Financial Accounting 6th Canadian Edition Solution Manual

Name: Financial Accounting 6th Canadian Edition Solution Manual
Brand: Academic Documents Platform
Price: 19.99 USD
Availability: InStock
Author: Sarah Anderson

Struggling with assignments? Financial Accounting 6th Canadian Edition Solution Manual has all the answers you need!

Sarah Anderson

Contributor

4.2

156

7 months ago

Preview (31 of 867)

Financial Accounting, 6ce, Libby, Libby, Short, Kanaan, Sterling
1-1
Chapter 1
Financial Statements and Business Decisions
Revised: October 21, 2016
ANSWERS TO QUESTIONS
1. Accounting is a system that collects and processes (analyzes, measures, and records)
financial information about an organization and reports that information to decision
makers.
2. Financial accounting involves preparation of the basic financial statements and related
disclosures for external decision makers. Reporting is generally on a quarterly and annual
basis. Managerial accounting involves the preparation of detailed plans, budgets, forecasts,
and performance reports for internal decision makers. Reporting is on an ongoing basis.
3. Financial reports are used by both internal and external groups and individuals. The
internal users are the various managers of the entity, e.g. marketing, credit and
purchasing. The external groups include the owners, investors, creditors, governmental
agencies, other interested parties, and the public at large.
4. Investors purchase all or part of a business and hope to gain by receiving part of what the
company earns and/or selling their share of the company in the future at a higher price
than they paid. Creditors lend money to a company for a specific length of time and hope
to gain by charging interest on the loan.
5. An accounting entity is the organization for which financial data are to be collected. Typical
accounting entities are a business, a church, a governmental unit, a university and other
nonprofit organizations such as a hospital. A business is defined and treated as a separate
entity because the owners, creditors, investors, and other interested parties need to
evaluate its performance and its potential separately from other entities and from its
owners.
6. The heading of each of the four required financial statements should include the following:
(a) Name of the entity
(b) Title of the statement
(c) Specific date or period of the statement, or the period of time it covers
(d) Unit of measure
7. (a) The purpose of the statement of earnings is to present information about the
revenues, expenses, and the net earnings of the entity for a specified period of time,
in order to help assess its financial performance during that period.

Financial Accounting, 6ce, Libby, Libby, Short, Kanaan, Sterling
1-2
(b) The purpose of the statement of financial position is to report the financial position
of an entity at a given date, that is, to report information about the assets,
obligations and shareholders’ equity of the entity as of a specific date.
(c) The purpose of the statement of cash flows is to present information about the flow
of cash into the entity (sources), the flow of cash out of the entity (uses), and the net
increase or decrease in cash during the period.
(d) The statement of changes in equity reports the way that net earnings, the
distribution of net earnings (dividends), and other changes to shareholders’ equity
affected the company’s financial position during the accounting period. The focus in
this chapter is on retained earnings. Net earnings for the year increases the balance
of retained earnings whereas the declaration of dividends to the shareholders
decreases retained earnings.
8. The statement of earnings and the statement of cash flows are dated “For the Year Ended
December 31, 2017,” because they report the inflows and outflows of resources during a
period of time. In contrast, the statement of financial position is dated “As at December
31, 2017” because it represents the resources, obligations and shareholders’ equity as at a
specific date, December 31, 2017.
9. Assets are important to investors and creditors because assets provide a basis for judging
whether sufficient resources are available to operate the company. Liabilities are
important to creditors and investors because the company must be able to generate
sufficient cash from operations or further borrowing to meet the payments required by
debt agreements. If a business does not pay its creditors, the law may give the creditors
the right to force the sale of assets sufficient to meet their claims.
10. Net earnings is the excess of total revenues over total expenses. Net loss is the excess of
total expenses over total revenues.
11. The accounting equation for the statement of earnings is Revenues - Expenses = Net
earnings. Revenues result from the sale of goods and services to customers, regardless of
the timing of collection of cash from customers. Expenses represent the monetary value of
resources the entity used up, or consumed, to earn revenues during the period. Net
earnings is simply the excess of revenues over expenses.

Financial Accounting, 6ce, Libby, Libby, Short, Kanaan, Sterling
1-3
12. The accounting equation for the statement of financial position is:
Assets = Liabilities + Shareholders’ Equity
Assets are the probable (expected) future economic benefits owned by the entity as a
result of past transactions. They are the resources owned by the business at a given point
in time such as cash, trade receivables, merchandise inventory, machinery, buildings, land,
and patents. Liabilities are probable (expected) debts or obligations of the entity as a result
of past transactions which will be discharged with assets (usually, cash) or services in the
future. They are the obligations of the entity such as trade payables, notes payable, and
bonds payable. Shareholders’ equity is financing provided by owners of the business and
by the net earnings generated from the operations of the business. It is the claim of the
owners to the assets of the business after the creditor claims have been satisfied.
Shareholders’ equity may be thought of as the residual interest because it represents
assets minus liabilities.
13. The accounting equation for the statement of cash flows is: Cash flows from operating
activities +/– Cash flows from investing activities +/– Cash flows from financing activities =
Change in cash for the period. The net cash flows for the period represent the increase or
decrease in cash that occurred during the period. Cash flows from operating activities are
cash flows directly related to earning income (normal business activity including interest
paid and income taxes paid). Cash flows from investing activities comprise cash flows that
are directly related to the acquisition or sale of productive assets used by the company,
such as plant and equipment. Cash flows from financing activities consist of cash flows that
are directly related to the financing of the enterprise, such as issuing shares to investors.
14. The accounting equation for retained earnings is:
Beginning Retained Earnings
+ Net earnings
– Dividends
= Ending Retained Earnings
The equation begins with beginning-of-the-year Retained Earnings i.e., the prior year’s
ending retained earnings reported on the statement of financial position. The current
year's net earnings reported on the statement of earnings are added to this amount and
the Dividends declared during the current year are subtracted from this amount. The
ending Retained Earnings amount is reported on the end-of-period statement of financial
position.
15. Credit managers use customers' financial statements to decide whether to extend them
credit for their purchases. Purchasing managers use potential suppliers' financial
statements to judge whether the suppliers have the resources necessary to meet current
and future demand. Human resource managers use financial statements as a basis for
contract negotiations to determine, for example, what pay rates the company can afford.
The net earnings figure can also serve as a basis to pay bonuses not only to management,
but to other employees through profit sharing plans.

Financial Accounting, 6ce, Libby, Libby, Short, Kanaan, Sterling
1-4
16. In Canada, provincial securities legislation created securities commissions, most notably
the Ontario Securities Commission (OSC), to regulate Canadian capital markets and the
flow of financial information provided by publicly traded companies whose shares trade on
Canadian stock exchanges, such as the Toronto Stock Exchange. Similar to the SEC, the OSC
plays an influential role in promoting sound accounting practices by publicly traded
companies. Since their establishment, these securities commissions have worked with
organizations of professional accountants to establish groups that are given the primary
responsibilities to work out the detailed rules that Canadian entities must use. The name of
the current Canadian group that has this responsibility is the Accounting Standards Board
(AcSB). The AcSB is responsible for establishing standards of accounting and reporting by
Canadian companies and not-for-profit organizations.
17. The officers of the company, usually the CEO and the CFO, must personally sign a
certification that they have designed or supervised the design, implementation and
evaluation of effective, appropriate financial accounting and reporting processes. The
executives and officers of the company bear primary responsibility for information
prepared and reported in the financial statements and other information contained in the
annual report. Top management also nominates members to the Board of Directors to
oversee the integrity of the first two safeguards. Those owning shares of the firm vote to
elect the Board of Directors which holds the officers of the company accountable to the
shareholders for defects in the internal control and reporting system. It also appoints
external, independent auditors who provide advice to companies on how to best comply
with regulations on financial reporting.
18. A sole proprietorship is an unincorporated business owned by one individual. A partnership
is an unincorporated association of two or more individuals to carry on a business. A
corporation is a business that is organized under federal or provincial laws, whereby a
charter is granted and the entity is thus authorized to issue shares of stock as evidence of
ownership by the owners (i.e., shareholders). Corporations are legal entities separate from
their owners, but sole proprietorships and partnerships are not.
19. Public practice accounting firms normally render three types of service: assurance services,
management advisory services, and tax services. Assurance services, including auditing,
involves examination of the records and financial statements to determine whether they
“fairly present” the financial position and results of operations of the entity in accordance
with the applicable accounting standards. Management advisory (consulting) services
include providing expert business advice to management. Tax services involve providing
tax-planning advice to clients (both individuals and businesses) and preparation of their tax
returns.

Loading page 6...

Financial Accounting, 6ce, Libby, Libby, Short, Kanaan, Sterling
1-6
MINI-EXERCISES
M1–1
Element Financial Statement
B (1) Expenses A. Statement of financial position
D (2) Cash flow from investing activities B. Statement of earnings
A (3) Assets C. Statement of shareholders’ equity
C* (4) Dividends D. Statement of cash flows
B (5) Revenues
D (6) Cash flow from operating activities
A (7) Liabilities
D (8) Cash flow from financing activities
*Dividends paid in cash are also subtracted in the Financing section of the Statement of Cash
Flows
M1–2
SE (1) Retained earnings
A (2) Accounts receivable

Loading page 7...

Financial Accounting, 6ce, Libby, Libby, Short, Kanaan, Sterling
1-7
EXERCISES
E1–1
Req. 1
Leon’s Furniture Limited
Statement of Financial Position
As at December 31, 2015
(in millions of Canadian dollars)
Assets
Cash and cash equivalents $ 18
Trade receivables 112
Inventories 267
Property, plant and equipment, net 334
Intangible assets and goodwill 739
Other assets 93
Total assets $1,563
Liabilities and shareholders’ equity
Trade and other payables $ 197
Dividends payable 7
Income tax payable 35
Loans and borrowings 315
Other liabilities 460

Loading page 8...

Financial Accounting, 6ce, Libby, Libby, Short, Kanaan, Sterling
1-8
E1–2
Req. 1
READ MORE STORE
Statement of Financial Position
As at December 31, 2017
ASSETS LIABILITIES AND
SHAREHOLDERS’ EQUITY
Liabilities
Cash $ 48,900 Accounts payable $ 7,000
Accounts receivable 25,000 Note payable 3,000
Store and office equipment 49,000 Interest payable 120
Total liabilities 10,120
Shareholders’ Equity
Contributed capital 100,000
Retained earnings 12,780
Total shareholders’ equity 112,780

Loading page 9...

Financial Accounting, 6ce, Libby, Libby, Short, Kanaan, Sterling
1-9
E1–3 (continued)
Req. 2
This statement of earnings indicates that the University Shop is a profitable company. Although
the net earnings amount does not reflect the amount of cash available at the end of September
2018, the cash transactions indicate that the cash available is sufficiently large to cover the cost
of the cash register.
E1–4
Revenues $812,272 606,764 + 205, 508
Cost of sales 533,529
Depreciation expense 26,903
Interest expense 46,332
Total expenses excluding income taxes 606,764 533,529 + 26,903 + 46,332
Earnings before income tax 205,508 165,749 + 39,759
Income tax expense 39,759
Net earnings for the year $165,749
E1–5
HOME REALTY, INCORPORATED
Statement of Earnings
For the Year Ended December 31, 2017
Revenue:
Commissions earned ($150,000 + $16,000) $166,000
Rental service fees 15,000
Total revenues $181,000
Expenses:

Loading page 10...

Financial Accounting, 6ce, Libby, Libby, Short, Kanaan, Sterling
1-10
E1–6
A Net earnings = $91,700 – $76,940 = $14,760;
Shareholders’ Equity = $140,200 – $69,000 = $71,200.
B Total Revenues = $74,240 + $14,740 = $88,980;
Total Liabilities = $107,880 – $79,010 = $28,870.
C Net earnings (Loss) = $69,260 – $76,430 = ($7,170);
Shareholders’ Equity = $97,850 – $69,850 = $28,000.
D Total Expenses = $58,680 – $21,770 = $36,910;

Loading page 11...

Loading page 12...

Financial Accounting, 6ce, Libby, Libby, Short, Kanaan, Sterling
1-12
E1–11
NITSU MANUFACTURING CORPORATION
Statement of Cash Flows
For the Year Ended December 31, 2017
Cash flow from operating activities
Cash collected from customers $270,000
Cash paid for operating expenses (180,000)
Net cash flow from operating activities $90,000
Cash flow from investing activities
Cash received for sale of land 15,000
Cash paid for purchase of new machines (38,000)
Net cash flow from (used in) investing activities (23,000)
Cash flow from financing activities
Cash received from sale of the company’s shares 30,000
Cash paid on long-term notes (80,000)
Cash paid for dividends (22,000)
Net cash flow from (used in) financing activities (72,000)
Net decrease in cash during the year (5,000)
Cash at beginning of year 63,000
Cash at end of year $ 58,000

Loading page 13...

Loading page 14...

Loading page 15...

Loading page 16...

Loading page 17...

Loading page 18...

Loading page 19...

Loading page 20...

Loading page 21...

Loading page 22...

Loading page 23...

Loading page 24...

Loading page 25...

Loading page 26...

Financial Accounting, 6ce, Libby, Libby, Short, Kanaan, Sterling
1-26
CRITICAL THINKING CASES
CP1–5
Req. 1
The personal items owned by Lucas should not be included in the financial statements of the
company. The company is a separate entity for accounting purposes.
The list of liabilities properly excluded the personal debts of Lucas because these are not debts
of the company.
Req. 2
Lucas’s response does not explain or excuse the presentation in the financial report. It appears
that deception is involved because of the listing of personal assets and the exclusion of the
related liabilities. Such reporting is misleading and dishonest.
The financial report is not correct even if it were clearly stated that the accounting entity
represents the company and owner combined as one entity. If this assumption were used,
which would be appropriate only if clearly specified, it would require that all of the assets and
all of the liabilities of both the company and Lucas be included. Preferably the business should
be reported as a separate entity. The personal assets and liabilities should be reported as
another separate entity.
CP1–6
Req. 1
You should forcefully assert the need for an independent audit of the financial statements each
year because this is the best way to assure credibility – conformance with IFRS, completeness
and absence of bias.
You should firmly reject Roger as the auditor because there is no evidence about his
competence as an accountant or auditor. Also, he is related to the partner who prepares the
financial statements; there is a conflict of interest.
Req. 2
You should strongly recommend the selection of an independent, licensed professional
accountant in public practice because the financial statements should be audited by a
competent and independent professional who must follow prescribed accounting and auditing
standards on a strictly independent basis. An audit by Roger would not meet any of these
requisites, particularly the most important one in this case – independence (and absence of
bias).

Loading page 27...

Financial Accounting, 6ce, Libby, Libby, Short, Kanaan, Sterling
1-27
CP1–7
The textbook does not explicitly cover the elements of independence. The case is designed to
permit the students to develop their own values. We have found that it is useful to emphasize
the difference between independence in fact and in appearance during these discussions.
Req. 1
Most students feel that there is no problem with independence if the shares held are
immaterial in amount. When asked about a possible headline that might read “Auditor who was
shareholder is accused of fraud,” most students see a problem with the appearance. In fact,
professional accounting organizations do not apply a materiality threshold where there is a
direct financial interest. Any holding of shares is a problem.
Req. 2
This is an example of an indirect holding of shares. A materiality threshold is applied in these
situations. There could be a question of independence if the auditor held a material interest in
the mutual fund (relative to her net worth) and the mutual fund held a material interest in the
company that she audited.
Req. 3
Codes of Professional Conduct apply only to audit professionals who are members. Bob's
employers may want to assign him to a different company but there is no conflict in this case.
Req. 4
Clearly there is an ethics violation in this case because she would audit statements that covered
a period of time where she was responsible for the accounting operations of the company. This
is a problem both in appearance and in fact.
Req. 5
The loan from the bank was made under normal lending procedures, terms, and requirements.
Therefore, it may not be a source of impairment of independence. However, one has to be
careful whether the loan has the appearance of being made under normal credit terms or not.
FINANCIAL REPORTING AND ANALYSIS TEAM PROJECT
CP1–8
The solution to this case will depend on the company and/or accounting period selected for
analysis.

Loading page 28...

Loading page 29...

Loading page 30...

Financial Accounting, 6ce, Libby, Libby, Short, Kanaan, Sterling
2-1
Chapter 2
Investing and Financing Decisions and the Statement
of Financial Position
Revised: January 20, 2017
ANSWERS TO QUESTIONS
1. The primary objective of financial reporting for external users is to provide useful
financial information about a business to help external parties, primarily investors and
creditors, make sound financial decisions. These users are expected to have a
reasonable understanding of accounting concepts and procedures. Usually, they are
interested in information to assist them in projecting future cash inflows and outflows
of a business.
2. (a) An asset is an economic resource controlled by an entity as a result of a past
transaction or event and from which future economic benefits may be obtained.
(b) A current asset is an asset that will be used or turned into cash within one year;
inventory is always considered a current asset regardless of how long it takes to
produce and sell the inventory.
(c) A liability is a probable debt or obligation of the entity as a result of a past
transaction, which will be paid with assets or services.
(d)

Loading page 31...

28 more pages available. Scroll down to load them.

Preview Mode

100%

Study Now!

XY-Copilot AI

Unlimited Access

Secure Payment

Instant Access

24/7 Support

Document Chat

Document Details

Subject

Accounting

Financial Accounting 6th Canadian Edition Solution Manual

Study Now!

Document Details

Related Documents

Financial Accounting 4th Canadian Edition Test Bank

Financial Accounting 5th Canadian Edition Test Bank

Financial Accounting 6th Canadian Edition Test Bank

Financial Accounting 4th Canadian Edition Solution Manual

Accounting

Master Managerial Accounting Techniques

Controlling and Reporting of Real Assets

Sarbanes Oxley Act, GAAP and IFRS

Team A Week 5 Problems

Accounting Audit Final Exam MCQs 2015

Company

Explore

Study Tools