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business
understanding financial accounting

Questions and Answers of Understanding Financial Accounting

Each of the statements below violates a criterion in accounting. State which of the following qualita-LO 2 Qualitative Characteristics LO 3 and Consiraints tive characteristics or constraints is
The lettered items below represent a classification scheme for the concepts of financial accounting. Match each numbered term with the letter of the category in which it belongs.a. Decision makers
The lettered items below represent a classification scheme for a balance sheet, and the numbered LO 5 Classification of Accounts: Balance Sheet items are account titles. Match each of the account
The following data pertain to Kyoto Corporation: Accounts Payable, 51,000; Accounts Receivable, LO 5 Classified Balance Sheet Preparation 38,000; Accumulated Depreciation, Building, 14,000;
Using the classification scheme below for a multistep income statement, match each account with Income Statement the letter of the category in which it belongs.a. Revenues from salesb. Cost of goods
These data pertain to Palm Beach Corporation: Net Sales, 405,000; Cost of Goods Sold, 220,000; Selling Expenses, 90,000; General and Administrative Expenses, 60,000; Income Taxes, 7,500; Interest
A condensed single-step income statement appears below. Present this information in a condensed multistep income statement, and state what insights can be obtained from the multistep form as opposed
The following accounts and balances are taken from the general ledger of Mount Fuji Corporation:Calculate the (1) working capital and (2) current ratio. Accounts Payable 49,800 Accounts Receivable
The following end-of-year amounts are taken from the financial statements of Manakui Corporation: Total Assets, 852,000; Total Liabilities, 344,000; Shareholders' Equity, 508,000; Net Sales,
The simplified balance sheet and income statement for Bali Corporation are as follows:Total assets and shareholders' equity at the start of \(20 \mathrm{xx}\) were 360,000 and 280,000 ,
SO 8 Components of an Annual Report State whether the following information that is typically included in an annual report would be found in (a) the letter to the shareholders, (b) the financial
In each case below, accounting criteria may have been violated.\section*{LO 3 Accounting Criteria}REQUIRED
Accounts from the July 31, 20x2 post-closing trial balance of Kinsella Hardware Corporation follow.LO 5 Classified Balance Sheet income statement should break down each operating expense into its
Criss Products Corporation has been disappointed with its operating results for the past two years.LO 7 Ratio Analysis: Liquidity and Profitability As accountant for the company, you have the
What four issues must managers of trading businesses face?
What is the operating cycle of a trading business and why is it important?
What is the primary difference between the operations of a trading business and those of a service business and how is it reflected on the income statement?
Is freight in an operating expense? Explain your answer.
Define gross profit. Why is it important?
During its first year in operation, Kumler Nursery had a cost of goods sold of 64,000 and a gross profit equal to 40 per cent of sales. What was the monetary amount of the company's sales?
Could Kumler Nursery (in Question 6) have a net loss for the year? Explain your answer.
What is the difference between the periodic inventory system and the perpetual inventory system?
Under the periodic inventory system, how must the amount of inventory at the end of the year be determined?
What are the principal differences in the handling of inventory in the accounting records under the periodic inventory system and the perpetual inventory system?
How do a trade discount and a sales discount differ?
The following prices and terms on 50 units of product were quoted by two companies:Which supplier is quoting the better deal? Explain your answer. Price 20 per unit Supplier A Supplier B 21 per unit
What is the principal difference in accounting for the purchase and sale of goods under the perpetual inventory system and the periodic inventory system?
Is a Cost of Goods Sold account maintained under the perpetual inventory system or the periodic inventory system? Why?
Why is it advisable for a company to maintain a Sales Returns and Allowances account when the same result could be obtained by debiting each return or allowance to the Sales account?
Most people think of internal control as a means of making fraud harder to commit and easier to detect. Can you think of some other important purposes of internal control?
What are the three elements of the internal control structure?
What are some examples of control procedures?
How does a movie theatre control cash receipts?
What is the normal balance of the Sales Discounts account? Is it an asset, liability, expense, or contra-revenue account?
Comparative statement data for Brooks Company and Shields Company, two competitors, appear below. All balance sheet data are as of December 31, 1996, and December 31, 1995.\section*{Instructions}(a)
The comparative statements of the Marti Rosen Company are presented below:On July 1, 1996, 1,000 shares were repurchased and canceled. All sales were on account. Net cash provided by operating
Condensed balance sheet and income statement data for Los Colinas Corporation appear below:Additional information:1. The market price of Los Colinas's common stock was \(\$ 5.00, \$ 4.50\), and \(\$
Financial information for Star Track Company is presented below:Additional information:1. Inventory at the beginning of 1995 was \(\$ 350,000\).2. Receivables at the beginning of 1995 were \(\$
Selected financial data of two intense competitors in a recent year are presented below in millions of dollars.\section*{Instructions}(a) For each company, compute the following ratios:(1) Current
Explain whether each of the following would be considered a liability according to IFRS (using the criteria from the chapter) on December 31, 2014. Intuitively, would you consider each of these items
Explain whether each of the following would be considered a liability according to IFRS (using the criteria from the chapter) on December 31, 2014. Intuitively, would you consider each of these items
The president of Oskelaneo Ltd. (Oskelaneo) wants to know the effect a number of transactions and economic events will have on several financial measures for the company’s fiscal year ended
Senior Living Ltd. (SLL) is a not-for-profit organization that operates the publicly owned nursing homes in a large Canadian city. SLL obtains operating funds from grants from the government,
In late 2014, Bedeque Ltd. (Bedeque) arranged to borrow\($1,300,000\) from a local bank to provide \($325,000\) in needed working capital and\($975,000\) to finance the purchase of some new
Nouvelle Ltd. (Nouvelle)is a privately owned industrial-products manufacturer located in Sherbrooke, Québec.The president of Nouvelle owns 25 percent of the shares of the company and three investors
Lintlaw Ltd. (Lintlaw) recently released its December 31, 2015 financial statements. In a press release announcing the results, Lintlaw’s management proudly stated that the company had maintained
In February 2011, Paul Willow slipped on ice in the parking lot of the Frontier Hotel and Resort (Frontier) suffering a fractured ankle and a third-degree concussion. Mr. Willow has been unable to
Vista Inc. (Vista) is a new manufacturing company that was formed in January 2014, to supply certain specialized machine parts to a large public company. Vista’s managers decided to arrange
On May 1, 2015, Isachsen Inc. (Isachsen) signed a fiveyear lease with an office supply company to supply Isachsen with all required office equipment over the lease period. Had Isachsen purchased the
In 2014, Ogoki Ltd. announced a major restructuring of its operations. The restructuring was in response to several years of poor performance and declining net income, the result of increased
Winterton Rail Ltd. (Winterton) is considering obtaining some new locomotives. The purchase price of the locomotives is \($82,014,121\). Winterton is considering whether it should purchase the
Uphill Corp. (Uphill) operates amusement arcades throughout Atlantic Canada. Uphill’s summarized balance sheet on March 31, 2014 is shown below.The non-current liabilities of \($215,000\) include a
On May 1, 2014, Kuldo Inc. (Kuldo) issued a \($25,000,000\) bond with a 6.5 percent coupon rate and a maturity date of April 30, 2019. Interest will be paid semi-annually on April 30 and October 31.
On August 1, 2014, Quilty Inc. (Quilty) issued a \($3,500,000\) bond with a 7 percent coupon rate and a maturity date of July 31, 2022.Interest will be paid semi-annually on July 31 and January 31.
Rougemont Inc. (Rougemont) is a small print and photocopy shop that began operations in 2014. Rougemont purchased equipment for \($100,000\) to begin operations. For accounting purposes, Rougemont is
Use the information in Exhibit 9.11 to respond to the following questions:a. What amount of current liabilities did Couche-Tard have on April 27, 2008 and April 26, 2009? What amount of non-current
What is a contingent liability? How are contingent liabilities accounted for? Describe the information Couche-Tard provides about its contingent liabilities. Do you find this information useful?
The following questions pertain to Couche-Tard’s long-term debt:a. How much long-term debt was outstanding on April 26, 2009? How much of that long-term debt was classified as current? What does it
The following questions pertain to Couche-Tard’s income taxes:a. What amount did Couche-Tard report as its income tax expense in the years ended April 27, 2008 and April 26, 2009? What portion was
The following questions pertain to Couche-Tard’s contractual obligations (commitments):a. What is a commitment and how are they accounted for? What types of commitments has Couche-Tard entered
What is a guarantee? Describe the nature of the guarantees that Couche-Tard has?Under what circumstances are guarantees reported as liabilities? If a guarantee isn’t reported as a liability, why
What is a subsequent event and why are they reported in financial statements?Describe the subsequent event Couche-Tard reported in its 2009 statements. What is the relevance of this event to
What is an “asset retirement obligation” and why does Couche-Tard have them? What is Couche-Tard’s asset retirement obligation on April 26, 2009? Where is this amount reported in the financial
What happens to the market value of a bond if the effective interest rate decreases after the bond is issued? Explain. How is the change in the effective interest rate reflected in the financial
What are off-balance-sheet liabilities? What is the attraction of keeping liabilities off balance-sheet? How do off-balance-sheet liabilities affect stakeholders’ ability to interpret financial
Why would recording an “interest-free” loan at its face value result in the overstatement of net income?
Explain the difference between a capital lease and an operating lease. Explain how each type of lease is accounted for and the effect each has on the balance sheet and income statement.
What amount is reported on a lessee’s balance sheet at the start of a lease for a leased asset and the associated liability? Why do the amounts reported for the asset and liability differ for
What is a current liability? Why is it important to know the amount of current liabilities an entity has?
Why is the current portion of long-term debt classified separately as a current liability?What would be the impact on users of the financial statements if the current portion wasn’t reported
Why do managers sometimes have incentives to understate liabilities? What are the implications for the financial statements of understating liabilities? Provide examples of how managers can
Why are long-term liabilities such as bonds valued for financial reporting purposes at their present value, but capital assets aren’t?
What is the relationship between the coupon rate and effective interest rate when a bond is sold at a discount? What is the relationship when a bond is sold at a premium?
Describe defined-contribution and defined-benefit pension plans. How are they different and how are they the same?
What is unearned revenue? Why is it considered a liability?
A labour union leader said at a recent rally that there would be plenty of money for health care, education, and other social programs if governments simply collected the future income taxes that
On July 15, 2014, Dyce Inc. (Dyce) will be making a $6,000,000 bond issue to public investors. The bond matures in six years on July 14, 2020, has a coupon rate of 6 percent, and pays interest
On December 1, 2013, Koidern Inc.(Koidern) will be making a $10,000,000 bond issue to public investors. The bond matures in ten years on November 30, 2023 and pays interest annually on November 30.
Provide the journal entries needed for each of the following situations:a. Ajax Ltd. borrows $100,000 from its bank. The bank deposits the money in Ajax’s bank account.b. Arborg Inc. arranges a
For each of the following situations record the adjusting journal entry that would be required at year-end to accrue the interest expense. In each case assume that the year-end is December 31:a. On
Juno Boutique Inc. (Juno) operates a chain of fashion boutiques. In 2013, Juno began offering gift cards for sale to customers.The cards can be exchanged for any merchandise in Juno’s stores, but
Neepawa Sports Inc. (Neepawa) operates sporting goods stores in several medium-sized cities in western Canada. For several years Neepawa has offered gift cards for sale as a convenient gift option
How would each of the following items be classified on Atluck Grocery Store Corp.’s (Atluck) September 30, 2014 balance sheet? Explain your reasoning.a. On June 15, 2014, Atluck purchased new
On March 31, 2014 Etzikom Inc. (Etzikom) purchased a corporate jet from the manufacturer for $1,460,000. Etzikom paid $200,000 in cash to the manufacturer and received a three-year, $1,260,000,
For the following two independent situations, prepare the journal entry that Durrell Ltd. (Durrell) should record. Record the entry for both the amounts collected or withheld and for the
Iskut Inc. (Iskut) provides its employees with a defined-contribution pension plan. Each year the company is required to contribute $1,000 to an investment fund for each employee.In the year ended
Classify the following transactions and economic events for Floral Ltd. (Floral) as commitments, subsequent events, or contingencies. Some may fit more than one classification. Indicate how each
Classify the following transactions and economic events for Moonbeam Ltd. (Moonbeam) as commitments, subsequent events, or contingencies. Some may fit more than one classification.Indicate how each
On December 31, 2014, Hecla Inc. (Hecla) purchased heavy equipment from a dealer. The dealer, through the manufacturer, financed the purchase by giving Rowena a three-year, $300,000 interest-free
On November 1, 2014 Nordin Inc. (Nordin) issued a$24,000,000 bond with a 4 percent coupon rate and a maturity date of October 31, 2021. Interest is paid annually on October 31. The effective interest
On September 1, 2015, Yone Ltd. (Yone) issued a$50,900,900 bond with a 6 percent coupon rate and a maturity date of August 31, 200.Interest is paid semi-annually on March | and August 31. The
On Januar2, 2015, Jura Corp. (Jura) issued2$78,000,000 bond with a 5 percent coupon rate and a maturity date of December 31, 202A. Interest is paid annually on December 31. The effective interest
In fiscal 2014, Ruthilda Inc. (Ruthilda) decided to exercise its option to redeem its outstanding bond issue before the maturity date in 2021. The bonds had a face value of $25,000,000 and Ruthilda
in fiscal 2013, Hurette Inc. (Hurette) decided to exercise its option to redeem its outstanding bond issue before they matured in 2020.The bonds had a face value of $80,000,000 and Hurette paid
For each of the following situations, determine the entity’s |after-tax cost of borrowing: |a. A corporation has a $2,500,000 bank loan with an interest rate of 4 percent. The corporation has a tax
On February 1, 2014, Flatwater Ltd. (Flatwater) signed a four-year lease for computer equipment. The terms of the lease require Flatwater to make annual lease payments of $120,000 on January 31,
On June 1, 2015, Grumbler Corp. (Grumbler) signed a ten-year lease for five small airplanes. The lease requires Grumbler to make annual lease payments of $500,000 on May 31 of each year beginning in
Zeballos Inc. (Zeballos) has arranged to lease new equipment for its distribution centre. The terms of the lease require Zeballos to pay $300,000 per year for the next six years. The interest rate
On June 1, 2014, Joffre Inc. (Joffre) issued a$75,000,000, 15-year bond with a 6 percent coupon rate. Proceeds from the bond issue were $73,950,000. Interest is to be paid annually on May 31.
Use the following information to calculate the balance in the future income tax account for a machine owned by the entity: Cost of the machine when it was purchased $350,000 Total amount of CCA

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