Questions and Answers of Fundamentals Of Financial Accounting 7th Edition

You are an accountant working at Hasfa & Co. George Maranzan, a partner in your firm, leaves you the following voicemail message:“The scheduling manager tells me you have some time available. We
Today is November 1, 2017. You, CPA, have just been hired by Auto Parts Inc. (API) as an accountant to provide financial expertise during its current expansion. API was founded in 1995 by Jerome
Greg Schwartz is an automotive enthusiast. He has over 25 years experience working as a mechanic for the dealership of a large car manufacturer in Oakville. Greg also gained experience doing minor
Zenith Security Ltd. (ZSL) is a home and commercial security company. The company was established in 1968 by Paolo Vecchio, its sole shareholder, to provide security services in Halifax. Since its
It’s December 31, 2017, and you’re sitting at your desk looking out the window watching the snowfl akes fall. Your friends have the day off and have just left to go skiing. You are required to
Taiga Pulp and Paper Ltd. (TPP) is an integrated pulp and paper company, with operations in Canada. TPP operates in the pulp, paper, and wood product market and has sales offices in Canada, China,
Rosetta Inc. (RI) is a new corporation that just acquired the assets of an unincorporated technology business on September 1, 2016, from Jess Stone. Extracts from the purchase and sale agreement
Seven years have transpired since the construction of the 24-unit apartment complex. Currently, the 24 units are fully rented, and operations are running smoothly. The company is getting ready to
Realty Income Ltd. is a young company, established with the intent of earning rental income from apartment complexes. The company is owned by Jeff Florescu. During the most recent year, the company
North Shore Car Dealers (NSCD) is a holding company that owns two car dealerships in Ontario. One dealership services the city of Barrie, while the other dealership operates out of Orillia. Both
Munich IT Solutions (MITS) is a fast-growing, medium-sized business that primarily provides integrated server solutions that manage the storage, organization, and retrieval of information. MITS
Meltdown Incorporated (MI) recycles plastic and then sells it to manufacturing companies to produce toys, household items (such as coffee makers), and so on. MI was founded in 1998 by Samuel
Marko Pharma Ltd. (MPL) is a biotech company that is involved in research and commercialization of products to treat a variety of human diseases and to boost human health. The company issued an IPO
Kentuckyville Slugger (KS) is a manufacturer of baseball and soft ball accessories. The company was established by Sammy Sousa in 1913, and produced only wooden baseball bats. KS has evolved over the
Forgurt Ice Creams (FIC) was established in 1995, in Edmonton, Alberta by Raj Swaminathan to produce natural ice creams using only milk, sugar, chocolate, and fruits. The company prides itself on its
Forestry Limited (FL) is a private company incorporated in Canada. Its head office is in Toronto but its primary operations are in China and include owning and managing tree plantations, sales of
Fantasyfootball.net (FFN) is a company whose primary activities are hosting a real-time, online fantasy football website and writing and publishing an annual magazine that discusses fantasy football
Chaser Industries (CI) was established in 1980 as a manufacturer of outdoor furniture. It has quickly become a respected company and well known for its creation of highly durable, eco-friendly patio
Jenny Kinnear just completed a university degree in natural resource sciences. Given the tough economic times, it has been diffi cult to find any form of meaningful employment. Prior to moving to
The Body and Soul Fitness Centre (BSFC) is a newly established business that offers yoga classes and yoga clothing and accessories. The BSFC operates out of Saskatoon, Saskatchewan, and is owned by
On January 1, 2017, Alexander Properties (AP), a private enterprise, transitioned to IFRS from ASPE. Brian McParland, the company’s Chief Financial Officer, was responsible for all financial
Masters Golf Manufacturing Inc. (MGM) makes custom and generic golf clubs. MGM primarily sells the clubs to several large golf retailers in Canada. MGM owns two manufacturing plants and has its head
Dustin Leibovitch has just completed his courses in dog care, training, and grooming and is excited about opening his new business, Shetland K-9 Academy (SK9). SK9 has been a dream for Dustin and he
Sarah Smith has been an avid sports enthusiast since her early days of playing soccer for her city team. Sarah continued to play soccer throughout high school and university. She recognized during
Seb’s Funhouse (SF) is a party and novelty store located just north of Toronto. SF is a private company, and was founded in 2008 by Sebastian Switzer. SF sells all kinds of party needs, from
Sam’s Seaplane Rides is a private company that operates tourist rides from Vancouver. Tourists pay for a one-hour ride that takes them to Victoria and up the coast. Sam has noticed a significant
Martina Fabcic’s dream, ever since she was the national tennis champion in the under-14 girls’ division, was to own and operate her own tennis club. After earning her business degree with a major
Your partner, Paddy O’Flaherty, has just dropped a mountain of files and other paperwork on your desk and left instructions for you. You notice at the top of the instruction sheet that he has
Georgian Brick and Cement Company (GBCC) is a medium-sized company that specializes in providing cement for construction sites, primarily in the Central Ontario area. GBCC had sales two years ago of
Diamonds Ski and Cottage Rentals (DSC) was founded by Darwin Douglas in the 1970s and was operated primarily as a small local ski hill. For the next 20 years, the ski hill was very popular and made
Barrie Trucking Company (BTC) was privately incorporated in 1985 and services the Greater Toronto Area and the Highway 11 corridor in Ontario. BTC is in the “less than load” business, making its
The Louisiana Grill (TLG) is a restaurant in Toronto. TLG is a regional restaurant created and operated by Alex Ventresca, a former football player from New Orleans. The company was established in
Sky Watchers Ltd. (SWL) is a manufacturer of telescopes and binoculars, offering products to amateurs and professionals. The company has experienced signifi cant growth in the past fi ve years due to
James Ling had loved photography ever since he received his first camera as a gift from his grandmother for his fourth birthday. When he was young he took pictures of everything that interested him,
The London Tour Company (LTC) organizes tours of scenic and historic places of interest for visitors and new residents of London, Ontario. The company was started by Andrew Zhang after he moved to
Gamma Systems Ltd (GSL) was created by Jesse Gemmel, a third-year undergraduate business student. Unable to find work in a business setting, Jesse started up his own business during the summer
You have just accepted a position as an equity analyst with a small private equity firm. Your fi rm’s investment mandate is to invest only in businesses that operate in the City of Moncton.You have
You just started your new position as a junior credit analyst with a large Canadian bank. For your fi rst assignment, you have been asked to review the statements of financial position of Design Your
Mitch Poirier is considering an investment in a multiple-unit, residential building. The building has 30 units, which are all currently rented to tenants. Further details on the apartment building
Revenue reserves would increase if a company: (A) issues shares at a premium. (B) makes a transfer from retained earnings to general reserves. (C) retains profits. (D) increases its current bank
The gross profit mark-up is 60 per cent where sales are $240,000 and: (A) cost of sales is $96,000. (B) gross profit is $144,000. (C) gross profit is $150,000. (D) cost of sales is $150,000.
An increase in the allowance for receivables would result in: (A) a decrease in working capital. (B) an increase in working capital. (C) an increase in liabilities. (D) an increase in net profit.
The reducing-balance method of depreciating non-current assets is more appropriate than the straight-line method when: (A) the expected life of the asset is short. (B) the asset is expected to
Goodwill is most appropriately classed as: (A) a fictitious asset. (B) a semi-non-current asset. (C) a tangible asset. (D) an intangible asset.
Your organisation uses the weighted average cost formula for inventories. During September 20X0, the following inventory details were recorded: Opening balance 60 units valued at $4 each 6 September
The following information is given for the year ended 31 October 20X0: $ Purchases of raw materials 56 000 Returns inwards 4 000 Increase in inventories of raw materials 1 700 Direct wages 21 000
A sole trader’s income statement for the year ended 31 October 20X9 was drawn up as follows: $ $ Gross profit 87 000 Less: expenses Own wages 18 000 Assistant’s wages 8 000 General expenses 16
The accumulated fund represents: (A) the bank balances of an organisation. (B) the carrying amount net assets in a not-for-profit organisation. (C) the excess of receipts over payments in a
At 1 November 20X8, a club’s membership subscriptions account showed a debit balance of $200 and a credit balance of $90. During the year ended 31 October 20X9, subscriptions received amounted to
An increase in inventories of $500, a decrease in the bank balance of $800 and an increase in payables of $2,400, will result in: (A) an increase in working capital of $2,700. (B) a decrease in
The stewardship function is carried out by: (A) the internal auditors. (B) the external auditors. (C) the treasurer of a not-for-profit organisation. (D) the management of an organisation.
An organisation restores its petty-cash balance to $250 at the end of each month. During October, the total expenditure column in the petty-cash book was calculated as being $210, and hence the
An organisation’s non-current asset register showed a carrying amount of $271,200. The non-current asset account in the nominal ledger showed a carrying amount of $251,200. The difference could be
In times of rising prices, the historical cost convention results in: (A) inventories being valued at cost price if this is higher than their net realisable value. (B) non-current assets being valued
A business has the following trading accounts: Year ended Year ended 31 October 20X8 31 October 20X9 $’000 $’000 $’000 $’000 Sales 2 000 2 650 Less: cost of sales Opening inventories 75 85
A business has the following capital and long-term liabilities: 31.10.X8 ($ m ) 31.10.X9 ($ m ) 12% debentures 20 40 Issued share capital 15 30 Share premium 3 18 Retained earnings 22 12 At 31
An increase in the gross profit margin of a business is most likely to be due to which one of the following combinations: Selling price per unit Quantity sold Cost per unit A increased no change
The following information relates to a business at its year end: $’000 Sales 600 Inventories at beginning of year Raw materials 20 Work in progress 4 Finished goods 68 Inventories at end of year
The following sales ledger control account contains some inaccurate entries: Sales ledger control account $ $ Opening receivables 14 500 Credit sales 53 500 Discounts allowed 350 Returns 1 400
On 1 November 20X9, your organisation purchased, on credit from XYZ Ltd, office equipment with a catalogue price of $1,000, less trade discount of 20 per cent and cash discount of 5 per cent, if paid
Your organisation’s trial balance at 31 October 20X9 is out of agreement, with the debit side totalling $500 less than the credit side. During November, the following errors are discovered: • the
A cash-flow statement can best be described as: (A) a statement showing the effects of profit on cash resources. (B) a statement of cash inflows and outflows from operating activities. (C) a
Your organisation has received a statement of account from one of its suppliers, showing an outstanding balance due to them of $1,350. On comparison with your ledger account, the following is
Your organisation paid $240,500 in net wages to its employees during the year. Employees’ tax and social security tax amounted to $64,000 and employer’s social security tax was $22,000. Employees
The reducing-balance method of depreciating non-current assets is more appropriate than the straight-line method when: (A) there is no expected residual value for the asset. (B) the expected life of
An error of original entry would occur if the purchase of goods for resale was: (A) debited and credited to the correct accounts using the incorrect amount in both cases. (B) credited to the
A computerised accounts package would be most useful in maintaining: (A) the ledger accounts. (B) the books of prime entry. (C) a register of non-current assets. (D) the inventories records.
The accumulated fund represents: (A) the total of the shareholders’ investment in a company. (B) the carrying amount of net assets in a not-for-profit organisation. (C) the excess of income over
It is important to produce a trial balance prior to preparing the financial statements because: (A) it confirms the accuracy of the ledger accounts. (B) it provides all the figures necessary to
During the year ended 31 October 20X7, your organisation made a gross profit of $60,000, which represented a mark-up of 50 per cent. Opening inventories were $12,000 and closing inventories were
During September, your organisation had sales of $148,000, which made a gross profit of $40,000. Purchases amounted to $100,000 and opening inventories were $34,000. The cost of closing inventories
Your organisation uses the weighted average cost formula for inventories. During August 20X7, the following inventories details were recorded: Opening balance 30 units valued at $2 each 5 August
You are given the following information for the year ended 31 October 20X7: $ Purchases of raw materials 112 000 Returns inwards 8 000 Decrease in inventories of raw materials 8 000 Direct wages
The bank statement at 31 October 20X7 showed an overdraft of $800. On reconciling the bank statement, it was discovered that a cheque drawn for $80 had not been presented for payment, and that a
From the following information regarding the year to 31 August 20X6, what are the payables days ? $ Sales 43 000 Cost of sales 32 500 Opening inventories 6 000 Closing inventories 3 800 Payables
Depreciation is best described as: (A) a means of spreading the payment for non-current assets over a period of years. (B) a decline in the market value of the assets. (C) a means of spreading the
Recording the purchase of computer stationery by debiting the computer equipment account would result in: (A) an overstatement of profit and an overstatement of non-current assets. (B) an
An organisation’s year end is 30 September. On 1 January 20X6 the organisation took out a loan of $100,000 with annual interest of 12 per cent. The interest is payable in equal instalments on the
The accounting convention that, in times of rising prices, tends to understate asset values and overstate profits, is the: (A) going concern (B) prudence (C) realisation (D) historical cost
An error of principle would occur if: (A) plant and machinery purchased was credited to a non-current asset account. (B) plant and machinery purchased was debited to the purchases account. (C) plant
A fair presentation (or ‘true and fair view’) occurs when: (A) the financial statements are correct. (B) the financial statements have been approved by the auditors. (C) the financial statements
Which one of the following attributes is the most important for any code to possess in order to be of use in an accounting system? (A) easy to change the code number. (B) each code is a unique
The management accounts within a limited company are determined by: (A) company law. (B) company law and international financial reporting standards. (C) the shareholders. (D) the directors.
Management accounts differ from published financial statements because they: (A) are forecasts of future income and expenditure. (B) contain more detailed information. (C) they are never shown to the
A new student at a college asked the caretaker when and where the accounting exam would take place. The caretaker replied that he thought the economics exam was on a Monday in C/42. State four
Ensuring that the assets of a company are properly safeguarded and utilised efficiently and effectively is part of: (A) the stewardship function exercised by the directors. (B) the external
Your firm’s cash book shows a credit bank balance of $1,240 at 30 April 20X9. Upon comparison with the bank statement, you determine that there are unpresented cheques totalling $450, and a receipt
The purchase of a business for more than the aggregate of the fair value of its separable identifiable assets results in the creation of a: (A) share premium account. (B) reserve account. (C)
The suspense account shows a debit balance of $100. This could be due to: (A) entering $50 received from A Turner on the debit side of A Turner’s account. (B) entering $50 received from A Turner on
A company received an invoice from ABC Ltd for 40 units at $10 each, less 25 per cent trade discount, these being items purchased on credit and for resale. It paid this invoice minus a cash discount
The draft balance sheet of B Ltd at 31 March 20X0 is set out below. Assets $ $ Non-current assets 450 Current assets Inventories 65 Receivables 110 Prepayments 30 205 655 Equity and liabilities
A business has the following trading account for the year ending 31 May 20X8: $ $ Sales 45000 Opening inventories 4000 Purchases 26500 30500 Less: closing inventories 6000 24500 Gross profit
The formula for calculating inventories days is: (A) cost of goods sold divided by inventories × 365. (B) inventories divided by purchases × 365. (C) cost of goods sold divided by inventories. (D)
A company has authorised share capital of one million ordinary shares of $1 each, of which 800,000 have been issued at a premium of 50c each, raising capital of $1,200,000. The directors are
The correct ledger entries needed to record the issue of 200,000 $1 shares at a premium of 30 cents, and paid for by cheque, in full, would be: Debit Credit $ $ Share premium Share capital Bank
A company has $100,000 of ordinary shares at a par value of 10 cents each and 100,000 5 per cent preference shares at a par value of 50 cents each. The directors decide to declare a dividend of 5
The following information relates to M Ltd: At 30 September 20X1 20X0 $’000 $’000 Inventories of raw materials 75 45 Work in progress inventories 60 70 Inventories of finished goods 100 90 For
Which of the following is not correct? (A) Depreciation reduces the net profit of an organisation. (B) Providing depreciation generates cash. (C) If depreciation is not charged, capital will not be
Which of the following is not a reason for providing depreciation on tangible noncurrent assets. (A) They have a limited useful life (B) They are part of the cost of generating the revenue for a
When there is inflation, the historical cost convention has the effect of: (A) overstating profits and understating balance sheet values. (B) understating profits and overstating balance sheet

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