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business
understanding financial accounting

Questions and Answers of Understanding Financial Accounting

The financial data for Alouette Resources Ltd. are as follows (amounts in thousands):Requireda. Calculate the current and quick ratios for 2017 through 2020.b. Comment on the short-term liquidity
Comparative financial statement data for First Ltd. and Supreme Ltd., two competitors, follow:Requireda. Prepare a common-size analysis of the 2020 statement of income data for First Ltd. and Supreme
Explain the limitations of ratio analysis.
Explain how two companies in the same business (use retail clothing stores as an example) can earn the same profit (or net income), yet have very different operating strategies and different profit
Explain how the accounts receivable and inventory turnover ratios can be useful in assessing a company’s liquidity, especially when considered together with the current ratio.
Briefly explain why the dividend yield does not fully capture the return realized by a shareholder during the period.
Briefly explain the difference between basic EPS and diluted EPS.
Contrast liquidity and solvency ratios in terms of what each category is used to assess.
Briefly explain, in your own words, what each of the following ratios helps the analyst to assess and whether the analyst would generally perceive an increase in the ratio as a positive change.a.
Briefly explain, in your own words, what each of the following ratios helps the analyst to assess and whether the analyst would generally perceive an increase in the ratio as a positive change.a.
Briefly explain, in your own words, what each of the following ratios helps the analyst to assess and whether the analyst would generally perceive an increase in the ratio as a positive change.a.
Identify the five main types of ratios used in this chapter to analyze a company. What does each group of ratios attempt to measure?
Explain the difference between trend analysis and cross-sectional analysis and provide an example of when each might be used.
Explain what an analyst might determine from preparing a common-size statement of financial position.
What information other than the financial statements would be of interest to an analyst in a company’s annual report? Describe how an analyst would use it.
Explain how the analysis of a company might be different for an investor than a creditor.
Explain the link between retrospective and prospective analysis. Describe two types of retrospective analysis.
Briefly describe the steps followed in preparing a financial statement analysis.
Identify and explain some common contexts in which financial statement analysis is used.
Explain what is meant by the term financial statement analysis. What analysis or information might an analyst use in their decision-making process?
Teed’s Manufacturing Corporation has the following shareholders’ equity at December 1, 2020:Shareholders’ Equity
Tribec Wireless Inc. had the following shareholders’ equity section as at December 31, 2020:Common shares, no par value, unlimited numberauthorized, 2 million issued and outstanding
Manonta Sales Company’s summary statement of financial position and income statement as at December 31, 2020, follow.The long-term debt has an interest rate of 6% and is convertible into 9 million
Vancouver-based Aritzia Inc. designs apparel and accessories, which it sells in retail locations and online, including 61 stores in Canada and 20 in the United States. The share capital note (Note
Finning International Inc., headquartered in Edmonton, describes itself as “the world’s largest Caterpillar equipment dealer,” with operations in Western Canada, South America, the United
The consolidated statement of operations for Cineplex Inc. appears in Exhibit 11.13. The market price of Cineplex’s shares on December 30, 2016, was $51.22.EXHIBIT 11.13 Excerpt from Cineplex
Leon’s Furniture Limited/Meubles Léon Ltée. operates 305 stores across Canada and is the largest commercial retailer of conventional and luxury appliances in Canada. Exhibits 11.12A and 11.12B
Use the 2017 financial statements for Dollarama Inc. in Appendix A to answer the following questions:a. In your own words, describe the share capital of Dollarama. Why do you think the company
Note 17 to the March 31, 2017, financial statements of Canada Goose Holdings Inc. is shown in Exhibit 11.11. All dollar amounts are in thousands.EXHIBIT 11.11 Excerpt from Canada Goose Holdings
In a seminar, you are reviewing one of your classmates’ responses to the following question:“Typically, which do investors prefer when trying to identify potential investments: higher or lower
While talking about investments with one of your co-workers, she made the following statement:“Investors are never better off after a company declares a stock dividend.”RequiredExplain whether
While studying with some classmates in the library, one of them makes the following statements: “Neither stock dividends nor stock splits affect the amount of a company’s shareholders’ equity
You are studying with some classmates and are reviewing each other’s responses to the following question:“In an ideal world, what features would an investor prefer in the preferred shares they
In class your instructor said that “creditor obligations have finite lives, but a corporation’s obligations to its shareholders extend over the company’s indefinite life.”RequiredExplain, in
Windmere Corporation’s statement of financial position at December 31, 2020, appears as follows:Cash ........................................................................ $
One of your colleagues asks you the following question:“Someone told me that I should look at the price/earnings ratios published in The Globe and Mail to help me identify shares that are less
You are considering purchasing some Stanley Ltd. common shares. Although Stanley recently had to incur significant expenditures for new capital assets, the company has been relatively profitable over
The shareholders’ equity section of Carswell Corporation’s comparative statement of financial position at the end of 2020 and 2019 was presented as follows at a recent shareholders’ meeting:The
Martineau Inc. is a Vancouver-based manufacturer of swimwear. Since going public in 2009, Martineau’s common shares have been split as follows:Martineau announced in December 2016 that it would
You own 10,000 shares (1%) of the outstanding shares of Yangtze Inc. You paid $5.00 per share shortly after the company went public. The company’s most recent statement of financial position is
You are the manager of a pension fund and one of your staff comes to you to review a potential investment in the Class B shares of Palm Inc. When you are reviewing the shareholders’ equity of the
You are a common shareholder in FB Datatech Inc., a company that has experienced rapid growth since it was incorporated five years ago. You bought your shares as part of the company’s IPO. You have
Pegahmagabow Company has 250,000 common shares outstanding. The market price of $200 per share has made the shares unaffordable to certain investors. Because it wants to make the shares more widely
OCloud Corporation’s suite of software products and services provides secure and scalable solutions for global companies. The following is an extract from the company’s 2020 and 2019 comparative
Ten years ago, Vita Ltd. issued 600,000 shares, which are still outstanding, for a total value of $3.6 million. The board of directors for Vita Ltd. has become concerned with the dramatic drop in the
The shareholders’ equity section of the statement of financial position of Dolce Corporation as at December 31, 2020, is given below:Shareholders’ equity:Preferred shares, $9 non-cumulative,
Houle Ltd. was incorporated on January 15, 2020, and was authorized to issue 2,000,000 common shares and an unlimited amount of 13% fixed dividend, cumulative, retractable, non-participating,
The Di Vidnd Corporation was incorporated on January 2, 2020, with two classes of share capital:An unlimited number of common shares$7 cumulative, non-voting, redeemable preferred shares with an
JC Clouston Limited reported the following items in shareholders’ equity on December 31, 2020:Share capital: Preferred shares, 6% cumulative,525,000 shares issued and outstanding ..............
Aquamanu Developments is authorized to issue 500,000 shares. To date, the company has 185,000 shares issued and 150,000 outstanding. Aquamanu is considering declaring a dividend to its common
The following selected financial information was extracted from the December 31, 2020, financial records of Moratti Company:The company’s board of directors is contemplating declaring a dividend on
E. MacGill Inc. paid out cash dividends at the end of each year as follows:Year Dividends2018
On October 1, 2020, the board of directors of Tecumseh Corporation declared a 30% stock dividend. On the declaration date, there were 55,000 common shares issued and outstanding. The fair market
McEwen Corporation began operations in 2018 with the following capital structure:1. Common shares, Class A: 8 million authorized and outstanding. The Class A common shares are entitled to 10 votes
Bombardier Inc. is a Canadian manufacturer of aircraft and rail transportation equipment and systems. Exhibit 10.19 contains an excerpt from Note 38 of the company’s 2016 annual report detailing
The Second Cup Ltd. is one of Canada’s best-known specialty coffee café franchisors, with cafés operating under the trade name Second Cup. Exhibit 10.18 is an excerpt from Note 23 from the
Big Rock Brewery Inc. is a regional producer of craft beers and cider. The company’s products are sold in nine provinces and territories in Canada. Exhibits 10.17A to 10.17D contain extracts from
Fortress Paper Ltd. operates internationally in three distinct business segments: dissolving pulp, specialty papers, and security paper products. The consolidated statements of financial position and
ZoomerMedia Limited is a multimedia company that serves the 45-plus “zoomer” demographic through television, radio, magazine, Internet, conferences, and tradeshows. Exhibits 10.15A and 10.15B
Exhibits 10.14A to 10.14C contain extracts from Rogers Sugar Inc.’s 2016 annual report.EXHIBIT 10.14A Rogers Sugar Inc.’s 2016 Consolidated Statements of Financial PositionEXHIBIT 10.14B Rogers
Rogers Sugar Inc. is headquartered in Vancouver, but has operations in Alberta, Ontario, Quebec, and New Brunswick. The company is the largest producer of refined sugar in Canada and also packages
Alimentation Couche-Tard Inc. operates over 8,000 convenience stores in North America, Scandinavia, Poland, the Baltics, and Russia. The Laval, Quebec–based company generates income primarily from
Exhibits 10.11A and 10.11B contain excerpts from the University of Toronto’s annual report for its 2015/16 fiscal year.EXHIBIT 10.11A University of Toronto’s 2015/16 Consolidated Balance
Open Text Corporation provides a suite of business information software products. Exhibit 10.10 contains Note 10 from the company’s 2016 annual report detailing long-term debt. Amounts are in
Metro Inc. is one of Canada’s leading food retailers and distributors and operates a network of supermarkets, discount stores, and drugstores. Exhibit 10.9A includes the company’s statement of
You are studying with some classmates and are reviewing each other’s responses to the following question:“Explain whether investors would normally prefer companies that have a low level of
You are studying with some classmates and one of them states the following:“If a company is being sued, liabilities are never recorded because the outcome of the legal action is contingent or
You are studying with some classmates and one of them states the following: “When a company has a pension plan for its employees, it’s a way of deferring wage-related expenses to future
You are studying with some classmates and are reviewing each other’s responses to the following question:“Why do companies lease equipment and what are the financial statement effects of leasing
While preparing for an upcoming exam, you are studying with some classmates when one of them asks the following:“Am I correct that if bonds with a contract rate of 6% were issued to provide
You are studying with some classmates and are reviewing each other’s responses to the following questions:“If a company issued bonds with a contract interest rate of 5% when the market was
You are listening to a call-in talk show that is discussing pensions. One of the callers mentioned that there is a significant degree of “pension envy.”RequiredExplain what the caller might mean
“If two separate companies were each to lease identical computers under identical lease terms, it is possible that each company could report the transaction in a different way.”RequiredAs a
Suppose that you are a stock analyst and you are evaluating a company that has a significant number of leases for computers and printers for which the company has elected to use the low-value
The statement of financial position as of December 31, 2020, for Hopps Corporation follows:Hopps Corporation has a cash balance of $100 million and the current portion of long-term debt is $75
OPoole Corporation develops and markets a harness in which a baby may be placed to bounce up and down. OPoole is considering approaching the bond market to raise funds to support the expansion of its
Ferguson Theatres Inc. operates specialty film format theatres that display images of greater size and higher quality resolution. Ferguson is considering expanding its theatres in China and needs to
MUHC Ltd. leased a microsurgical staple gun on January 1, 2020, from George Klein Surgical Equipment Ltd. The three-year lease contract called for monthly payments of $10,870 to be made at the end of
Hillier Electron Microscopes Inc. issued $85 million in eight-year bonds to finance the expansion of its electron microscope manufacturing facility in Brantford, Ontario. The bonds pay 4% interest
Cansat, a Crown corporation owned by the government, issued bonds to finance the construction of the next generation of observation satellites. On January 1, 2020, Cansat issued 7%, 15-year bonds
On November 1, 2020, Robert L. Carroll Paleontology Museum Inc. issued $150 million in 13% bonds, with interest payable on April 30 and October 31 each year. The bonds were issued at a price of
Boyle Technologies Ltd. commercialized the use of charge-couple-device (CCD), which forms the basis of imaging devices in digital cameras, bar code readers, and satellite surveillance technology. To
Banting Best Pharmaceuticals Ltd. is a large commercial insulin producer, with a number of manufacturing facilities across Canada. To finance the additional real estate and production facilities
Faraday Motors Company Ltd. issues bonds that are sold in the market at a price of 113.77 and receives proceeds of $102,393,000 to yield 7.09%. The bonds pay interest semi-annually at 8.5% and mature
Dashboard Technologies Ltd. issued bonds with a face value of $70 million that mature in 15 years. The bonds carry a 5.0% interest rate and are sold at 106.00 to yield 4.45%. The bonds pay interest
Volta Desalination Ltd. needed to raise $150 million of additional capital to finance the design, development, and construction of its water desalination facility. Volta decided to issue bonds that
Morneau Automation Ltd. issued 6%, 10-year bonds with a face value of $100 million at par on May 1, 2020. The bonds pay interest on October 31 and April 30 each year. The first interest payment was
A company takes out a six-year, $500,000 long-term loan on March 1. The interest rate on the loan is 4% per year, and blended payments of $7,823 (including both interest and principal) are to be made
The statement of financial position as of December 31, 2020, for Taube Corporation follows:The company’s management is evaluating a couple of options to finance the acquisition of new equipment
Uchida Genetics Corporation develops and markets biological pharmaceuticals. Uchida is approaching the bond market to raise money to buy equipment to manufacture a new biological therapy. The
Fessenden Corporation has accumulated a significant amount of debt as a result of debt-financed acquisitions of other companies. It is currently considering acquiring one of its competitors, Sonar
On January 1, 2020, Bountee Ltd. leased a machine from Vector Equipment Ltd. The machine had cost Vector $420,000 to manufacture, and would normally have sold for about $600,000. The lease was for 10
On August 1, 2020, Tra Vinh Corporation issued $120 million in 5% bonds, with interest payable on January 31 and July 31 each year. The market yield rate for these bonds on the date of issuance was
Frank Suit Ltd. designs and manufactures anti-gravity suits used by air force pilots and astronauts for space travel. To finance the expansion of its manufacturing operations, the company, in
Urry Power Ltd. issues bonds and receives proceeds of $57,069,000. The bonds mature in 13 years and carry a 9% interest rate paid semi-annually. The bonds were issued at a price of 126.82 to yield
Spring Water Company Ltd. needed to raise $50 million of additional capital to finance the expansion of its bottled water facility. After consulting an investment banker, it decided to issue bonds.
Deleau Equipment Ltd. issued 10%, five-year bonds with a face value of $80 million on October 1, 2020. The bonds were issued at par and pay interest on March 31 and September 30 each year.
A company takes out an eight-year, $900,000 mortgage on September 1. The interest rate on the mortgage is 7.0% per year, and blended payments of $12,270 (including both interest and principal) are to
Explain why an investor may consider a higher degree of leverage to be positive. Should this be something of concern to them? Why or why not?
Explain how lease accounting differs if the low-value lease exemption is used.

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