E3-21 Speyeware International Inc., headquartered in Vancouver, Canada, specializes in Internet safety and computer security products for both the home and commercial markets. In a recent balance sheet, it reported a deficit of US$5,678,288. It has reported only net losses since its inception. In spite of these losses, Speyeware's shares of stock have traded anywhere from a high of $3.70 to a low of $0.32 on the Canadian Venture Exchange.

Speyeware's financial statements have historically been prepared in Canadian dollars. Recently, the company adopted the U.S. dollar as its reporting currency.

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(a) What is the objective of financial reporting? How does this objective meet or not meet Speyeware's investors' needs?

(b) Why would investors want to buy Speyeware's shares if the company has consistently reported losses over the last few years? Include in your answer an assessment of the relevance of the information reported on Speyeware's financial statements.

(c) Comment on how the change in reporting information from Canadian dollars to U.S. dollars likely affected the readers of Speyeware's financial statements. Include in your answer an assessment of the comparability of the information.

Comment on the objective and qualitative characteristics of financial reporting.

(LO 6)

*E3-22 A friend of yours, Gina Moore, recently completed an undergraduate degree in science and has just started working with a biotechnology company. Gina tells you that the owners of the business are trying to secure new sources of financing which are needed in order for the company to proceed with development of a new healthcare product. Gina said that her boss told her that the company must put together a report to present to potential investors.

Gina thought that the company should include in this package the detailed scientific findings related to the Phase I clinical trials for this product. She said, I know that the biotech industry sometimes has only a 10% success rate with new products, but if we report all the scientific findings, everyone will see what a sure success this is going to be! The president was talking about the importance of following some set of accounting principles. Why do we need to look at some accounting rules? What they need to realize is that we have scientific results that are quite encouraging, some of the most talented employees around, and the start of some really great customer relationships. We haven't made any sales yet, but we will. We just need the funds to get through all the clinical testing and get government approval for our product. Then these investors will be quite happy that they bought in to our company early!

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(a) What is accounting information?

(b) Comment on how Gina's suggestions for what should be reported to prospective investors conforms to the qualitative characteristics of accounting information. Do you think that the things that Gina wants to include in the information for investors will conform to financial reporting guidelines?

P3-2A Mac's Motel opened for business on May 1, 2017. Its trial balance before adjustment on May 31 is as follows.

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In addition to those accounts listed on the trial balance, the chart of accounts for Mac's Motel also contains the following accounts and account numbers: No. 142 Accumulated DepreciationBuildings, No. 150 Accumulated DepreciationEquipment, No. 212 Salaries and Wages Payable, No. 230 Interest Payable, No. 619 Depreciation Expense, No. 631 Supplies Expense, No. 718 Interest Expense, and No. 722 Insurance Expense.

Other data:

Prepaid insurance is a 1-year policy starting May 1, 2017.

A count of supplies shows $750 of unused supplies on May 31.

Annual depreciation is $3,000 on the buildings and $1,500 on equipment.

The mortgage interest rate is 12%. (The mortgage was taken out on May 1.)

Two-thirds of the unearned rent revenue has been earned.

Salaries of $750 are accrued and unpaid at May 31.

Instructions

(a) Journalize the adjusting entries on May 31.

(b) Prepare a ledger using the three-column form of account. Enter the trial balance amounts and post the adjusting entries. (Use J1 as the posting reference.)

(c) Prepare an adjusted trial balance on May 31.

(d) Prepare an income statement and an owner's equity statement for the month of May and a balance sheet at May 31.

(c) Adj. trial balance $101,305

(d) Net income $4,645

Ending capital $46,025

Total assets $93,075

Prepare adjusting entries and financial statements.