Fundamental Accounting Principles, Volume 1 15th Canadian Edition Solution Manual

Name: Fundamental Accounting Principles, Volume 1 15th Canadian Edition Solution Manual
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Last revised: May 24, 2016
Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. 1-1
SOLUTIONS MANUAL
to accompany
Fundamental Accounting Principles
15th Canadian Edition
by Larson/Jensen/Dieckmann
Revised for the 15th Edition by:
Praise Ma, Kwantlen Polytechnic University
Technical checks by:
Rhonda Heninger, Southern Alberta Institute of Technnology
Michelle Young, CPA

Last revised: May 24, 2016
Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. 1-2
Chapter 1 Accounting in Business
Chapter Opening Vignette Critical Thinking Challenge Questions*
1. What questions might Zane need the answers to in order to get a loan from a
bank?
The key question the bank wants answered is whether Zane can repay the loan. In
order to assess this, they would ask questions such as:
• Financial Results: How much is the business earning per year? How profitable
has the food truck been for the past year? How much are revenues and
expenses? How are the results compared to the past year or couple of years?
Where do you expect results to be in the next few years?
• Cash: How much cash does Zane currently have? How much does he want for
the loan? What is his credit score?
• Debt: Are there any outstanding loans? If so, what is the balance outstanding,
the term, the payments, and the interest rate?
• Assets: What personal or business assets does Zane have? The bank may
want to take some of Zane’s assets as collateral.
• Customers: How many customers on average are served per day? How many
customers are new or repeat customers?
• Employees: How many employees does he need to hire to serve his
customers? Does Zane pay his employees a salary or a wage? How much does
he pay them? Does he have the cash in the bank to pay his employees?
• Food Truck: Does Zane own his food trucks? If the trucks are purchased, did
he pay cash or does he owe money on it? If he owes money, does he pay
interest? Does he lease them? Does he have insurance?
• Toronto Pearson Airport Location: How much is the rent?
• Food (Inventory): How much food is purchased in advance? How does Zane
manage his food to prevent spoilage? Does Zane need to pay his suppliers
right away or can he pay on credit?
• Advertising: Does Zane advertise? If so, how much does he pay?
• Taxes: What is the amount of income tax he has to pay?
• There are many other questions that could be asked.
2. Who else might require accounting information from Zane’s business?
Other stakeholders that might require accounting information from Zane’s
business include Canada Revenue Agency (CRA), employees, and potential
investors.

Last revised: May 24, 2016
Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. 1-3
*The Chapter 1 Critical Thinking Challenge questions are asked at the beginning of this
chapter. Students are reminded at the conclusion of the chapter to refer to the Critical
Thinking Challenge questions at the beginning of the chapter. The solutions to the
Critical Thinking Challenge questions are available here in the Solutions Manual and
accessible to students at Connect.

Last revised: May 24, 2016
Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. 1-4
Concept Review Questions
1. Accounting will provide Zane useful information to make good decisions. For
instance, it is important for Zane to track his revenues and expenses to determine
whether his business is profitable (his revenues are exceeding his expenses).
Based on the accounting information, Zane can make decisions on how to price his
food and where he can decrease expenses to improve his profits. Accounting will
provide Zane important information on his business’ performance to make informed
decisions on his expansion strategy.
2. Businesses offering products include Danier Leather., Lululemon, NIKE, and Reebok
which produce apparel; Dell, Hewlett-Packard, and Apple which produce computer
equipment; and Abercrombie and Fitch GAP, and Zara which produce clothing.
Service business examples include: WestJet Airlines which provides airline
services; Bell Canada, Rogers Communications, and Telus provide information
communication services; and Google, Twitter, Skype, Facebook and Instagram
which provide internet services.
3. “Accounting is relevant to all students even if they do not plan on becoming an
accountant. If you are pursuing a career in marketing, you will need to understand
information such as sales volume, advertising costs, promotion costs, salaries of
sales personnel, and sales commissions. If you are studying human resources, you
will need to understand the financial position of your company to determine whether
you have the resources to hire new employees or provide existing employees a pay
increase. Even if you do not pursue a career in business, understanding the basics
of accounting can help you better understand your own personal finances and the
world around us. I am convinced that this course will be a good investment of our
time.”
4. Answers will vary on what students would sell. Business organizations can be
organized in one of three forms: sole proprietorship, partnership, or corporation.
These forms have implications for legal liability, taxation, continuity, number of
owners, and legal status as follows:
Sole Proprietorship Partnership Corporation
Legal entity no no yes
Limited liability no no yes
Unlimited life no no yes
Business income taxed no no yes
One owner allowed yes no yes
Answers and reasons will vary for the best form of business. Possible answers
include: A sole proprietorship would be easiest to form for a student. A partnership
would be helpful in bringing people with multiple skills and/or resources together. A
corporation would be the easiest to obtain financing and to limit liability.
5. The equity section of the balance sheet reports a Hailey Walker, Capital account. The
presence of the owner’s capital account indicates that Organico has been organized
as a sole proprietorship.
6. The two organizations for which accounting information is available in Appendix III
at the end of the book are WestJet Airlines and Danier Leather.
7. Hospitals, colleges, prisons, and bus lines are examples of organizations that can be
formed as profit-oriented businesses, government units, or nonprofit
establishments.

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Last revised: May 24, 2016
Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. 1-7
21. A business’s equity is increased by investments into the business made by the
owner and by profit. It is decreased by withdrawals made by the owner and by a
loss, which is the excess of expenses over revenues.
22. (a) Assets are probable future economic benefits obtained or controlled by a
particular entity as a result of past transactions or events. (b) Liabilities are probable
future sacrifices of economic benefits arising from present obligations of a
particular entity to transfer assets or provide services to other entities in the future
as a result of past transactions or events. (c) Equity is the residual interest in the
assets of an entity that remains after deducting its liabilities. (d) The term “net
assets” means the same thing as equity, which is also determined as assets less
liabilities. Assets = Liabilities + Equity (Net assets).
A celebrity’s assets may include land, real estate

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