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business
understanding financial accounting

Questions and Answers of Understanding Financial Accounting

One of the following statements about users of accounting information is incorrect. The incorrect statement is:a. Management is considered an internal user.b. Taxing authorities are considered
Generally accepted accounting principles are:a. the guidelines used to resolve ethical dilemmas.b. established by the Internal Revenue Service.c. are primarily established by the Financial Accounting
The cost principle states that:a. assets should be recorded at cost and adjusted when the market value changes.b. activities of an entity be kept separate and distinct from its owner.. assets should
Which of the following statements about basic assumptions is incorrect?a. Basic assumptions are the same as accounting principles.b. The economic entity assumption states that there should be a
Net income will result during a time period when:a. assets exceed liabilities.b. assets exceed revenues.c. expenses exceed revenues.d. revenues exceed expenses.(SO 6)
The effects on the basic accounting equation of performing services on account are:a. increase assets and decrease stockholders’equity.b. increase assets and increase stockholders’equity.c.
As of December 31, 1996, Graceland Company has assets of $3,500 and stockholders’ equity of $2,000.What are the liabilities for Graceland Company as of December 31, 1996?a. $1,500.b. $1,000.c.
Exodus Company buys a $900 machine on credit.This transaction will affect the:a. income statement only.b. balance sheet only.c. income statement and retained earnings statement only.d. income
Distinguish between the two types of external users of accounting data and give examples of each.
Travelynn Agency Inc. purchased land for $75,000 cash on December 10, 1996. At December 31, 1996, the land’s value has increased to $93,000. What amount should be reported for land on Travelynn’s
Betsy Ross is the owner of a successful printing shop. Recently her business has been increasing, and Betsy has been thinking about changing the organization of her business from a proprietorship to
Betsy would enjoy if she were to incorporate her business.
What is the basic accounting equation?(a) Define the terms assets, liabilities, and stockholders’ equity. (b) What items affect stockholders’equity?
Which of the following items are liabilities of Hot Jewelry Stores?(a) Cash.(b) Accounts payable.(c) Inventory(d) Accounts receivable.(e) Supplies.(f) Equipment.(g) Salaries payable,(h) Service
Listed below are some items found in the financial statements of Ruth Weber, Inc. Indicate in which financial statement(s) the following items would appear.(a) Advertising expense.(b) Equipment.(c)
In February of 1995, Paul Jones invested $5,000 in Environs, Inc. Environ’s accountant, Donna Wortham, recorded this receipt as an increase in cash and revenues. Is this treatment appropriate?Why
Hernandez Enterprises, Inc. had a stockholders’equity balance of $138,000 at the beginning of the period. At the end of the accounting period, the stockholders’ equity balance was $198,000.(a)
Summarized operations for the Cora L. King Co.for the month of July are as follows:Revenues earned: for cash $45,000; on account$80,000.Expenses incurred: for cash $26,000; on account$40,000.Indicate
(Complete a set of financial statements, LO 1, 2, 3) Below are three years of balance sheets, income statements, and statements of retained earnings for Auberndale Ltd.Required:a. Replace the missing
(Preparing an income statement, LO 1, 3) The junior accountant for Josselin Ltd. was asked to prepare an income statement and statement of comprehensive income for the year ended October 31, 2014.
Prepare and interpret an income statement, LO 1, 4, 5) You are provided with the following accounting information for Hanmer Ltd. (Hanmer), a retail electronics store, for the years ended December
Explain why, according to IFRS, each of the following items would be considered an asset by a restaurant. If an item isn’t an asset explain why not.a. tables and chairsb. advertisement in a local
Explain why, according to IFRS, each of the following items would be considered an asset by a company that makes computers. If an item isn’t an asset explain why not.a. parts used to make the
Explain why each of the following items would be considered a liability by a restaurant:a. wages owed to employeesb. bank loanc. deposit received from a customer for catering a banquet later in the
Andrea Reed is in her fourth year at a business school in Nova Scotia. Recently Andrea was asked by her brother Nathan to help him prepare a personal balance sheet. Nathan needed the balance sheet
Belinda Bambrick recently began a business selling costume jewellery from a cart in a local mall. During November Belinda had cash sales to customers of \($4,150\), and \($700\) of credit sales. The
Ali Grami operates a computer repair service from his home. During April he had the following activity:i. Ali charged customers \($7,200\) for services he provided during April. He
A friend of yours recently started a small business and he’s prepared a balance sheet at the end of the first year end. He is puzzled because the balance sheet doesn’t balance and he’s not sure
Below are the balance sheets and income statements for Penticton Inc. (Penticton) for 2013 and 2014.Required:a. Calculate the following for Penticton for 2014 and 2013:i. working capital il. current
Victoria Ltd. (Victoria) is a small tool and die manufacturer in British Columbia. Victoria recently obtained financing from a local bank for an expansion of the company’s facilities.The agreement
Longueuil Ltd. (Longueuil) is a small manufacturer of shirts in Québec. Longueuil recently obtained financing from a local bank for an expansion of the company’s facilities. The agreement with the
You have been provided with the following alphabetical list of accounts for Sudbury Ltd. for 2014.Use the information to prepare an income statement, statement of retained earnings, and statement of
The Pas Ltd. was organized on August 1, 2013, with a cash investment of \($2,000,000\) by its shareholders. The Pas arranged a mortgage with a local lender for \($600,000\) and purchased a warehouse
Markham Ltd. was organized on September 1, 2012, with a cash investment of \($450,000\) by its shareholders. Markham arranged a long-term loan with a local bank for \($150,000\) and purchased a small
Consider the following items:i. A large grocery store purchases land adjacent to the store for $300,000 so that it can expand its parking lot.ii. A company that operates call centres spends over $1
Consider the following economic events involving Leon’s. Indicate whether Leon’s would include each item in a calculation of net income using cash accounting and accrual accounting. Provide a
Indicate whether each of the following events would be included in a calculation of net income on the cash basis, the accrual basis, or both. Provide a brief explanation for your treatment: a.
In Chapter 1 you were asked to imagine you were a student needing insurance on your apartment and examined different ways of valuing the contents of the apartment. We identified three different ways
In 2014 Taymouth Inc. reported net income of $100,000. What would be the effect on retained earnings on Taymouth’s 2014 balance sheet and on its 2015 income statement if it didn’t record a
—_ For each type of adjusting entry explain the impact on assets, liabilities, owners’ equity, revenue, expenses, and net income if the required adjusting entry were not made.
Why are dividends not treated as an expense?
What is a T-account? Why are they used?
Why is it useful to cross-reference journal entries to the posting to the general ledger account (T-account)?
Consider the following stakeholders in an entity. Why would each want information about the entity? Explain.a. Members of a community group concerned about pollution by a local factory.b. A banker
Consider the following stakeholders in an entity. Why would each want information about the entity? Explain.a. A person considering making a donation to a charity.b. The head of the CRTC (the
Consider the following entities. Identify the stakeholders in each of the entities. What types of decisions would each of these stakeholders want to make?a. Bank of Montreal.b. Government of
Consider the following entities. Identify the stakeholders in each of the entities. What types of decisions would each of these stakeholders want to make?a. A landscaping business owned and operated
Consider the following decisions that a stakeholder of an entity might have to make. For each decision, identify the stakeholder who would likely be making the decision and indicate whether the
Consider the following decisions that a stakeholder of an entity might have to make. For each decision, identify the stakeholder who would likely be making the decision and indicate whether the
A friend of yours has just called with “a great business opportunity.” He is starting up a new ebusiness and needs money to purchase computer equipment.He says he is going to invest $10,000 in
Two of your friends own and operate a business that provides in-home technology services. The business helps people set up their computers and home theatres and helps solve technology related
Khaleel is a university student who is often short of cash. A month may pass and he has no idea where his money went. After suffering with this problem for several months, Khaleel decides to monitor
Metis a university student who has been unable, so far, to find a summer job. While she has enough money to pay for school next year, she is concerned that she isn’t managing her money as well as
Rajiv owns a home in suburban Ottawa. You obtain the following information about the home:Required:Explain how each of the measures of the “value” of Rajiv’s house could be used by a decision
Collector owns a vintage 1925 Ford automobile. You obtain the following information about the car:Required Explain how each of the measures of the “value” of Otto’s car could be used by a
For each of the following situations explain whether and why having an independent review of the information provided—that is, an audit—would be useful. Who would be an appropriate person to
For each of the following situations explain whether and why having an independent review of the information provided—that is, an audit—would be useful. Who would be an appropriate person to
Identify two different corporations that are in a similar business. Identify the characteristics of each corporation.(You can use the characteristics listed in Figure 1.2). Explain how the
What are the components of a complete financial statement package?
Why are the financial statements produced by public companies in Canada considered general purpose financial statements?
Explain why each of the following would be classified as assets on an entity’s balance sheet:a. cashb. rent paid for in advancec. an oven in a restaurantd. shares of other corporations owned by the
What is comprehensive income? How does it differ from net income?
Virtually all entities prepare financial statements on an annual basis. For example, Leon’s prepares its statements for a calendar year. Provide three reasons why entities report on an annual
It’s normal for entities to present financial statements for more than one year rather than for just the most recent year. Provide three reasons why it’s useful for stakeholders to receive more
(Accounting equation, LO 2) For each of the following independent situations, fill in the shaded area with the appropriate dollar amount. Assets Liabilities + Situation 1 $425,000 Situation 2
(Accounting equation, LO 2) For each of the following independent situations, fill in the shaded area with the appropriate dollar amount. You are provided with assets and liabilities on December 31,
Classify each of the following balance sheet accounts as a current asset, non-current asset, current liability, or non-current liability. Briefly explain your classification:a. inventoryb. accounts
For the year ended December 31, 2014, Canmore had net income of $15,000 and paid dividends of $5,000.Required:Prepare a statement of retained earnings for Canmore for the year ended December 31, 2014.
During the year ended December 31, 2013, Speers Ltd. had revenues of $4,500,000 and expenses of$3,750,000. In addition, the company had other comprehensive income of $75,000.Required:Prepare an
During the year ended August 31, 2014, Vaughn Ltd. had revenues of $10,500,000 and expenses of $8,375,000.In addition, the company had other comprehensive income of $155,000.Required:Prepare an
Minden Corporation was incorporated on August 1, 2010, by five shareholders who each invested $50,000 in cash in exchange for common shares. Minden’s year end is July 31. In its first year of
Classify each of the following cash flows as operating, financing, or investing activities:a. cash paid for inventoryb. cash collected from customersc. cash paid to suppliersd. repayment of a bank
Classify each of the following cash flows as operating, financing, or investing activities:a. wages paid to employeesb. cash paid to customers as refundsc. cash paid for utilitiesd. anew bank loane.
You have received the following alphabetical list of balance sheet accounts for Picton Corporation (Picton). Organize the accounts into Picton’s balance sheet. Accounts receivable Advances paid by
Selkirk Corporation began operations in 2012. Its summarized financial statements are presented below.Fill in the shaded areas to complete the financial statements. Begin your work with 2012 and move
Sparwood Ltd.began operations in 2013. Its summarized financial statements are presented below.Fill in the shaded areas to complete the financial statements. Begin your work with 2013 and move
(Classification of cash flows, LO 1) During 2014, Argentia Ltd. entered into the following cash transactions and indicate whether it's a cash inflow or outflow. Classify each transaction as
(Prepare a statement of cash flows, LO 1) You have been provided the following cash flow activities about Arcola Inc. for the year ended December 31, 2014. Organize this information into a statement
You have been provided the following cash flow activities about Dugald Ltd. for the year ended December 31, 2015. Organize this information into a statement of cash flows. Use Leon’s statement in
(Classifying items on the financial statements, LO 1, 3) Name the financial statement(balance sheet, income statement, statement of shareholders’ equity, statement of cash flows) on which each of
(Classifying items on the financial statements, LO 1, 3) Name the financial statement(balance sheet, income statement, statement of shareholders’ equity, statement of cash flows) on which each of
(Calculation of ratios, LO 5) Below is a simplified balance sheet for Summerside Inc.(Summerside):Required:Calculate the following on December 31, 2014, using Summerside’s balance sheet.Explain
(Calculation of ratios, LO 1, 5) Consider the following alphabetical list of income statement accounts for Sussex Ltd. (Sussex) for the year ended September 30, 2013:Required:a. Prepare an income
(Prepare income statements using cash and accrual accounting, LO 1, 4) You have been provided the following information about Kedgwick Company, a small proprietorship, as of the end of its first year
(Prepare income statements using cash and accrual accounting, LO 1, 4) You have been provided the following information about Lunenberg Ltd. (Lunenberg) as of the end of its first year of
Provide a definition of accounting that someone without a business background would understand.
Explain how bookkeeping isn’t the same as accounting.
Are employees of an entity also stakeholders? Explain.
What is a corporation? What are the attractive features of organizing a business as a corporation?
What are Generally Accepted Accounting Principles for Private Enterprises (GAAP)?
What are International Financial Reporting Standards (IFRS)? Which Canadian entities must follow IFRS?
Which entities must follow GAAP and IFRS? Why would an entity that isn’t required to follow GAAP or IFRS do so? If an entity doesn’t follow GAAP or IFRS, how does it prepare its financial
You meet a stranger on a street corner in Edmonton. She asks you for instructions on the best way to get from Edmonton to Ottawa. What would you tell her?
You have decided to sell your 2008, black, four door, manual transmission Honda Accord. The car has 130,000 kilometres on it and has been serviced on a regular basis. There is a small dent in the
You are looking to buy a new computer. You read an advertisement in a newspaper that describes Aylsham Computer Products Inc.’s (Aylsham) computer as the best value for the money for students.
For each of the following situations, explain which method of valuing the item in question would be most useful:a. You lost your accounting textbook and need to get another copy so you can study for
There are many attributes of an item you can measure. For a car, you could measure how fast it can go, its gas mileage, the number of doors it has, what you could sell it for, etc. Notice that only
You are considering selling your car and replacing it with a smaller, more fuel-efficient model. The new car will cost you \($19,000\) including all taxes. Your existing car is fairly new, you bought
You have the opportunity to buy a license to operate a food vending cart in a local park. The license would cost \($1,000\) per year. You expect to operate the cart each summer for the next four
Select a publicly traded company for analysis or use a company assigned by your instructor. Based on the firm’s most recent Form 10-K report (accessed through the SEC EDGAR database or from the

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