting. LO9
Discuss the three principles that are used to measure and record business transactions. LO10
How are the financial statements related to accounting standards? LO10
Of all the events that occur each day, how would you describe those that are recorded in a firm's accounting records? LO11
In order for a transaction to be recorded in a business's accounting records, the effects of the transaction must be faithfully represented. What is faithful representation, and why is it important?
What is the basic process used in transaction analysis? LO12
In analyzing a transaction, can a transaction only affect one side of the basic accounting equation? If so, give an example. LO12
How do revenues and expenses affect the basic accounting equation? LO13
What is a \(T\)-account? Describe the basic components of any account. LO14
Do you agree with the statement that "debits mean increase and credits mean decrease"? If not, what do debit and credit mean? LO15
The words debit and credit are used in two ways in accounting: "to debit an account" and "a debit balance." Explain both usages of the terms debit and credit. LO15
All accounts have normal balances. What is the normal balance of each of these accounts? LO17a. cashb. salesc. notes payabled. inventorye. retained earningsf. salary expense g. equipment h. unearned
When a journal entry is prepared, what must be equal? Why? LO16
Can accounting transactions be directly recorded in the general ledger? If so, why do most companies initially record transactions in the journal? LO18
Why is the term double-entry an appropriate expression for describing an accounting system? LO18
What are the initial steps in the accounting cycle and what happens in each step? LO19
What kinds of errors will a trial balance detect? What kinds of errors will not be detectable by a trial balance? LO19
Identify who the different users of financial statements are and how they use financial statements.* Accounting is the process of identifying, measuring, recording, and communicating financial
Identify different forms of business organization and business activities.¢ The three forms of business organizations are the sole proprietorship (owned by one person), the partnership (jointly
Understand the periods of time covered by the basic four financial statements and the underlying basic accounting equation.* The basic accounting equation captures all of the economic activities
Understand how a statement of financial position is prepared and used by different decision makers.* A statement of financial position reports the resources (assets) owned by a company and the claims
Understand how a statement of earnings is prepared and used by different decision makers.¢ The statement of earnings reports how well a company has performed its operations over a period of time and
Understand how a statement of changes in equity is prepared and used by different decision makers.¢ The statement of changes in equity reports how much of a company’s income was retained in the
Identify the components of a statement of cash flows and understand how it is used by different decision makers.¢ The statement of cash flows reports the sources of a company’s cash inflow and the
Describe the relationships among the four basic financial statements and how management uses financial statements.¢ There is a natural relationship among the four basic financial statements so that
Describe information contained in the annual report.* The notes to the financial statements clarify and expand upon the information presented in the financial statements and are considered an
Understand the role of International Accounting Standards in determining the content of financial statements.¢ International Financial Reporting Standards (IFRS) are mandatory for publicly
Understand the importance of ethics and legal liability in accounting.¢ Maintenance of standards of ethical behaviour is essential to the conduct of any business activity. Violation of these
Why is there a demand for accounting information? Name five groups that create demand for accounting information about businesses, and Cesc how each group uses accounting information.
Define the terms assets, liabilities, and shareholders’ equity. How are the three terms related?
Write the basic accounting equation. Why is it significant?
Define current assets and current liabilities. Why are current assets and current liabilities separated from noncurrent assets and long-term liabilities on the statement of financial position?
Describe how items are ordered within the current assets and current liabilities sections on a statement of finaficial position.
Name the two main components of shareholders’ equity. Describe the main sources of change in each component.
What equation describes the statement of earnings?
How does the multiple-step statement of earnings differ from the single-step statement of earnings?
How is the statement of retained earnings related to the statement of financial position?How is the statement of earnings related to the statement of retained earnings?
Assume Knowlton Holdings Ltd. completed these long-term non-strategic investment transactions during 2020 :1. Journalize Knowlton's investment transactions assuming the company reports any changes in
Use the data given in exercise SB-1. On May 19, 2021, Knowlton sold its investment in BCE shares for \(\$ 26\) per share.1. Journalize the sale. No explanation is required.2. How does the gain or
Suppose on February 1, 2020, General Motors paid \(\$ 41\) million for a \(40 \%\) investment in ABC Ltd., an auto parts manufacturer. Assume \(A B C\) earned net income of \(\$ 6\) million and paid
Use the data given in exercise SB-3. Assume that in November 2021, General Motors sold half its investment in \(\mathrm{ABC}\) to Toyota. The sale price was \(\$ 14\) million. Compute General
Return to exercise SB-7, the Prudential Bache (PB) investment in CitiCorp bonds. Journalize the following on PB's books:a. Purchase of the bond investment on January 2, 2020. PB expects to hold the
Arnold Financing leases airplanes to airline companies. Arnold has just signed a 10 -year lease agreement that requires annual lease payments of \(\$ 1,000,000\). What is the present value of the
Without making journal entries, record the transactions of exercise EB-16 directly in the BlackBerry T-account, Long-Term Investment in Thai Software. Assume that after all the noted transactions
Assume that on September 30, 2020, Manulife Financial paid 95.95 for \(7 \%\) bonds of Hydro-Québec as a long-term bond investment. The effective interest rate was \(8 \%\). The maturity value of
During fiscal year 2020, Donuts ' \(R\) ' Us Inc. reported net loss of \(\$ 135.8\) million. Donuts received \(\$ 1.0\) million from the sale of other businesses. Donuts made capital expenditures of
Big-Box Retail Corporation reported shareholders' equity on its balance sheet at December 31, 2020, as follows:{Requirements}1. What one component that was discussed in this appendix is included in
Winnipeg Exchanges Ltd. completed the following long-term investment transactions during 2020:At year-end the current fair value of the Tomassini shares is \(\$ 30,600\). The fair value of the
The beginning balance sheet of New Technology Corporation included the following:{Requirements}1. Record the transactions in the journal of New Technology Corporation, 2. Post entries to the
Insurance companies and pension plans hold large quantities of bond investments Prairie Insurance Corp. purchased \(\$ 600,000\) of \(5 \%\) bonds of Eaton Inc. for 104.5 on March 1 2020, when the
Annual cash flows from two competing investment opportunities are given. Each investment opportunity will require the same initial investment at the end of each year.{Requirement}Using the
Spindler Motor Company (Spindler) owns 100\% of Spindler Motor Credit Corporation (SMCC), its financing subsidiary. Spindler's main operations consist of manufacturing automotive products. SMCC
Homestead Financial Corporation owns numerous investments in the shares of other companies. Homestead Financial completed the following long-term investment transactions:At year-end the current fair
The beginning balance sheet of Dealmaker Securities Limited included the following:{Requirements}1. Record the transactions in the journal of Dealmaker Securities 2. Post entries to the Long-Term
Financial institutions hold large quantities of bond investments. Suppose Sun Life Financial purchases \(\$ 500,000\) of \(6 \%\) bonds of General Components Corporation for 88 on January 1,2020,
Annual cash flows from two competing investment opportunities are given. Each investment opportunity will require the same initial investment.{Requirement}Using the information in the question,
Marine Transport Lid.'s statement of cash flows, as adapted, appears as follows:{Requirement}As a member of an investment club, you have been asked to review Marine Transport's major investing
Randall Motor Company (Randall) owns 100\% of Randall Motor Credit Corporation (RMCC), its financing subsidiary. Randall's main operations consist of manufacturing automotive products. RMCC mainly
A company's investment in less than \(1 \%\) of GE's shares, (4) which it expects to hold for two years and then sell, is which type of investment?a. Strategicb. Equityc. Non-strategicd. Consolidation
DuBois Corporation purchased a non-strategic investment (In 1,000 shares of Scotiabank (BNS) for \(\$ 31\) per share. On the next balance sheet date, BNS is quoted at \(\$ 35\) per share. DuBois's
Use the DuBois Corporation data in question 2. The( company reports changes in fair value through net income DuBois's income statement should reporta. unrealized gain of \(\$ 4,000\).b. unrealized
Use the DuBois Corporation data in question 2. DuBois sold the Scotiabank shares for \(\$ 40,000\) the following year. DuBois's income statement should reporta. unrealized gain of \(\$ 4,000\).b.
Alexander Moving \& Storage Inc. paid \(\$ 100,000\) for \(20 \%\) (i.) of the common shares of Sellers Ltd. Sellers earned net income of \(\$ 50,000\) and paid dividends of \(\$ 25,000\). Alexander
Tarrant Inc. owns \(80 \%\) of Rockwall Corporation, and Rockwall owns \(80 \%\) of Kaufman Company. During 2020, these companies' net incomes are as follows before any consolidations:- Tarrant, \(\$
TRULINE Inc. holds an investment in Manulife bonds that pay interest each June 30. TRULINE's balance sheet at December 31 should reporta. interest receivable.b. interest payable.c. interest
Consolidation accountinga. combines the accounts of the parent company and those of the subsidiary companies.b. eliminates all liabilities.c. reports the receivables and payables of the parent
On January 1, 2020, Vallée Bleue Ltée purchased \(\$ 100,000\) face value of the \(7 \%\) bonds of Mail Frontier Inc. at 105. Interest is paid on January 1. The bonds mature on January 1, 2021. For
Return to Vallée Bleue's bond investment in question 9.Assume an effective interest rate of \(6 \%\). For the year ended December 31, 2020, Vallée Bleu earned interest revenue ofa. \(\$ 5,000\).b.
Cannes Corporation reported the following amounts on its 2020 comparative income statement:Perform a horizontal analysis of revenues and net income-both in dollar amounts and in percentages-for 2020
Zoobilee Inc. reported the following sales and net income amounts:Show Zoobilee's trend percentages for sales and net income. Use 2017 as the base year.Perform a vertical analysis to understand a
Vision Software Limited reported the following amounts on its balance sheets at December 31, 2020, 2019, and 2018:Sales and profits are high. Nevertheless, Vision is experiencing a cash shortage.
Examine the financial data of Black Corporation. Show how to compute Black's current ratio from 2018 to 2020. Is the company's ability to pay its current liabilities improving or deteriorating? 1 23
Use the Allstott, Inc., balance sheet data below.1. Compute Allstott, Inc.'s quick (acid-test) ratio at December 31, 2020 and 2019.2. Use the comparative information from the table on page 597 for
Use the Allstott 2020 income statement that follows and the balance sheet from exercise 10-6 to compute the following:a. Allstott's rate of inventory turnover and days inventory outstanding for
Use the financial statements of Allstott, Inc., in exercises 10-6 and 10-7.1. Compute the company's debt ratio at December \(31,2020\).2. Compute the company's times-interest-earned ratio for 2020.
Use the financial statements of Allstott, Inc., in cxercises 10-6 and 10-7 to compute the following profitability measures for 2020. Show each computation.a. Return on salesb. Asset turnoverc. Return
The annual report of Classic Cars Inc. for the year ended December 31, 2020, included the following items (in thousands):1. Compute earnings per share (EPS) and the price/earnings ratio for Classic
A skeleton of Hill Country Florist Limited's income statement appears as follows (amounts in thousands):Use the following ratio data to complete Hill Country Florist's income statement:a. Inventory

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