DQ1-12 How do the activities that are considered to be operating activities differ from those considered to be investing activities? DQ1-13 How do the activities that are considered to be operating activities differ from those considered to be financing activities? DQ1-14 Explain whether the costs related to hiring and training a company's employees are considered to be an operating or investing activity. DQ1-15 Would we normally expect a company to have an overall inflow or an overall outflow of cash from its operating activities? Explain why. DQ1-16 Would we normally expect a company to have an overall inflow or an overall outflow of cash from its investing activities? Explain why. DQ1-17 How is the statement of income related to the three major types of business activities? DQ1-18 Compare and contrast the purpose of the statement of income and the statement of cash flows. DQ1-19 How does the statement of changes in equity relate to the statement of income? Which of these statements would need to be prepared first? DQ1-20 Explain whether or not shareholders' equity represents the interests of owners after external claims have been satisfied. DQ1-21 Describe the purpose of the four main financial statements that are contained in annual reports. DQ1-22 Explain the purpose of the notes to the financial statements. DQ1-23 What role does the management discussion and analysis section of an annual report play in informing users about a company? Application Problems Set A AP1-1A (Identifying financing, investing, and operating transactions) Required For a company like Canadian Tire Corporation, provide two examples of transactions that you would classify as financing, investing, and operating activities. AP1-2A (Identifying financing, investing, and operating transactions) Required For a company like Bank of Nova Scotia, provide two examples of transactions that you would classify as financing, investing, and operating activities. AP1-3A (Classifying items on statement of cash flows) Use the following abbreviations to answer this question: Operating activities item I Investing activities item F Financing activities item Required Classify each of the following transactions according to whether they are operating, financing, or investing activities: a. Purchase of manufacturing equipment b. Issuance of long-term debt c. Payment of property tax for office building d. Sale of goods sold for cash e. Interest paid on long-term debt f. Proceeds from the sale of land g. Payment of insurance premium h. Purchase of shares of another company AP1-4A (Comparing statement of income and statement of financial position accounts) Required a. On what financial statement would you expect to find sales revenue, and what does it represent? b. On what financial statement would you expect to find accounts receivable, and what does it represent? c. What is the connection between sales revenue and accounts receivable? AP1-5A (Classifying items on financial statements) Use the following abbreviations to answer this question: CA NCA Current assets Non-current assets Current liabilities Non-current liabilities CL NCL SC Share capital RE Retained earnings SI Statement of income item SCF Statement of cash flows item SCE Statement of changes in equity item Required Classify the following items according to where they would appear in the financial statements: a. Wages payable b. Prepaid rent c. Dividends payable d. Inventory e. Net increase in cash f. Cost of goods sold g. Dividends declared h. Patents i. Acquisition of bank loan with a five-year term j. Deferred revenue k. Common shares AP1-6A (Classifying items on financial statements) Use the same abbreviations as in AP1-5A to answer the following question. Required Classify the following items according to where they would appear in the financial statements: a. Intangible assets b. Interest revenue c. Cash collections from amounts owed by customers on account d. Cost of developing a new advertising campaign e. Earnings over the years that have not been paid to shareholders as dividends f. Revenue from the provision of services to customers Dividends paid h. Increase in a bank loan (additional borrowings) i Supplies used this year j. An investment in the shares of another corporation (the intent is not to sell the investment in the near future) k. Amounts paid to repurchase shares frum shareholders AP1-7A (Identifying items on statement of financial position and statement of income) Required Indicate whether each of the following items will be reported on the statement of financial position (SFP), statement of income (SI), both the statement of financial position and statement of income (B), or neither statement (N)-for example, it might appear only on the statement of cash flows. a. Cash b. Land acquired four years ago c. Prepaid rent d. Interest revenue c. Sales of goods and services f. Dividends paid to shareholders g Rent expense h. Sales anticipated next period L. Payment made to reduce the principal amount of a bank loan j. Common shares issued when the company was organized five years ago API-8A (Identifying items on statement of financial position and statement of income) Required Indicate whether cach of the following items will be reported on the statement of financial position (SFP), statement of income (SI), both the statement of financial position and statement of income (B), or neither statement (N)-for example, it might appear only on the statement of cash flows. a. Temporary investments b. Repurchase of shares issued 10 years ago c. Goodwill d. Rent revenue e. Goods held for resale to customers. f. Retained earnings g. Interest expense h. Increase in accounts receivable i. Depreciation expense j. Gain on sale of equipment DQ2-9 What are the advantages and disadvantages of using the accrual basis of accounting rather than the cash basis? DQ2-10 Explain two ways that management could manipulate net income if a company used the cash basis of accounting. Also explain how these are prevented under the accrual basis of accounting. DQ2-11 Under the accrual basis of accounting, when would your university or college bookstore recognize revenue from the sale of textbooks? What about from the sale of a parking pass for the semester that is paid for at the beginning of the semester? How would this change under the cash basis of accounting? DQ2-12 Explain how a prepaid expense (such as rent) is handled under accrual basis accounting. DQ2-14 Describe how the basic accounting equation (or statement of financial position equation) is used to analyze how transactions are recorded in the template system. DQ2-15 Discuss why dividends do not appear on the statement of income but do appear on the statement of cash flows. DQ2-17 Explain why no interest expense is recorded at the time a company takes out a new loan. Also explain when interest expense should be recorded. DQ2-18 Explain why prepaid insurance is considered to be an asset. What happens to this asset over time? DQ2-19 Explain what depreciation is and how it is calculated using the straight-line method. DQ2-20 Explain why companies depreciate their buildings and equipment. DQ2-21 Explain what is meant by estimated residual value. Why is it subtracted from the asset's cost when calculating depreciation under the straight-line method? DQ2-22 Briefly explain why it is necessary to prepare the statement of income before preparing the statement of changes in shareholders' equity. DQ2-23 Identify the three major sections in the statement of cash flows, and briefly describe the nature of the items that appear in each section. DQ2-24 In the first two chapters, we have discussed financing, investing, and operating activities in the business cycle (or statement of cash flows). Identify one example of a financing activity that would result in an outflow of cash and one example of an investing activity that would result in an inflow of cash. DQ2-25 In the first two chapters, we have discussed financing, investing, and operating activities in the business cycle (or statement of cash flows). Identify one example of a financing activity that would result in an inflow of cash and one example of an investing activity that would result in an outflow of cash. DQ2-26 Indicate whether cach of the following statements is truc or false; a. The cash basis of accounting recognizes revenues when they are received. b. In the cash basis of accounting, there is no such thing as a prepaid rent account. c. In the accrual basis of accounting, paying an account payable creates an expense. d. In the accrual basis of accounting, interest should be recognized only when it is paid. e. Cash receipts from customers increase accounts receivable. f. Expenses decrease shareholders' equity. g. Dividends are an expense of doing business and should appear on the statement of income. h. Interest paid on bank loans is reported in the operating activities section of the statement of cash flows. DQ2-27 Explain, in your own words, why the normal cash flow pattern is generally +/-/+ (operating/investing/financing)