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business
understanding financial accounting

Questions and Answers of Understanding Financial Accounting

Reeves Company has total proceeds from sales of \(\$ 4,515\). If the proceeds include sales taxes of \(5 \%\), the amount to be credited to Sales is:a. \(\$ 4,000\).b. \(\$ 4,300\).c. \(\$
For the bonds issued in question 7 , above, what is the carrying value of the bonds at the end of the third interest period?a. \(\$ 486,000\).b. \(\$ 488,000\)c. \(\$ 472,000\)d. \(\$ 464,000\)
Colson Inc. converts \(\$ 600,000\) of bonds sold at face value into 10,000 shares of common stock, par value \(\$ 1\). Both the bonds and the stock have a market value of \(\$ 760,000\). What amount
On January 1, Besalius Inc. issued \(\$ 1,000,000,9 \%\) bonds for \(\$ 939,000\). The market rate of interest for these bonds is \(10 \%\). Interest is payable annually on December 31.Besalius uses
For the following two scenarios, describe what you think are the weaknesses in the internal controls and explain the implications of the weaknesses:a. The administrative assistant to the corporate
For the following two scenarios, describe what you think are the weaknesses in the internal controls and explain the implications of the weaknesses:a. Trustees of a local school board are given
Refer to Figure 6.1. Why do you think retailing businesses have such a large difference between their quick ratios and their current ratios? To answer, think about what the balance sheet of a retail
For each of the following situations, do the calculations necessary to make a decision:a. A company sells land and a building for $22 million. The buyer agrees to pay $5 million cash when title to
You have obtained the following information about Eskasoni Inc. (Eskasoni) from its 2014 annual report:i. Eskasoni’s year-end is November 30.ii. Sales for the year ended November 30, 2014, were
You have obtained the following information about Dogwood Inc. (Dogwood) from its 2015 annual report:i. Dogwood’s year-end is April 30.ii. Sales for the year ended April 30, 2015 were $1,275,000;
Since 2011 Kyuquot Inc. (Kyuquot) has estimated that its bad debt expense would be approximately 2 percent of credit sales each year. During 2012 a number of changes took place in the company’s
Indicate whether each of the following transactions and economic events will increase, decrease, or have no effect have on the current ratio, quick ratio, accounts receivable turnover ratio, and the
Use the information provided to determine the values for the missing information (indicated by shaded boxes):Average collection period of accounts receivable for 2015 = 47 days Current assets on
Use the information provided to determine the values for the missing information (indicated by shaded boxes):*Accounts receivable on December 31, 2015 is 10 percent greater than on December 31, 2014.
For the year ended December 31, 2015 Alpena Inc. (Alpena) had revenues of $750,000, of which 80 percent were on credit.Its accounts receivable turnover ratio for 2015 was 8.39. Accounts receivable on
On July 31, 2016 Romanace Ltd. (Romanace) agreed to sell Youbou Inc. (Youbou) $12,000,000 of specialized equipment for use at its newly developed mine site in northern Manitoba. Because the mine
Examine the following information about Weyakwin Inc. (Weyakwin):i. Ending balance in allowance for uncollectible accounts on April 30, 2014 =$102,000 (credit balance).ii. Accounts receivable written
A financial analyst is comparing the credit management of two companies, Zealand Inc. (Zealand) and Manotick Ltd.(Manotick). The two companies are in the same industry, but operate in different parts
Zbaraz Bank Ltd. (Zbaraz) lends money to borrowers around the world. The major areas of concern to management and stakeholders are what’s called the loan loss provision (which is equivalent to the
Find or determine the following amounts in MHR’s financial statement information:a. Cash and equivalents on December 31, 2008.b. Net amount of accounts receivable on December 31, 2008.c. Gross
How much does MHR report on its balance sheet for accounts receivable on December 31, 2008? What does that amount represent (how would you explain its meaning to a novice user of financial
Use the information provided in Exhibit 6.5 to make a complete assessment of MHR’s liquidity position. Discuss the liquidity on December 31, 2008 and compare it with its liquidity on December 31,
Calculate MHR’s current and quick ratios, and the amount of working capital on hand on December 31, 2008 and 2007. Using the current and quick ratios, the amount of working capital, and the
Examine the significant accounting policy note on the allowance for doubtful accounts and sales returns. Explain why these allowances are important. What are the challenges that managers face in
Read the significant accounting policy note on the use of estimates. Why is this note included in the financial statements and why is it important?MHR’s consolidated balance sheets, statements of
How does MHR recognize revenue? How much revenue did MHR recognize in 2008?What adjustments were required to revenue in 2008 to arrive at the amount reported on the income statement? What is the
Calculate MHR's accounts receivable turnover ratio for the years ended December 31, 2008 and 2007 (assume account receivable on December 31, 2006, was $17,948,000). What is the average collection
What amount of MHR's December 31, 2008 accounts receivable are not overdue? What amount is overdue three months or less? What amount is overdue more than three months? Compare the percentages of
What are sales returns and why is it necessary to have an allowance for them? How does accounting for the allowance affect the financial statements? What was MHR's allowance on December 31, 2008?
Describe the type of inventory you would expect each of the following entities to have:a. Shoppers Drug Mart Corporation (drug store)b. Holiday Inn (hotel)c. Barrick Gold Corporation (gold mining
For each of the following entities, describe what would be included in raw materials, work-in-process, and finished goods inventory:a. computer producer (company assembles computers from parts it
Why do making conservative accounting choices today sometimes result in nonconservative effects in later periods?
Why is it not possible to determine the amount of inventory that was stolen during a period when a periodic inventory control system is used?
What is the lower of cost and market rule? Why is it used? What is meant by the term“market” in lower of cost and market?
Why might it be difficult to actually determine the NRV of inventory when applying the lower of cost and market rule? Provide some examples of when determining NRV might be difficult.
What is a holding gain? How are holding gains accounted for when traditional historical cost, transactions-based accounting is used?
Under historical cost, transactions-based accounting model, are holding gains and losses always treated the same way? Describe the difference in the accounting treatment used for each and explain the
Why is it not possible to satisfy a tax minimization objective and an income maximization objective when selecting the inventory cost formula that an entity should use?
Does it matter which cost formula an entity uses if the price it pays for its inventory is stable? Explain.
Why is depreciation added back to net income when cash from operations is calculated using the indirect method?
What are the two methods for calculating and reporting cash from operations?
Explain how each arrives at cash from operations. As a user of financial statements, which method of calculating cash from operations would you prefer to see in a cash flow statement? Explain.
How is interest paid classified in a cash flow statement prepared in accordance with Canadian GAAP for private companies? Does this treatment make sense? Explain.IFRS allows managers to choose how to
Why does an increase in accounts receivable imply a decrease in cash from operations?Explain.
Why does a decrease in inventory imply an increase in cash from operations? Explain.
How is it possible for managers to manipulate the information in the cash flow statement?
What type of manipulation of accounting information do you think is more likely to cause operational problems for an entity: the manipulations done with accrual accounting or the manipulations done
One way for a biotechnology, software, or other high-technology company to increase cash from operations would be to reduce spending on research. Explain why reducing spending on research (which is
Ina recent negotiation between labour and management of a major corporation, management argued that the company’s low earnings made it imprudent to grant the requested wage increase. The labour
Give examples of the circumstances that could cause cash flow problems for an automaker.
Identify and explain the four assumptions that underlie IFRS accounting.
Explain why the periodic reporting assumption is the cause of many of the problems and controversies that face the accounting professions today.
Explain what accountants mean when they speak of a going concern. What are the implications for financial reporting of an entity not being a going concern? Do you think these implications make sense?
(Calculating the cash lag, LO 2) Dickens Tailor Shop (Dickens) makes tailored-tomeasure suits, jackets, and pants for men and women. Customers who are interested in purchasing this clothing make an
(Determining the effect of credit policy on cash flow, LO 2) You are provided the following information about McPherson Inc.:Sales by quarter for 2015 wereAccounts receivable at the beginning of the
(The effect of depreciation on cash from operations, LO 1, 3) In 2015 Anyox Ltd.(Anyox) reported net income of $150,000. All revenues and expenses were in cash, except for a $22,000 depreciation
(The effect of asset writedowns on cash from operations, LO 1, 3) In the year ended December 31, 2013 Hexham Inc. (Hexham) reported net income of $3,200,000, which included a writedown of $1,000,000
(Classifying transactions for a cash flow statement, LO 3) Classify each of the following transactions and economic events as an operating, investing, or financing cash flow; a cash equivalent; or
(Classifying transactions for a cash flow statement, LO 3) Lasky and Partners(Lasky) is a small accounting firm. For each of the following, specify whether the item should be classified as an
(Classifying transactions for a cash flow statement, LO 3) Basanti Oil Inc. (Basanti)is a privately owned oil exploration and production company. For each of the following specify whether the item
(Determining missing information, LO 3) Calculate the missing information(indicated by shaded areas) from the following cash flow statements: Cash from (used by) Operations Company 1 Company 2
(Calculating cash from operations, LO 3) You are provided the following information about Joggins Inc. (Joggins) for 2015:Required:Calculate cash from operations for Joggins for 2015. Provide a brief
(Calculating cash from operations, LO 3) You are provided the following information about Pubnico Ltd. (Pubnico) for fiscal 2015:Required:Calculate cash from operations for Pubnico for fiscal 2015.
(Organize information into a cash flow statement, LO 3) Use the following information to prepare a well-organized cash flow statement for Quesnel Ltd. for the year ended December 31, 2014. Use the
(Adjustments to net income when using the indirect method of calculating cash from operations, LO 3) Tracadie Inc. (Tracadie) uses the indirect method to calculate and report cash from operations in
(Calculate cash from operations using the indirect method, LO 1, 3) Consider the following non-cash current operating account information of Yahk Ltd. (Yahk):Yahk’s net income for 2015 was $57,000.
(Calculate cash collections, LO 3) In its April 30, 2015 financial statements, Ebbsfleet Inc. (Ebbsfleet) reported a beginning accounts receivable balance of $110,000 and an ending accounts
(Calculate cash payments, LO 3) In its May 31, 2014 financial statements, Maloneck Ltd. (Maloneck) reported that it had inventory of $65,000 and accounts payable of$54,000 on May 31, 2013, and
(Calculate cash payments made for interest, LO 3) In its August 31, 2016 financial statements, Pitquah Corp. (Pitquah) reported interest payable on August 31, 2015 of$7,500, and interest payable on
(Calculate cash collections, LO 3) In its November 30, 2014 financial statements, Matapedia Inc. (Matapedia) reported a beginning accounts receivable balance of$3,225,000 and an ending accounts
(Impact of the sale of land, LO 1, 3) Willems Ltd. (Willems) owns a piece of land that cost $10,000. Willems recently sold the land for $25,000. The buyer paid $5,000 in cash and will pay the
The following general equation can be used to determine missing information about balance sheet accounts:Use the equation to determine the missing information in each of the following independent
The following general equation can be used to determine missing information about balance sheet accounts:Use this equation to determine the missing information in each of the following independent
Pasadena Ltd. (Pasadena) is a small manufacturing company. During 2015 Pasadena has been struggling because of a slow down in the overall economy and in the industry it supplies parts to. Sales are
Killam Inc. operates a growing chain of discount retail stores. In 2014 Killam opened three new stores and now has five in total.Further expansion is planned for the future. Opening a new store
(Interpreting cash flow patterns, LO 1, 3) Viewmont Inc. is a small manufacturing company. You have been presented with the following summarized information from Viewmont Inc.’s cash flow
You have been presented with the following summarized information from Inverness Ltd.’s cash flow statement:Required:Examine the cash flow pattern for Inverness Ltd. What does the pattern say about
You have been presented with the following summarized information from Dunvegan Ltd.’s cash flow statement:Required:Examine the cash flow pattern for Dunvegan Ltd. What does the pattern say about
Simpson Ltd. (Simpson) imports novelty items from Asian manufacturers and sells them to retailers. The company began operations at the beginning of 2015. The following information is available about
Use the following alphabetical list of information to prepare a well-organized cash flow statement for Winkler Ltd. for the year ended July 31, 2015. The bookkeeper who prepared the information
Calculating cash from operations, LO 1, 3, 4) You are provided with the following balance sheet information and summarized income statement for Rivulet Inc.:'All sales are credit sales, Accounts
Ramea Environmental Insulation Ltd. (Ramea) manufacturers a low-cost, highly efficient insulation for use in buildings. The company is private and has one shareholder. The product was invented about
Kitwanga Furniture Ltd. (Kitwanga) is a manufacturer of high-quality traditional wood furniture. Kitwanga sells its furniture to retailers and distributors mainly in Canada and the United States,
In December 2014 Alexander Bedlam organized Soldit Properties Ltd. (Soldit), a company that sells real estate on behalf of clients. Alexander exchanged \($40,000\) in cash for 1,000 common shares of
Anna Malover is a full-time veterinarian who started her own business five years ago. Anna felt that the market for doggie fashions had a lot of promise, based on her clients’ complaints about
What amounts does Magnotta report in its January 31, 2009, and January 31, 2008, statements of cash flow for each of the following?a. Cash provided by (used for) operating activities.b. Cash provided
Examine Magnotta’s statements of cash flows. Explain and interpret the information in the statement and discuss what it tells you about Magnotta.Magnotta Winery Corporation (Magnotta) is
What method does Magnotta use to calculate cash flows from operating activities?How can you tell?Magnotta Winery Corporation (Magnotta) is Ontario’s third-largest winery and the only company of its
Magnotta’s statement of cash flows uses the term cash and cash equivalents.a. What does Magnotta include in its definition of cash equivalents?b. Does it make sense to include cash and cash
Compare Magnotta’s net earnings and cash from operations in 2008 and 2009. Why are the amounts in each year different? In general, why are net income and cash from operations different?Magnotta
Use the information in Exhibit 5.6 to prepare a statement that shows cash from operations calculated using the direct method. Your statement should show the amount of cash collected from customers,
What pattern of cash flows does Magnotta have (are operating, financing, and investing cash flows positive or negative)? What does this pattern tell you about the circumstances of Magnotta’s
Why is depreciation added back to net income when calculating CFO using the indirect method? How much did Magnotta expense for amortization (depreciation) in 2009? What would Magnotta’s net
How much did Magnotta expense for interest in 2008 and 2009? How much did it pay in interest to lenders? Why might these amounts be different?Magnotta Winery Corporation (Magnotta) is Ontario’s
Explain how Magnotta’s non-cash working capital accounts affected cash flows from operating activities during 2009. Explain changes in non-cash working capital account CFO.Magnotta Winery
Calculate Magnotta’s free cash flow for the years ended January 31, 2008 and 2009.What does the free cash flow tell you about Magnotta?Magnotta Winery Corporation (Magnotta) is Ontario’s
You are analyst for an investment company. Use the information provided to prepare a report evaluating Magnotta’s liquidity. Do you think the company has a strong liquidity position?
You are examining the financial statements of a company you are interested in investing in. The company reports a negative balance in the cash account (the cash account on the balance sheet is
In August 2012 you received a birthday gift of \($500\) in cash from a generous uncle.Your uncle wanted you to have the money so that you could enjoy yourself as you were beginning your studies at
Which investment would be more attractive: 8 percent per year compounded annually or 8 percent per year compounded quarterly? Explain.

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