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business
understanding financial accounting

Questions and Answers of Understanding Financial Accounting

Explain the accounting treatment of cash dividends.
Define the terms cumulative, convertible, and redeemable as they apply to preference shares.
What are dividends in arrears, and how should they be disclosed in the financial statements?
What is the proper classification of the following accounts on the balance sheet? For shareholders' equity accounts, indicate whether they are share capital, retained earnings, or contra
Define treasury stock and explain why a company would purchase its own shares.
What is a share option plan and why does a company have one?
The Wong Corporation was organised during 20x1. At the beginning of the accounting year, the company incurred the following organisation costs: (1) Lawyer's fees, market value of services, 6,000 ;
The accounts and balances below were taken from the records of Jamil Corporation on December \(31,20 \mathrm{xx}\).Prepare a shareholders' equity section for Jamil Corporation's balance sheet.
For each of the characteristics listed below, indicate whether it is more closely associated with ordi-LO 3 Characteristics of Ordinary nary shares \((\mathrm{O})\) or with preference shares
The Winkler Hospital Supply Corporation was organised in 20xx. The company was authorised to issue 100,000 ordinary shares with a stated value of 5 per share, and 20,000 preference shares of 100
Downey Corporation has secured authorisation for 200,000 ordinary shares of 10 nominal value. There are 160,000 shares issued and 140,000 shares outstanding. On June 5, the corporation declared a .
The Matsuta Corporation has 10,000 preference shares of 100 nominal value, 7 per cent cumulative outstanding, and 50,000 ordinary shares of 1 nominal value outstanding. In its first four years of
The Levinson Corporation pays dividends at the end of each year. The dividends paid for 20x1, \(20 \times 2\), and \(20 \times 3\) were \(80,000,60,000\), and 180,000 , respectively.Calculate the
The Yang Corporation issued 2,000 ordinary shares of 20 nominal value for some land. The land had a fair market value of 60,000 .Prepare the journal entries necessary to record the share issue for
Prepare the journal entries necessary to record the following share transactions of the Henderson Company during 20xx:May 5 Purchased 400 of its own 1 nominal value ordinary shares for 10 per share,
Record the following equity transaction of the Evans Company in 20xx:LO 8 Exercise of Share Options May 5 Walter Evans exercised his option to purchase 10,000 ordinary shares of 1 nominal value at an
Lasser Corporation began operations on September 1, 20xx. The corporation's charter authorised LO 2 Organisation Costs, Share LO 3 and Dividend Journal LO 4 Entries, and Shareholders' LO 6 Equity
The Rayner Corporation had both ordinary shares and preference shares outstanding from \(20 \times 1\) Share Dividends through \(20 \times 3\). Information about each share for the three years is as
The Loomis Plastics Corporation was authorised to issue 20,000 preference shares of 100 nominal LO 2 Comprehensive Shareholders'LO 3 Equity Transactions LO 4 LO 5 LO 6 LO 7 value, 6 per cent, and
In June 2013, Jolicure Inc. (Jolicure) and Horsefly Inc. (Horsefly) each began operations. Each company was formed with an initial capital contribution of \($100,000\). During the year ended May 31,
On August 1, 2014, Lourdes Inc. (Lourdes) purchased 20,000 preferred shares of Matagami Ltd. for \($120\) per share.The shares have a dividend of \($12\) per share and must be repurchased by Matagami
On August 31, 2014, Pacquet Inc. (Pacquet) purchased 100 percent of the common shares of Schwitzer Ltd. (Schwitzer) for \($2,000,000\) cash. Pacquet’s and Schwitzer’s balance sheets on August 31,
On January 31, 2015, Paju Inc. (Paju) purchased 100 percent of the common shares of Shellmouth Ltd. (Shellmouth) for \($6,250,000\) in cash. Paju’s and Shellmouth’s balance sheets on January 31,
On March 31, 2015, Popkum Inc. (Popkum) purchased 65 percent of the common shares of Saguay Ltd. (Saguay) for \($1,200,000\). Popkum’s and Saguay’s balance sheets on March 31, 2015 just before
On October 31, 2014, Pahonan Inc. (Pahonan) purchased 75 percent of the common shares of Seebe Ltd. (Seebe) for \($1,500,000\). Pahonan’s and Seebe’s balance sheets on October 31, 2014, just
Vonda Inc. (Vonda) is a 100-percentowned subsidiary of Atik Ltd. (Atik). During the year ended March 31, 2014, Vonda sold, on credit, merchandise costing \($500,000\) to Atik for \($1,000,000\).
Dozois Inc. (Dozois) is a 100-percentowned subsidiary of Yarbo Ltd. (Yarbo). During the year ended July 31, 2015, Dozois sold merchandise costing \($1,100,000\) to Yarbo for \($1,500,000\). During
In July 2014, Roddickton Ltd. (Roddickton) purchased 50,000 shares of Kola Inc. (Kola), a publicly traded company, for \($22\) per share. Roddickton received dividends of \($1.10\) per share from its
What companies/industries does Brookfield account for using the equity method? What was Brookfield’s ownership interest in each of these on December 31, 2008? Why are these companies accounted for
Examine Note 28 to Brookfield’s financial statements and answer the following questions on segment disclosure:a. Identify the business segments in which Brookfield operates. Which segment has the
The following questions pertain to Brookfield’s non-controlling interest:a. What amount of non-controlling interest is reported on Brookfield’s December 31, 2008 balance sheet? What does this
How much does Brookfield report on its December 31, 2008 balance sheet for securities?What categories of securities does Brookfield own? Which category do you think is most risky and which do you
What is gross margin? Why can it be important to determine an entity’s gross margin?Why is it difficult to determine gross margin from some entity’s financial statements?
What is the difference between permanent and transitory earnings? Why might it be important to distinguish between these types of earnings?
What are the implications for financial statement analysis of the fact that managers can often choose among different, acceptable accounting methods? Provide examples of some of the accounting
Explain how the following events would affect the usefulness of current earnings as a basis for predicting future earnings if information about each wasn’t separately disclosed:a. An entity has a
What are common size financial statements? Explain why they can be useful for analyzing an entity over and above the actual financial statements of the entity.
What are covenants? Why are covenants often included in lending agreements? What purpose do they serve? Why are covenants often stated in accounting terms?
Explain the two broad concerns that creditors have about the credit they provide to entities. Describe the different types and sources of information that creditors require to evaluate these concerns.
You have been asked to do an in depth analysis of a company’s financial statements but you haven’t been told what the purpose of the analysis is—that is, what decision the person has to make.
Would you classify each of the following as transitory or permanent in the entity’s financial statements? Explain your reasoning.a. severance pay to a number of executives who were fired during a
Would you classify each of the following as transitory or permanent in the entity’s financial statements? Explain your reasoning.a. increase in raw materials costsb. payment of fines for violating
For each of the following situations, explain why IFRS financial statements would be of limited use for predicting the entity’s future performance:a. The entity purchases a major new operating
the balance sheets and income statements for Amqui Inc. (Amqui).Additional information:∎ Allsales are on credit.∎ All purchases of inventory are on credit.∎ Amqui must begin repaying its
Use the financial statements for Amqui Inc. provided in Exercise E12-4 to respond to the following:a. Prepare trend balance sheets and income statements for 2012, 2013, and 2014. Use 2012 as the base
Use the information provided about Amqui Inc.in Exercise E12-4 to respond to the following.a. Calculate the following for 2013 and 2014:i. current ratio ii. quick ratio”ill. accounts receivable
The income statements of Lameque Corp. (Lameque) for the years ended March 31, 2013 through 2015, are shown below:Required:a. Prepare common size and trend financial statements for Lameque. (For the
Zawale Ltd. (Zawale) is a wholesaler of fresh fruits and vegetables. Zawale purchases fruits and vegetables from growers and supplies them to small grocery stores. You have been provided with the
Guisachan Books Inc. (Guisachan)is a small book retailer. Guisachan has approached your company, a large publishing house, requesting credit terms on purchases. Guisachan has never purchased from
Junor Inc.(Junor) is a publicly traded company. During its year ended July 31, 2015, Junor reported net income of $22,750,000; declared and paid quarterly dividends of $0.08 per share on its
Kovach Ltd.(Kovach) is a publicly traded company. During its year ended March 31, 2014, Kovach reported a net loss of $12,000,000; declared and paid quarterly dividends of$0.12 per share on its
During fiscal 2014, Husavick Inc. (Husavick) borrowed $250,000 from a private lender. The loan agreement requires that Husavick’s debt-to-equity ratio not exceed 1.8:1 at any time.The loan is
Hurstwood Wineries Ltd. (Hurstwood) produces and markets wines from its vineyards in Ontario and B.C. You have been provided with the following income statements and balance sheets for
You are provided with the following information about Unwin Corp. (Unwin), a small manufacturing company:Required:a. Calculate Unwin’s return on assets by determining its profit margin and asset
You are provided with the following information about Louisbourg Inc. (Louisbourg), a vehicle repair company:Required:a. Calculate Louisbourg’s return on assets by determining its profit margin and
You have been provided with the following ratios for two retail business. Use the ratios to evaluate and compare the liquidity situations of the two. Business A Business B Current ratio 1.26 1.75
You have been provided with the following ratios for two retail business. Use the ratios to evaluate and compare the performance of the two. www Business A Business B Gross margin 40% 33% Profit
Use the information provided about Foxwarren Inc. (Foxwarren) to determine the information missing from its December 31, 2015 balance sheet and income statement for the year ended December 31, 2015.
Use the information provided about Voligny Inc. (Voligny) to determine the information missing from its December 31, 2014 balance sheet and income statement for the year ended December 31, 2014. For
Consider the following industries and indicate whether you think the debt-to-equity ratios of entities in the industry would tend to be high or low (e.g., above one or below one).Consider whether you
Lucknow Ltd. (Lucknow) is a public company manufacturing casings for electronic equipment. Recently, the board of directors replaced management because it was felt the company was underperforming.
One controversial accounting issue is accounting for research costs. IFRS require research costs to be expensed as incurred. Some people argue that research is a legitimate asset and expensing it
Nywening Ltd. (Nywening) operates in a highly competitive industry. Price is very important to most customers and it’s very difficult for small operators such as Nywening to differentiate
You have been provided with the following information about Marquis Inc. (Marquis):Required:a. Calculate the accounts receivable, inventory, and accounts payable turnover ratios for 2013 through 2015
You have been provided with the following information about Yarker Ltd. (Yarker).Required:a. Calculate the accounts receivable, inventory, and accounts payable turnover ratios for 2013 through
Plevna Inc. (Plevna) is a small, publicly owned manufacturing company in eastern Canada. In 2014, Plevna’s management decided to acquire additional manufacturing equipment to meet increasing demand
Oromocto Inc. (Oromocto) is a large mining company. In 2011, it wrote down $20,000,000 in costs that it incurred finding and developing certain mining properties. If Oromocto had not written down
You have been presented with Everell Ltd.’s income statement for the year ended September 30, 2015.In addition, you have learned the following:* Cost of sales in 2015 includes a writedown of
Galahad Inc. (Galahad) is a small manufacturer of customized car parts designed for people who want to accessorize their cars. Galahad’s products are sold to retailers across Canada and about 20
Refer to the information about Galahad provided in Problem P12-14. You are an investment analyst for Qualicum Investment Group, Inc. (Qualicum). Qualicum raises capital from individual investors and
Prepare common size and trend statements from Forzani’s balance sheets and statements of operations for fiscal 2007 through 2009. Analyze the statements you prepared to identify any issues you
Compute and interpret the following ratios for Forzani for fiscal years 2008 and 2009.Use these ratios to assess Forzani’s liquidity. Be sure to use the information provided from Forzani’s
Compute and interpret the following ratios for Forzani for fiscal 2009, 2008, and .2007. Use these ratios to assess Forzani’s performance:a. gross marginb. profit marginc. return on assetsd. return
Compute and interpret the following ratios for Forzani for fiscal years 2009, 2008, and 2007. Use these ratios to assess Forzani’s solvency and liquidity. Don’t restrict your evaluation to the
Does Forzani have any off-balance-sheet liabilities? Describe these liabilities. What impact do the off-balance-sheet liabilities have on your ability to evaluate Forzani’s capital structure and
Forzani’s cash position is significantly lower at the end of fiscal 2009 than the year before. Explain the reason for the decrease. Is this something you are concerned about? Explain. Why is
Fozani’s net income in fiscal 2009 is almost $15 million, or about 61 percent lower The Forzani Group Ltd. is Canada’s largest sporting goods retailer, offering brand-name and private-brand
You are the credit analyst for a company that Forzani has approached to become a than fiscal 2008. Net income in 2009 is also much lower than in fiscal 2007. Analyze Forzani’s income statements and
You are considering purchasing some of Forzani’s common shares. Use the information provided in Exhibit 12.3 to assess the attractiveness of such an investment. What additional information would
Explain the difference between common and preferred shares.
Explain the following features sometimes associated with preferred shares:a. cumulativeb. retractablec. redeemabled. participatinge. convertible
Why is it important that contributed capital be separated from retained earnings in a corporation’s financial statements?
Consider two types of not-for-profit organizations: a charity and a golf course operated for the enjoyment of its members (who must pay to belong to the club). Explain how the natures of these two
Grosvenor Ltd. has the following securities outstanding:i. $1,000,000 bond with 10 percent coupon rate.ii. $1,000,000 of cumulative preferred shares with a 6.5 percent dividend rate.What effect would
How are changes in the price of shares traded on stock exchanges such as the TSX reflected in an issuing entity’s financial statements?
Since the underlying economic activity of an entity isn’t affected by accounting choices such as when revenue is recognized or how capital assets are amortized, why does anyone care what accounting
A business owner shows you his balance sheet and points out that the total amount of equity reported is $4,567,000. He says that is the price a buyer should pay for the business.Do you agree? Explain.
What are hybrid securities? Why do they sometimes pose a difficult accounting problem?
Despite what some people think, an audit does not provide a guarantee that the financial statements are perfect, correct, or exact. Explain.
Identify and explain each of the audit opinions an auditor could express on an entity’s financial statements.
For each of the following transactions or economic events, prepare the journal entry that would be required. Assume the yearend in each case is December 31:a. On April 2, 2015 Barthel Inc. issued
You are provided with the following information from the equity section of Aurora Ltd.’s balance sheet on December 31, 2014:During the year ended December 31, 2015 the following occurred (events
You are provided with the following information from the equity section of Tingwick Ltd.’s balance sheet on December 31, 2013:During the year ended December 31, 2014 the following occurred (events
In fiscal 2013, Upshall Ltd. (Upshall) purchased land for \($510,000\). For some reason, the land was expensed when it was purchased. A new employee in the accounting department who was asked to
In fiscal 2010, Ioco Inc. (loco) purchased equipment for \($5,000,000\). The equipment was supposed to be depreciated over eight years on a straight-line basis. However, for some reason, it wasn’t.
On December 31, 2014 Palmarolle Ltd. reported net income of \($2,750,000\) and comprehensive income of $2,500,000.Accumulated other comprehensive income on December 31, 2013 was
Determine the missing amounts in 2013 through 2016 for the shaded areas in the table below: Net income Other comprehensive income Comprehensive income Retained earnings Accumulated other
The shareholders’ equity section of Fogo Ltd.’s balance sheet is shown below:During fiscal 2015 the following occurred:1. On January 31, 500,000 common shares were issued for \($2\) per share.ii.
For each of the following situations calculate basic earnings per share for the year ended December 31, 2014: Situation A Situation B Situation C Situation D Situation E Shares outstanding on
On December 31, 2014 Oyama’s equity section of its balance sheet appeared as follows:During the year ended December 31, 2015 Oyama Corp. (Oyama) had the following equity-related transactions and

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