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business
understanding financial accounting

Questions and Answers of Understanding Financial Accounting

In the following separate mini cases, using a periodic inventory system, identify the item(s) designated by letter.(a) Purchases \(-\mathrm{X}-\mathrm{Y}=\) Net purchases.(b) Cost of goods purchased
Your friend Tom Wetzel has been hired to help take the physical inventory in Casey's Hardware Store. Explain to Tom Wetzel what this job will entail.
(a) Janine Company ships merchandise to Laura Corporation on December 30.The merchandise reaches the buyer on January 5.Indicate the terms of sale that will result in the goods being included in (1)
Mary Ann's Hat Shop received a shipment of hats for which it paid the wholesaler \(\$ 2,940\). The price of the hats was \(\$ 3,000\), but Mary Ann's was given a \(\$ 60\) cash discount and required
Dave Wier believes that the allocation of inventoriable costs should be based on the actual physical flow of the goods. Explain to Dave why this may be both impractical and inappropriate.
Which assumed inventory cost flow method:(a) usually parallels the actual physical flow of merchandise?(b) assumes that goods available for sale during an accounting period are homogeneous?(c)
In a period of rising prices, the inventory reported in Plato Company's balance sheet is close to the current cost of the inventory, whereas York Company's inventory is considerably below its current
Shaunna Corporation has been using the FIFO cost flow method during a prolonged period of inflation. During the same time period, Shaunna has been paying out all of its net income as dividends. What
Lucy Ritter is studying for the next accounting midterm examination. What should Lucy know about (a) departing from the cost basis of accounting for inventories and (b) the meaning of "market" in the
Rock Music Center has 5 CD players on hand at the balance sheet date that cost \(\$ 400\) each. The cur-rent replacement cost is \(\$ 320\) per unit. Under the lower of cost or market basis of
What methods may be used under the lower of cost or market basis of accounting for inventories? Which method will produce the lowest inventory value?
Pat Voga Company has net sales of \(\$ 400,000\) and cost of goods available for sale of \(\$ 300,000\). If the gross profit rate is \(30 \%\), what is the estimated cost of the ending inventory?
Miller Shoe Shop had goods available for sale in 1998 with a retail price of \(\$ 120,000\). The cost of these goods was \(\$ 84,000\). If sales during the period were \(\$ 90,000\), what is the
Mila Company discovers in 1998 that its ending inventory at December 31, 1997, was \(\$ 5,000\) understated. What effect will this error have on (a) 1997 net income, (b) 1998 net income, and (c) the
Maureen \& Nathan Company's balance sheet shows Inventories \(\$ 162,800\). What additional disclosures should be made?
How does the average method of inventory costing differ between a perpetual inventory system and a periodic inventory system?
For each of the events listed below, indicate whether the event will give rise to a transactional entry, an adjusting entry, or no entry in the accounting system. Assume the accounting system is
Below is a summarized income statement for St. Bruno Inc. (St. Bruno).a. Prepare a spreadsheet and make the entry that is necessary to close the temporary accounts. Assume the balance in retained
Below is Niagara Falls Ltd.’s (Niagara Falls) summarized income statement for the year ended August 31, 2013, its first year in business.a. Prepare a spreadsheet and make the entries necessary to
For each of the following transactions indicate the impact on the elements of the accounting equation:a. Sale of land for cash.b. Purchase of inventory on credit.c. Sale of goods to a customer on
Indicate whether each of the following would be treated as a debit or a credit in a journal entry.a. Increase in land.b. Increase in bank loan.c. Decrease in inventory.d. Increase in revenues.e.
Refer to Table 3.5, which summarizes the different types of adjusting journal entries. For each of the following transactions involving Beulah Ltd. (Beulah) identify the type of adjusting entry
Englee Ltd.(Englee) is a retail clothing store owned by Ned Englee. Set up an accounting equation spreadsheet and enter each of the following independent economic events into it.a. Englee purchases
Use the information from the T-accounts below to create the related journal entries. Cash 2 8,000 Accounts receivable 10,000 8,000 2 Inventory 315,000 4,000 8 Equipment 52,000 11,000 4 6 25,000
You are the accountant for Ilderton Ltd.(Ilderton). For each of the following situations prepare the required adjusting entries.Also show the related transactional entries and the date the entries
You are the accountant for Halkirk Inc.(Halkirk). For each of the following situations prepare the necessary adjusting entries.Also show the related transactional entries and the date the entries
Below is the closing journal entry prepared by Bellburn Ltd. on December 31, 2014. Use the closing journal entry to prepare Bellburn Ltd.’s income statement for the year ended December 31, 2014.
The chief financial officer of Afton Ltd. (Afton) is trying to determine the amount of cash the company had on hand one month ago on March 1, 2014. The company’s computer system has lost the
Use an accounting equation spreadsheet and the following information to determine the amount of credit sales to customers that occurred during November 2013:a. On November 1, 2013 the balance in the
Use an accounting equation spreadsheet and the following information to determine the amount paid to suppliers during June 2014:a. On June 1, 2014, the balance in the accounts payable account was
Zhoda Ltd. (Zhoda) has been having problems with its bookkeeper. Recently errors have been observed in the bookkeeper’s work. Examine each of the following items and make any journal entry
Examine the accounting errors described in Exercise E3-25. For each error explain the impact the error (and failure to correct the error)would have on the financial statements.
Grosswerder Ltd. (Grosswerder) has been having problems with its bookkeeper. Recently errors have been found in the bookkeeper’s work.Examine each of the following items and make any journal entry
Examine the accounting errors described in Exercise E3-27. For each error explain the impact the error (and failure to correct the error)would have on the current year’s financial statements.
Below is Kuskonook Inc.’s (Kuskonook) December 31, 2014 trial balance that was prepared before the closing journal entry was recorded. Use the trial balance to prepare Kuskonook’s balance sheet
Use the information from the trial balance in E3-29 to prepare the closing journal entry and post-closing trial balance for Kuskonook Inc. for its December 31, 2014 year-end.
In September 2015, Denis Sonin had a great idea to make some money. He decided he would sell holiday items in the local mall in the two months preceding Christmas.He set up a proprietorship he called
Refer to the information in E3-31. Denis operated Denis’s Great Gifts until December 31. In the two months he sold merchandise to customers for $52,000, all in cash, except for $1,200 that was owed
For each of the following situations provide the necessary adjusting entries for Truax Ltd. (Truax) for the year ended December 31, 2014. (These situations are tricky. When preparing each adjusting
For each of the following situations provide the necessary adjusting entries for Carberry Inc. (Carberry) for the year ended December 31, 2013. (These situations are tricky. When preparing each
Use the following information to calculate ending balance in accounts receivable. (This is a tricky question. All the information is relevant. Set up T-accounts or a spreadsheet to help.) Accounts
For each of the following situations indicate whether assets, liabilities, equity, revenues, and expenses are overstated (too high), understated (too low), or unaffected by the error in the June 30,
For each of the following situations, indicate whether assets, liabilities, equity, revenues, and expenses are overstated (too high), understated (too low), or unaffected by the error in the December
For each of the following adjusting entries state whether the entry increases, decreases, or has no effect on the following financial ratios: current ratio, debt-to-equity ratio, profit margin ratio,
Examine the adjusting entries provided in exercise P3-8. Indicate the impact that not making each of the entries would have on the following financial ratios: current ratio, debt-to-equity ratio,
Paul Byrne, a first-year student in a business program in Toronto, was approached bya f riend offering to sell him his hot dog vending cart. The friend was going to be starting a permanent job in the
Use the information provided in Problem P3-10 about Paul’s Dogs to do the following:a. Prepare all necessary journal entries until September 10.b. Prepare T-accounts and post each journal entry to
We’ve Got Wheels, Inc. (Wheels) was formed on May 1, 2014 by two university friends who thought they could make money renting bikes and inline skates to visitors at a busy lake-front area near
Use the information provided in Problem P3-12 about We’ve Got Wheels, Inc. (Wheels) to do the following:a. Prepare all necessary journal entries until September 10, 2014.b. Prepare T-accounts and
Superstar Ice Rinks Inc. (SIR) is a privately owned company owned by a group of investors headed by James T. Kirk, a retired professional hockey player. SIR owns three arenas in suburban areas near a
Use the information provided in Problem P3-14 about Superstar Ice Rinks Inc. (SIR) to do the following:a. Prepare all necessary journal entries for fiscal 2014.b. Prepare T-accounts and post each
Sundre Trucking Inc. (Sundre) is a small shipping company that carries goods between locations in western Canada and the northwestern United States. The Archer family of Pagish owns Sundre but
Use the information about Sundre Trucking Inc. (Sundre) provided in Problem P3-16 to do the following:a. Prepare all necessary transactional journal entries for the year ended December 31, 2014.b.
Gary’s Computer Maintenance Ltd. (GCML) is a small computer repair shop owned and operated by Gary Armstrong. Gary’s wife Susan is a 50 percent shareholder in GCML but she isn’t involved in the
Use the information about Gary’s Computer Maintenance Ltd. (GCML) provided in Problem P3-18 to do the following:a. Prepare all necessary transactional journal entries for the year ended December
The first spreadsheet below provides the balances in Takhini Inc.’s accounts on December 31, 2014, before and after the adjusting entries have been made.RequiredReconstruct the adjusting entries
The second spreadsheet below provides the balances in Smithers Inc.’s accounts on May 31, 2015, before and after the adjusting entries have been made.Required:Reconstruct the adjusting entries that
For each of the following economic events indicate the effect that not recording the necessary adjusting entry at year-end would have on the financial statements.Indicate whether not recording the
For each of the following economic events indicate the effect that not recording the necessary adjusting entry at year-end would have on the financial statements.Indicate whether not recording the
Examine WestJet’s balance sheets. Which accounts do you think would require adjustments at the year-end? Explain.WestJet Airlines Ltd. (WestJet) was founded in 1996 by a team of Calgary
WestJet includes among its current liabilities $251,354,000 for “Advance ticket sales.”Note 1(d) provides some additional information about this account.a. When does WestJet recognize its
WestJet includes among its current liabilities $73,020,000 for “Non-refundable guest credits.” Note 1(e) provides some additional information about this account.a. What journal entry would
Read note 1(k) to WestJet’s financial statements, which note explains how WestJet accounts for “Deferred Costs.”a. Where on WestJet’s balance sheet are the deferred costs reported?b. What
Note 1(m) explains that WestJet expenses all maintenance and repairs costs it incurs.Compare that note with a similar one from WestJet’s 2003 annual report where it is explained that the company
Calculate the following ratios for WestJet for 2007 and 2008:a. profit marginb. return on equity (2008 only)c. current ratiod. debt-to-equity ratio WestJet Airlines Ltd. (WestJet) was founded in 1996
Prepare the closing journal entry that WestJet would make on December 31, 2008.(Alternative approach: Set up an accounting equation spreadsheet using WestJet’s financial statements and record the
How much inventory does WestJet report on its December 31, 2008 balance sheet?Why do you think WestJet has so little inventory?WestJet Airlines Ltd. (WestJet) was founded in 1996 by a team of Calgary
Compare WestJet’s balance sheet and income statement with Leon’s. Describe how the statements differ. Explain. In responding, consider the different types and relative amounts of assets,
You are a supplier recently approached by WestJet’s management to replace an existing supplier. Assess WestJet’s liquidity. Would you be prepared to provide credit to WestJet? Explain your
Explain the accounting term “revenue recognition.”
Why is the percentage-of-completion method not a good way for a restaurant to recognize revenue?
Does the percentage-of-completion method of recognizing revenue meet the revenue recognition criteria discussed in the chapter? Explain. How do accountants justify using the
What is the matching concept? Why is it relevant to revenue recognition?
Do you think accounting would be more useful and reliable if only a single method of revenue recognition were allowed, such as when cash is collected or when the goods or services are provided to the
What are gains and losses? How do they arise? How are gains and losses reported in the financial statements?
Why do managers have the opportunity to choose some of the accounting methods they use? Should managers have a choice? Explain.
Conceptually, why can the earning of revenue be considered to be a continuous process?In spite of the continuous conceptual nature of revenue, why is revenue usually recognized at a single instant in
Why isn’t it possible to use the gradual approach to revenue recognition for sales of appliances by a retailer?
Explain what each of the following objectives of financial reporting means:a. Tax minimizationb. Management evaluationc. Minimum complianced. Cash flow predictione. Stewardshipf. Earnings management
Why is it important for financial statements to be comparable? Why is it difficult to compare the financial statements of different entities?
Why is it important for financial statements to be relevant and reliable? If you had to choose between having information that was more relevant but less reliable or information that was more
Oxbow Candy Company Ltd. (Oxbow) produces a range of candy products ranging from gum balls to chocolate bars to truffles for sale and distribution around the world. The company operates production
For each of the following long-term projects, provide a basis for estimating the percentage of the job that has been completed. The discussion in the text used the percentage of total estimated cost
Risteen Telephone Services Ltd. (Risteen) designs and installs telephone systems for commercial customers. For example, in December 2015 Risteen signed a contract with Yarm Telemarketing Systems Ltd.
For each of the following entities, identify the objectives of financial reporting that the entity’s managers might have. In answering, consider who the stakeholders might be and which
For each of the following entities, identify the objectives of financial reporting that the entity’s managers might have. In answering, consider who the stakeholders might be and which
For each of the following situations use the IFRS revenue-recognition criteria to determine when revenue should be recognized. Explain your reasoning.a. A driver purchases $100 of gas for cash at a
For each of the following situations use the IFRS revenue-recognition criteria to determine when the interest revenue should be recognized. Explain your reasoning.a. A lender makes a loan to a
A manufacturing company sells specialized parts to a new customer. The parts are made-to-order and they will have to be inspected and tested by the customer before the order is accepted. If the order
Daphne’s Catering Ltd. (DCL)provides catering services to people living in Saskatoon. DCL can provide meals for groups as small as two and as large as 500. In November 2013, DCL was approached by
Meteghan Electronics Ltd. (Meteghan) is a chain of consumer electronics stores. Meteghan sells a complete line of electronics products including audio, video, computers, and satellite radio, along
Neidpath Inc. (Neidpath) owns a brand name and logo that are known throughout the world. Recently, Neidpath agreed to license the name and logo to a company that will use them on its products (the
Wadena Ltd. (Wadena) isa retail store that sells tailored-to-measure suits for men and women. Wadena has been in business for 15 years. The process of making a suit takes two to three
Whipporwill Ltd. (Whipporwill) is a small construction company in Alberta that recently signed a contract to build a recreation centre in a local community. The centre will have a swimming pool,
Hectanooga Ltd. (Hectanooga) is a large construction engineering company. In 2014, Hectanooga was awarded a contract by a provincial government to widen a 150 kilometre stretch of a major highway.
For each of the following land sales, prepare the journal entry that would be recorded and indicate the amount of the gain or loss that would be reported. Assume that in each case the sale of land
Listed below are some of the roles that someone addressing accounting problems can have. The role can affect how the role-player approaches and analyzes an accounting problem. For each role listed
For each of the following independent situations, recommend how you would want to recognize revenue if you were the president of the company, you receive a significant bonus based on net income, and
In December 2013 Salmo Ltd. (Salmo) received a large order from Richelieu Inc. (Richelieu), an established customer. The customer asked that the product be delivered in the second week of January
Naramata Software Corp.(Naramata) is a public company that provides software solutions to commercial customers around the world. Naramata has long been very popular among investors because it has

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