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business
principles financial accounting

Questions and Answers of Principles Financial Accounting

Art Attack Ltd. ships merchandise on consignment to The Print Haus, a retailer of fine art prints. The cost of the merchandise is $58,000, and Art Attack pays the freight cost of$2,200 to ship the
Eames Fine Furniture sells high quality, roll-top desks. The company allows customers to return products for a full refund within 90 days of purchase. The desks sell for $3,000 and cost the company
Frank Ledger, a non-designated accountant, has agreed to provide twelve months of bookkeeping services to Digital Dreams Inc. (DDI), a computer equipment and accessories retailer. Mr. Ledger will
Suarez Ltd. entered into a contract on January 1, 2020, to construct a small soccer stadium for a local team. The total fixed price for the contract is $35 million. The job was completed in December
In 2021, Gerrard Enterprises Inc. was contracted to build an apartment building for $5.2 million. The project was expected to take three years and Gerrard estimated the costs to be $4.3 million.
On February 1, 2020, Sterling Structures Ltd. signed a $3.5 million contract to construct an office and warehouse for a small wholesale company. The project was originally expected to be completed in
Take the same set of facts as described in the previous question, except assume that there is no reasonable way to estimate progress on the contract.Required:a. Using the zero-margin method (IFRS),
Describe cash and receivables, and explain their role in accounting and business.
Describe cash and cash equivalents, and explain how they are measured and reported.
Explain the purpose and key activities of internal control for cash.
Describe receivables, identify the different types of receivables, explain their accounting treatment, and prepare the relevant journal entries.
Describe accounts receivable, and explain how they are initially and subsequently measured and reported.
Describe notes receivables, and explain how they are initially and subsequently measured and reported.
Describe derecognition of receivables and the various strategies businesses use to shorten the credit-to-cash cycle through sales of receivables or borrowings secured by receivables.
Describe how receivables are disclosed on the balance sheet and in the notes.
Identify the different methods used to analyze cash and receivables.
Explain the differences between IFRS and ASPE for recognition, measurement, and reporting for cash and receivables.
Below is a list of various items. For each item, determine the amount that should be reported as cash or cash equivalent. For all other items, identify the proper disclosure.a. Chequing account
Below is financial information for Overachiever Ltd. The company’s year-end is December 31.i. A commercial savings account with $575,000 and a commercial chequing account with $450,000 are held at
Amy Glitters Ltd. provides you with the following information about its accounts receivable at December 31, 2020:Due from customers, of which $30,000 has been pledged as security for a bank loan
From July 1 to August 30, 2020, Busy Beaver Ltd. completed the following transactions:On July 1, Busy Beaver sold 40 computers at a unit price of $3,000 to Heintoch Corp., terms 1/15, n/30. Average
The following information is available for Inverness Ltd.’s second year in business:• Opening merchandise inventory is $35,000.• Goods are marked to sell at 35% above cost.• Merchandise
The trial balance before adjustment of Cyncrewd Inc. shows the following balances:Required:a. Give the entry for bad debt expense for the current year assuming:• The allowance should be 4% of gross
At January 1, 2020, the credit balance of Reimer Corp.’s allowance for doubtful accounts was $575,000. During 2020, the bad debt expense entry was based on a percentage of net credit sales. Net
On May 1, 2020, Effix Ltd. provided services to Harper Inc. in exchange for Harper’s$336,000, five-year, zero-interest-bearing note. The implied interest is 8%. Effix’s yearend is December
Below are three unrelated scenarios:i. On July 1, a one-year note for $120,000 was accepted in exchange for an unpaid accounts receivable for $120,000. Interest for 5% would be payable at
On January 1, Harrison Corp. sold used vehicles with a cost of $78,000 and a carrying amount of $12,600 to Aberdeen Ltd. in exchange for a $18,000, four-year non-interestbearing note receivable. The
On July 1, 2020, Helim Ltd. assigns $800,000 of its accounts receivable to Central Bank of Tasmania as collateral for a $500,000 loan that is due October 1, 2020. The assignment agreement calls for
Browing Sales Ltd. sells $1,450,000 of receivables with a fair value of $1,500,000 to Finnish Trust in a securitization transaction that meets the criteria for a sale. Browing receives the full fair
Jertain Corporation factors $800,000 of accounts receivable with Holistic Financing Inc.on a with recourse basis. Holistic Financing will collect the receivables. The receivable records are
On July 1, 2020, Brew It Again Ale Co. sold excess land in exchange for a three-year, non-interest-bearing promissory note in the face amount of $530,000. The land’s carrying value is $250,000.On
The following information below relates to Corvid Company for 2020:• The beginning of the year net Accounts Receivable balance was $123,000.• Net sales for the year were $1,865,000. Credit sales
Jersey Shores Ltd. sold $1,250,000 of accounts receivable to Fast Factors Inc. on a without recourse basis. The transaction meets the criteria for a sale, and no asset or liability components of the
Opal Co. Ltd. transfers $400,000 of its accounts receivable to an independent trust in a securitization transaction on July 11, 2020, receiving 95% of the receivables balance as proceeds. Opal will
Define inventory and identify those characteristics that distinguish it from other assets.
Identify the types of costs that should be included in inventory.
Identify accounting issues and treatments applied to inventory subsequent to its purchase.
Describe the differences between periodic and perpetual inventory systems.
Identify the appropriate criteria for selection of a cost flow formula and apply different cost flow formulas to inventory transactions.
Determine when inventories are overvalued and apply the lower of cost and net realizable value rule to write-down those inventories.
Describe the presentation and disclosure requirements for inventories under both IFRS and ASPE.
Identify the effects of inventory errors on both the balance sheet and income statement and prepare appropriate adjustments to correct the errors.
Calculate estimated inventory amounts using the gross profit method.
Calculate gross profit margin and inventory turnover period and evaluate the significance of these results with respect to the profitability and efficiency of the business’s operations.
Identify differences in accounting for inventories between ASPE and IFRS.
Identify which of the following costs of a product manufacturer would be included in inventories:• Salaries of assembly line workers• Raw materials• Salary of factory foreman• Heating cost
Complete the following table by identifying whether the seller (S) or the purchaser (P) is the appropriate response for each cell. Owns the goods while in transit Is responsible for the loss if goods
Hasselbacher Industries Ltd. has fixed production overhead costs of $150,000. In a normal year, the company produces 100,000 units of product, which results in a fixed overhead allocation of $1.50
Segura Ltd. operates a small retail store that sells guitars and other musical accessories.During the month of May, the following transactions occurred:Required: Segura Ltd. uses a perpetual
Refer to the information in the previous question.Required: Assume that Segura Ltd. uses the moving average cost flow assumption instead. Calculate the cost of goods sold for the month of May and the
The following chart for Severn Ltd. details the cost and selling price of the company’s inventory:Required:a. Assume that grouping of inventory items is not appropriate in this case. Apply the
Hawthorne Inc. identified the following inventory errors in 2020.a. Goods were in transit from a vendor on December 31, 2020. The invoice cost was$82,000 and the goods were shipped FOB shipping point
Refer to the information provided in the previous question.Required:a. Assume the books are still open for 2020. Provide any required adjusting journal entries to correct the errors.b. How would the
Wormold Industries suffered a fire in its warehouse on March 4, 2021. The warehouse was full of finished goods, and after reviewing the damage, management determined that inventory, with a retail
Bollen Custom Automobile Mfg. reported the following results (all amounts are in millions USD):Inventories at the end of 2018 were $1,239.Required: Using the data above, analyze the profitability and
Describe intercorporate investments and their role in accounting and business.
Identify and describe the three types of non-strategic investments.
Fair value through net income (FVNI) classification and accounting treatment.
Fair value through OCI (FVOCI) classification and accounting treatment.
Amortized Cost (AC) classification and accounting treatment.
Identify and describe the three types of strategic investments.
Investments in associates classification and accounting treatment.
Investments in subsidiaries classification and accounting treatment.
Investments in joint arrangements general overview.
Explain disclosures requirements for intercorporate investments.
Identify the issues for stakeholders regarding investment analyses of performance.
Discuss the similarities and differences between IFRS and ASPE for the three non-strategic investment classifications.
On January 1, Maverick Co. purchased 500 common shares of Western Ltd. for $50,000 plus a 1% commission of the transaction. On September 30, Western declared and paid a cash dividend of $2.25 per
On January 1, 2020, Smythe Corp. invested in a 10-year, $25,000 face value 4% bond, paying $25,523 in cash. Interest is paid annually, every January 1. On January 3, 2028, Smythe sold all of the
On January 2, Terrace Co. purchased $100,000 of 10-year, 4% bonds from Inverness Ltd. for $88,580 cash. The effective interest yield for this transaction is 5.5%. The bonds pay interest on January 1
On January 2, Bekinder Ltd. purchased $100,000 of 10-year, 4% bonds from Colum Ltd.for $88,580 cash. The effective interest yield for this transaction is 5.5%. The bonds pay interest on January 1 and
On March 1, Imperial Mark Co. purchased 5% bonds with a face value of $20,000 for trading purposes. The bonds were priced in the trading markets at 101 to yield 4.87%, at the time of the purchase,
Halberton Corp. purchased 1,000 common shares of Xenolt Ltd., a publicly traded company, for $52,800. During the year Xenolt paid cash dividends of $2.50 per share. At year-end, due to a temporary
The following are various transactions that relate to the investment portfolio for Zeus Corp., a publicly traded corporation. The portfolio is made up of debt and equity instruments all purchased in
On January 1, 2020, Verex Co. purchased 10% of Optimal Instrument’s 140,000 shares for $135,000 plus $1,750 in brokerage fees. Management accounted for this investment as a FVOCI. In October,
At December 31, 2020, the following information is reported for Jackson Enterprises Co.:Required: Calculate the Other Comprehensive Income (OCI) and total comprehensive income for the year ending
On January 2, 2020, Bellevue Holdings Ltd. purchased 5%, 10-year bonds with a face value of $200,000 at par. This investment is accounted for at amortized cost. On January 4, 2021, the investee
On December 31, 2020, Camille Co. provided the following information as at December 31, 2020 about its investment accounts that it acquired for trading purposes:During 2021, Warbler Corp. shares were
On September 30, 2019, FacePlant Inc. purchased a $225,000 face-value bond for par plus accrued interest. The bond pays interest each October 31 at 4%. Management’s investment business model is to
Bremblay Ltd. owns corporate bonds that it accounts for using the amortized cost model.As at December 31, 2020, after an impairment review was triggered, the bonds have the following financial
On January 1, 2020, Helsinky Co. paid cash to acquire 8% bonds of Britanica Corp. with a maturity value of $250,000, to mature January 1, 2028. The bonds provide a 9% yield and pay interest each
On January 1, 2014, Billings Ltd. purchased 2,500 shares of Outlander Holdings for$87,500. During the time that this investment has been held by Billings, the economy and the investee company
On January 1, 2020, Sandar Ltd. purchased 32% of Yarder Co.’s 50,000 outstanding common shares at a price of $25 per share. This price is based on Yarder’s net assets.On June 30, Yarder declared
The following T-account shows various transactions using the equity method. This investment of $290,000 is made up of 30% of the outstanding shares of another company who had a carrying amount of
On January 1, 2019, Dologan Enterprises Ltd. purchased 30% of the common shares of Twitterbug Inc. for $380,000. These shares are not traded in any active markets. The carrying value of
On January 1, 2020, Chacha Holdings Ltd., a privately-held corporation that follows ASPE, purchased 35% of the common shares of Eugene Corp. for $600,000. With this purchase, Chacha now has
Below are details for several independent investments:i. Preferred shares were purchased from a publicly traded company because of their favourable dividend payout history. They are for sale, but
On January 1, 2020, Amev Ltd., an IFRS company, acquires a 3%, 5-year, bond at par for$1,150,000, which it intends to hold and collect the contractual cash flows of principal and interest. At
Referring to the data in Exercise 8–21, assume now that management estimates that there has been a significant increase in the credit risk and there is now a 6% chance that the Amev will not
Referring to the data in Exercise 8–21, prepare the year-end entry assuming that Amev classifies the investment as FVOCI and the fair value of the bond at year-end was 99.5, assuming the
Describe the statement of income, the statement of comprehensive income, and the statement of changes in equity and their roles in accounting and business.
Identify the factors that influence what is reported in the statement of income, statement of comprehensive income, and the statement of changes in equity.LO 2.1: Explain the factors that influence
Identify the core financial statements and explain how they interconnect together.LO 3.1: Explain the differences between IFRS and ASPE regarding the income and equity statements.
Describe the various formats used for the statement of income and the statement of comprehensive income, and identify the various reporting requirements for companies following IFRS and ASPE.
Describe the various formats used to report the changes in equity for IFRS and ASPE companies, and identify the reporting requirements.
Identify and describe the techniques used to analyze income and equity statements.
The following information pertains to Inglewood Ltd. for the 2020 fiscal year ending December 31:The company tax rate is 27%. The unrealized holding gain is from FVOCI investments where the gain has
Wozzie Wiggits Ltd. produces and sells gaming software. In 2020, Wozzie’s net income exceeded analysts’ expectations in the stock markets by 8%, suggesting an 8% increase from operations.
Eastern Cycles Ltd. is a franchise that sells bicycles and cycling equipment to the public. It currently operates several corporate-owned retail stores in Ottawa that are not considered a separate
For the year ended December 31, 2020, Bunsheim Ltd. reported the following: sales revenue $680,000; cost of sales $425,750; operating expenses $75,000; and unrealized gain on Available-for-sale

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