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business
principles financial accounting

Questions and Answers of Principles Financial Accounting

Can vertical analysis be used to compare two companies of different sizes, such as Walmart, the world’s largest retailer, and Costco, the eighth-largest retailer in the world? Explain
Facebook became a public corporation in May 2012. Can a meaningful horizontal and vertical analysis be prepared for its first full year of operations as a public company, the year ended December 31,
Refer to the information presented for Lancer Ltd. in P16â€“7A. Additional information:Refer Data in P16-7A,Additional Information:1. Accounts payable relate only to merchandise creditors.2.
The shareholders’ equity accounts of Cedeno Inc. at December 31, 2013, are as follows:Common shares (unlimited number of shares authorized, 1,000,000 issued) ... $3,000,000Stock dividends
Condensed financial data follow for Lancer Ltd. Additional information:1. New equipment costing $99,000 was purchased for $39,000 cash and a $60,000 note payable.2. Equipment with an original
You are provided with the following transactions that took place during a recent fiscal year: InstructionsAssuming the company is reporting under IFRS, complete the above table for each of the
Shankman Limited is a private company reporting under ASPE. Its comparative balance sheet at December 31 is as follows: Additional information:1. Profit for 2014 was $200,000 2. Equipment
The income statement and account balances for Chartrand Inc. are presented in E16€“4. Refer Data in E16-4,InstructionsPrepare the operating section of a cash flow statement using the
Hammond Ltd. completed its first year of operations on September 30, 2014. Hammond reported the following information at September 30, 2014:
The current assets and liabilities sections of the comparative balance sheets of Charron Inc., a private company reporting under ASPE, at October 31 are presented below: InstructionsPrepare the
The following was reported in Shania Ltd.€™s 2014 financial statements. Calculate cash payments for dividends? 2014 2013 Dividends payable Retained earnings Profit $ 24,000 $ 20,000
Manoharan Ltd. reported the following information in its balance sheet and income statement for the year ended March 31, 2014: Calculate the net cash provided (used) by operating activities
Indicate whether each of the following transactions would be added to (1) or subtracted from (2) profit in determining the cash provided (used) by operating activities using the indirect method: (a)
For each of the following transactions, indicate whether it will increase (1), decrease (2), or have no effect (NE) on a company’s cash flows:(a) Repayment of a mortgage payable(b) Sale of land for
How is cash generally defined for purposes of the cash flow statement?
As indicated in the “All About You” feature in this chapter, a student can benefit from financial leverage by borrowing to pay for an education. However, too much leverage can result in graduates
Plankton Corporation€™s trial balance at December 31, 2015, is presented below:All transactions and adjustments for 2015 have been recorded and reported in the trial balance except for the
The following is from Creasor Corp.’s balance sheet: CREASOR CORP.Balance Sheet (partial) December 31, 2013Current liabilitiesInterest payable
Frauts Corporation issued $600,000 of 10-year, 8% bonds on January 1, 2014, for $642,637. This price resulted in a market interest rate of 7% on the bonds. Interest is payable semi-annually on July 1
Ontario Inc. issued $800,000 of 10-year, 4% bonds on January 1, 2013, when the market interest rate was 5%. Interest is payable semi-annually on July 1 and January 1. Ontario has a December 31 year
Mertsis Corporation issued $400,000 five-year bonds on April 1, 2011. Interest is paid semi- annually on April 1 and October 1 and the company€™s year end is March 31. Below is a partial
Eaton Inc. issues a $360,000, 10-year, 6% mortgage note payable on November 30, 2013, to obtain financing for a new building. The terms provide for monthly instalment payments. Prepare the journal
Turpin Ltd. issued $1 million of five-year, 4% bonds dated May 1, 2014, for $1,046,110 when the market interest rate was 3%. Interest is paid semi-annually on May 1 and November 1. Prepare an
Estabrooks Corp. issued $500,000 of 10-year, 5% bonds with interest payable semi-annually. How much did Estabrooks receive from the sale of these bonds if the market interest rate was (a) 4%,(b)
Monk Inc. is considering two alternatives to finance its construction of a new $4-million plant at the beginning of the year: (a) Issue 200,000 common shares at a market price of $20 per share,
Place the number corresponding to each of the following characteristics in the appropriate section of the diagram. If a characteristic applies to both bonds payable and common shares, place that
Abira is wondering why the debt to total assets and interest coverage ratios are calculated. Answer her question and explain why the debt to total assets ratio should never be interpreted without
Magda borrowed $15,000 from the bank and signed a three-year, 6% instalment note payable with fixed principal payments. She wants to know how to calculate what the annual fixed principal payment will
In the “All About You” feature, we learned about investing in shares of a company. You have recently inherited $10,000 and you are considering investing in Canadian Tire Corporation, Limited’s
On January 1, 2014, Hewitt Corporation had an unlimited number of common shares authorized, and 120,000 of them issued for $1.2 million. It also had retained earnings of $750,000 and accumulated
Cherkas Ltd. has profit from continuing operations of $320,000 for the year ended December 31, 2014. It also has the following items (before considering income tax):1. A net gain of $60,000 from the
Before preparing financial statements for the current year, the chief accountant for Patel Ltd. discovered the following errors in the accounts:1. Patel has 20,000, $4 noncumulative preferred shares
Monk Corporation had 20,000 common shares on January 1, 2014. On March 1, 5,000 shares were repurchased. On June 1 and September 30, 6,000 and 10,000 shares were issued, respectively.
Refer to the data given for St. Gelais Corporation in BE14–6. Assume that the profit before income tax of $320,000 is from $500,000 of revenue and $180,000 of operating expenses. Prepare an income
St. Gelais Corporation reported the following pre-tax amounts for the year ended August 31, 2014: profit before income tax (on the company’s continuing operations), $320,000; loss from operations
Explain the two methods of preparing a statement of comprehensive income?
Wilmor, Inc. repurchases 1,000 of its own common shares. What effect does this transaction have on(a) Total assets,(b) Total liabilities, and(c) Total shareholders’ equity?
Why would a company repurchase some of its shares? Give some reasons.
As you learned in the “All About You” feature, the decision to incorporate or not is complex. After you have completed your post-secondary education, you may be an entrepreneur and may need to
Gosselin Incorporated had 45,000, $2.50 preferred shares issued. It did not pay a dividend to the preferred shareholders in 2013 and 2014.(a) What are the dividends in arrears, if any, at December
Place the number corresponding to each of the following characteristics in the appropriate section of the diagram. If a characteristic applies to both common and preferred shares, place that number
Parker Inc. and Shaughnessy Inc. have the same annual earnings ($100,000); however, the companies have different amounts of shareholders’ equity. Average shareholders’ equity for Parker is
A dividend is a “pro rata” distribution of retained earnings. Explain what “pro rata” means?
Natalie Gerster, a student, asks for your help in understanding the following characteristics of a corporation:(a) Limited liability of shareholders, (b) Transferable ownership rights, and(c)
Place the number corresponding to each of the following characteristics in the appropriate section of the diagram. If a characteristic applies to both proprietorships and partnerships, place that
Franca and Nav are transferring $8,000 of accounts receivable from each of their sole proprietorships into a partnership. They have agreed that $7,000 of Franca’s receivables is collectible but it
Several reporting situations follow:1. Thairs Company recognizes revenue during the production cycle. The price of the product and how many items will be sold are not certain.2. In preparing its
Howie, Price, and Liu operate an accounting firm. In March, their staff worked a total of 1,000 hours at an average billing rate of $250 per hour. They sent bills to clients in the month of March
A list of accounting concepts follows:1. Revenue recognition2. Matching3. Full disclosure4. Cost5. Expense recognition6. Fair value Match these concepts to the following statements, using numbers 1
Here are some of the accounting concepts relating to the conceptual framework discussed in this chapter:1. Going concern assumption2. Economic entity concept3. Full disclosure4. Cost5. Cost
The following selected items relate to the qualitative characteristics of useful information:1. Comparability2. Materiality3. Neutrality4. Timeliness5. Faithful representation6. Feedback value7.
For each of the following situations, indicate if it is an example of applying the cost constraint correctly. (Write “Yes” or “No” beside each item.) (a) ________The company corrects its
Here are the basic elements of financial statements that we learned about in earlier chapters: 1. Assets2. Liabilities3. Owner’s equity4. Revenues 5. Expenses Each statement that
For each of the following situations, indicate if the going concern assumption has been violated. (Write “Yes” or “No” beside each item.)(a) ______ A company that is going to continue to
Indicate which of the following statements are true or false. (Write “T” or "F" beside each item.)(a)_______ The conceptual framework includes recommendations on how “F” beside each item.) to
What are the five conditions that must be met for revenue to be recognized from the sale of goods?
Describe the general criteria for revenue recognition?
Jenna believes that the same GAAP should be used by every company, whether large or small and whether public or private. Do you agree? Explain.
As indicated in the “All About You” feature in this chapter, a student loan is a loan that must be repaid. Many post-secondary students get a loan from the federal government’s Canada Student
When is it necessary to disclose a contingency even if the chance of occurrence is small?
What is a determinable liability? List some examples.
A Slope Boss Snowboarding Company, a public company, purchased equipment on January 10, 2010, for $750,000. At that time, management estimated that the equipment would have a useful life of 10 years
Campagner Company purchased equipment on account on September 3, 2012, at an invoice price of $210,000. On September 4, 2012, it paid $4,400 for delivery of the equipment. A one-year, $1,975
A In its first year of business, Baumgartner Company purchased land, a building, and equipment on March 5, 2013, for $650,000 in total. The land was valued at $275,000, the building at $343,750, and
In 2014, Creasor Company had the following transactions related to the purchase of a property. All transactions were for cash unless otherwise stated.Jan. 12 Purchased real estate for a future plant
Lisa Kim, the new controller of LafrenieÌ€re Company, has reviewed the expected useful lives and residual values of selected depreciable assets at December 31, 2014. (Depreciation for
Hammond Company has a December 31 year end and uses straight-line depreciation for all property, plant, and equipment. On July 1, 2010, the company purchased equipment for $500,000. The equipment had
Mitra Company sells equipment on March 31, 2014, for $15,000 cash. The equipment was purchased on January 5, 2009, at a cost of $86,400, and had an estimated useful life of six years and a residual
Parmar Cleaning Services purchased equipment for $65,000 on January 2, 2011. Management estimated the equipment would have a useful life of seven years and a residual value of $5,500. On January 3,
Refer to the data given for Butters Company in BE9–5. Assume the equipment was purchased on April 6, 2014, and that the company has a policy of recording a half year’s depreciation in the year of
Refer to the data given for Butters Company in BE9–5. Assume the equipment was purchased on April 6, 2014, and that the company pro-rates depreciation to the nearest month. Using the straight-line
Refer to the data given for Butters Company in BE9–5. Assume instead that the company uses the diminishing-balance method and that the diminishing-balance depreciation rate is double the straight-
Butters Company acquires equipment at a cost of $42,000 on January 3, 2014. Management estimates the equipment will have a residual value of $6,000 at the end of its four-year useful life. Assume the
Vroom Company incurs the following costs in purchasing equipment: invoice price, $40,375; transportation-in, $625; installation and testing, $1,000; one-year insurance policy, $1,750. What is the
The following costs were incurred by Shumway Company in purchasing land: cash price, $85,000; legal fees, $1,500; removal of old building, $5,000; clearing and grading, $3,500; installation of a
Harpreet understands that inventory turnover refers to the number of times that a company can sell and replace its inventory over the course of the year, but doesn’t understand the meaning of asset
In the fourth year of an asset’s five-year useful life, the company decides that the asset will have an eight-year service life. Explain how this will impact the amount of depreciation recorded
Explain the difference between operating expenditures and capital expenditures during an asset’s useful life. Which type of account is debited in each case?
Identify and explain the three factors that are used to calculate depreciation. Which, if any, of these factors must be estimated?
What is the relationship, if any, between depreciation and(a) Cost allocation,(b) Asset valuation, and(c) Cash?
In the “All About You” feature, you learned about interest rates charged on credit cards and some of the advantages and disadvantages of credit cards. To get the most from your credit card and to
Place the number corresponding to each of the following characteristics in the appropriate section of the diagram. If a characteristic applies to both Accounts Receivable and Notes Receivable, place
Why are accounts receivable and notes receivable sometimes called trade receivables?
In the “All About You” feature, you learned about the dangers of identity theft. To protect your- self from identity theft, you should understand how it can happen and learn what you can do to
Place the number corresponding to each of the following characteristics in the appropriate section of the diagram. If a characteristic applies to both internal and external review, place that number
Reynold’s Company had net sales of $2,500,000, cost of goods sold of $1,150,000, and profit of $500,000 in 2014. The company had a January 1, 2014, inventory balance of $132,000 and a December 31,
Refer to the data in BE6€“13 for Smart-Tech Office Equipment Company. Prior to making the adjustment in BE6€“13 part (b), Smart-Tech€™s cost of goods sold for 2014 was
For each statement that follows, identify the inventory cost formula that best fits the description, assuming a period of rising prices:(a) It results in a balance sheet inventory amount that is
How is net realizable value calculated?
Explain circumstances in which the specific identification method is used?
Your friend, the assistant store manager at South-side Boutique, wants to know if the following items should be included in the store’s inventory count:(a) Items on hold for customers who promised
In a periodic inventory system, the closing entries include both a debit and a credit to the Merchandise Inventory account. What is the purpose of these entries?
At HeÌbert Company, the following errors were discovered after the transactions had been journalized and posted:1. A collection of cash on account from a customer for $750 was recorded
Balsam College collects tuition for the fall term in August. The fall term runs from September to December. In what month(s) should the college recognize the revenue earned from tuition fees? Explain
Jamal Nazari is doing the accounting for a company that has a December 31 year end. He is wondering if the heading on its trial balance should read “Year Ended December 31” or just “December
Natalie Koebel spent much of her childhood learning the art of cookie-making from her grandmother. They passed many happy hours mastering every type of cookie imaginable and later creating new
Place the number corresponding to each of the following characteristics in the appropriate section of the diagram. If a characteristic applies to both expenses and drawings, place that number in the
Use the accounting equation to answer each of the following questions:(a) Greenway Co. has total assets of $600,000 and its owner’s equity is equal to one third of its total assets. What is the
For each of the following statements, indicate whether the statement is true or false by placing a T or an F in the blank at the start of each statement.(a) Canadian publicly accountable enterprises
(a) Define assets, liabilities, and owner’s equity.(b) Of the following items—revenues, expenses, drawings and investments—which ones increase owner’s equity? Which ones decrease owner’s

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