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.

Last revised: May 24, 2016
Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. 1-5
8. External users and their uses of accounting information include: (1) lenders for
measuring the return of loans; (2) shareholders for assessing the acquisition of
shares; (3) members of the board of directors for overseeing management; and (4)
potential employees for judging employment opportunities. Other users are
auditors, consultants, regulators, unions, suppliers, and appraisers. Internal users
and their uses of accounting information include: (1) management for overseeing
performance, financial position, and cash flow; (2) current employees for generating
special purpose reports to assist management; (3) internal auditors for identifying
high risk areas to audit; and (4) Sales staff to determine how to increase sales.
9. The internal role of accounting is to serve the organization’s internal operating
functions by providing useful information in completing their tasks more effectively
and efficiently. By providing this information, accounting helps the organization
reach its overall goals.
10. “Tyler, there are a number of areas you could pursue within accounting. There are
also a number of opportunities within those accounting areas. I have put together
some information to help with your decision.”
Accounting professionals practice in four
broad fields including:
Accounting-related opportunities within
each field are numerous and include:
Financial accounting - Statement preparation
- Statement analysis
- Auditing
- Regulatory
- Consulting
- Planning
- Criminal investigation
Managerial accounting - General accounting
- Cost accounting
- Budgeting
- Internal auditing
- Management advisory services
Taxation - Preparation
- Planning
- Regulatory
- Investigations
- Consulting
Accounting-related - Lenders
- Consultants
- Analysts

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Last revised: May 24, 2016
Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. 1-6
12. The purpose of accounting is to provide decision makers with information helping
them make better decisions. Examples include information for people making
investments, loans and similar decisions.
13. Accounting professionals deal with a variety of information about their employers
and clients that is not generally available to the public. Ethical issues arise
concerning the possibility that accounting professionals might personally benefit by
using confidential information. There is also the possibility that their employers and
clients might be harmed if certain information is not kept confidential.
14. An income statement user must know what time period is covered to judge whether
the company’s performance is satisfactory. For example, a statement user would not
be able to assess whether the amounts of revenue and profit are satisfactory without
knowing whether they were earned over a week, a month, or a year.
15. The revenue recognition principle provides guidance that managers and auditors
need for knowing when to recognize revenue. For example, if revenue is recognized
too early, the income statement reports income earlier than it should and the
business looks more profitable than it really is. On the other hand, if the revenue is
not recognized on time, the income statement shows lower amounts of revenue and
profit than it should and the business looks less profitable than it really is. Basically,
this principle requires revenue to be recognized when it is earned and can be
measured reliably. The amount of revenue should equal the value of the assets
received from the customers.
16. The four financial statements are: the income statement, the balance sheet, the
statement of changes in equity, and the statement of cash flows.
17. An income statement reports on the business’s performance during the period. It
shows whether the business earned a profit (or loss). The statement does not simply
report the amount of profit or loss but lists the types and amounts of the revenues
and expenses.
The balance sheet reports on the financial position of a business at a specific point
in time. It is often called the statement of financial position. It provides information
that helps users understand a company’s financial status. The balance sheet lists
the types and dollar amounts of assets, liabilities, and equity of the business.
18. Cash has purchasing power and can be used to acquire other assets. A business
that sells products to a customer and does not collect cash immediately has created
an Accounts Receivable. This account represents a future collection of cash.
Supplies are resources that will help a business carry on its operations.
19. I disagree with Rachel. While an accounts receivable and an accounts payable both
show up on the balance sheet and in the accounting equation, an accounts
receivable is an asset and an accounts payable is a liability. These two accounts
also represent two different perspectives. When a company sells products or
services on credit, an accounts receivable is created. When a company buys
products on credit, an accounts payable is created.
20. A revenue is an inflow of assets received in exchange for goods or services provided
to customers as part of the major or central operations of the business. A revenue
also may occur as a decrease in liabilities as when a service or product is delivered
having been paid for in advance. The accountant has recorded revenue incorrectly.
The accountant should record $5,000 in revenue from the sale of frozen yogurt and
$10,000 as an owner’s investment in the owner’s equity account.

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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, cars and companies. A celebrity’s
liabilities may include a mortgage, bank debt and credit card debt. A celebrity’s
equity represents their net worth, which is their assets less liabilities.
23. Financial statements need to be prepared in a specific order because they are
integrated. Some of the numbers on one financial statement are inputs for other
financial statements. Financial statements should be prepared in the following
order: 1) Income Statement 2) Statement of Changes in Equity 3) Balance Sheet and
4) Statement of Cash Flow. The profit on the income statement is an input in the
statement of changes in equity. The ending equity balance on the statement of
changes in equity is an input for the balance sheet. The cash balance on the balance
sheet corresponds to the ending cash balance on the statement of cash flows.

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Last revised: May 24, 2016
Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. 1-8
QUICK STUDY
Quick Study 1-1
There are a variety of questions and this list is certainly not exhaustive:
1. How much was spent on advertising last year? And/or how much is projected to be
spent this year?
2. What is the effect of advertising on sales? And/or what is the projected effect of
advertising on this year’s sales?
3. How much was spent on delivering flowers last year? And/or how much is projected
to be spent this year?
4. How much will it cost to create a webpage and sell flowers online?
5. Can sales be increased by selling online? And/or what is the experience of our
competitors in this regard?
6. When pricing flowers, how much is being charged for delivery?
7. Are there enough sales staff to answer phones/emails and/or are sales being lost
because of insufficient staffing and/or staffing issues?

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Last revised: May 24, 2016
Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. 1-9
Quick Study 1-5
1. A
2. C
3. B
4. A
5. A
6. B
7. B
8. C
Quick Study 1-6
1. Relevant facts: You have failed your midterms and are at high risk of failing the
course. Your university policy will punish all academic acts of dishonesty. You
have faced a difficult personal situation during the semester.
2. Ethical issues involved: Whether it is ethical for you to look at accounting notes
during the final exam.
3. Fundamental principles and rules applicable to the matter in question: Your
university policy will punish all academic acts of dishonesty. You believe in the
principle of honesty. It is not honest to misrepresent the amount of accounting
knowledge you know.
4. Established internal procedures: The university’s policy will punishes all acts of
academic dishonesty.
5. Alternative courses of action: Continue engaging in acts of academic dishonesty
until you are caught. The consequence will be that you may be caught in the
future and be punished for it. Resolve to not engage in any acts of academic
dishonesty in the future. The consequence will be that you avoid the chance of
being punished for unethical behavior in the future.
Conclusion
The behaviour in the situation described appears to be unethical based on the
application of the Chartered Professional Accountants of Ontario’s Rules of Professional
Conduct - Approach to Ethical Conflict Resolution. You are acting against your
University’s policy and against your own personal value of being honest.
Quick Study 1-7
a. Business entity principle
b. Revenue recognition principle
c. Historical cost principle (see page 18)
Quick Study 1-8

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Last revised: May 24, 2016
Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. 1-10
1. Revenue Recognition
2. Historical Cost
3. Business Entity
4. Going Concern
5. Currency
Quick Study 1-9
Currency a. Delco performed work for a client located in China and collected
8,450,000 RMB (Chinese currency), the equivalent of about $1,320,000
Canadian. Delco recorded it as 8,450,000.
Revenue
Recognition
b. Delco collected $180,000 from a customer on December 20, 2017

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Last revised: May 24, 2016
Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. 1-13
Quick Study 1-16
1. Total revenues ............................................. 70 + 35 = 105
2. Total operating expenses............................ 22 + 10 + 45 = 77
3. Profit ............................................................. 105 – 77 = 28
4. Total assets.................................................. 10 + 25 + 40 + 20 = 95
5. Total liabilities

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Last revised: May 24, 2016
Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. 1-14
Quick Study 1-18
CORNERSTONE CONSULTING
Income Statement
For Month Ended May 31, 2017
Revenues:
Consulting revenue ........................................... $18
Interest income .................................................. 2
Total revenues ........................................................... $20
Operating expenses:
Rent expense ..................................................... 22
Loss .................................................................... $ 2

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Last revised: May 24, 2016
Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. 1-16
Exercise 1-2 (Continued)
Internal Users Decisions
Marketing Do we have enough money to launch a new marketing
campaign? What products or promotion should we promote?
How should we price our products?
Human Resources How many employees can we afford to hire this year? How
much should we pay employees? How much money should
we invest into training? Can we provide employees with
benefits?
Finance / Management How is Starbucks’ performance? What changes should we
make in the coming year? Do we have enough money to
operate in the short and long term?
Employees Will Starbucks be able to pay my wages? Should I participate
in the stock option plan? If I have stock options, when should
I exercise them?

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Last revised: May 24, 2016
Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. 1-17
(2) Controller A controller is often responsible for preparing the financial statements with
the assistance of one or more staff accountants. A controller will report to
more senior Finance staff such as the Chief Financial Officer.
A typical day for an external auditor could involve:
• Meeting with the management team to discuss the company’s
performance.
• Preparing monthly, quarterly or annual financial statements
• Providing analysis and comments on the financial information for
management and the Board of Directors
• Preparing reports with financial information that will help
management make strategic and operational decisions
• Preparing budgets and cash flow projections
• Ensuring employees are following company policies and procedures
• Managing and supervising a team of accounting staff
(3) Tax
Specialist
• Meet with client to understand their tax planning needs
• Researching the tax standards
• Writing a tax memo analyzing and concluding on appropriate tax
treatment.
• Working on corporate or personal tax returns.
• Looking through the documents the client has given you had using
tax software to prepare the tax return.
• Discuss ideas with other tax specialists or the Tax Manager / Partner.

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Last revised: May 24, 2016
Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. 1-18
Exercise 1-4 (20 minutes) (Answers will vary.)
a.
1. Relevant facts: Your colleague mentioned that he makes personal calls and gets
them reimbursed by your company. Your employer allows you to submit
business calls for reimbursement.
2. Ethical issues involved: Whether it is ethical to submit personal calls for
reimbursement.
3. Fundamental principles and rules applicable to the matter in question: Your
employer’s rule is that you can submit business calls for reimbursement. It is not
honest to misrepresent personal calls for business calls.
4. Established internal procedures: Your employer reimburses business calls.
5. Alternative courses of action: Bring the situation up with your colleague. Your
colleague may become upset and this could affect your working relationship.
Stay silent, which will likely result in your colleague continuing to submit personal
calls for reimbursement. Let your employer know. This action could result in

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Last revised: May 24, 2016
Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. 1-19
Exercise 1-4 (Continued)
Conclusion
The behaviour in the situation described appears to be unethical based on the
application of the Chartered Professional Accountants of Ontario’s Rules of Professional
Conduct - Approach to Ethical Conflict Resolution. The three people and the ticket-taker
have violated the movie’s theater’s policy.
c.
1. Relevant facts: The cashier only provides a cash register receipt if the customer
asks. The cash register records will be inaccurate if not all sales are recorded.
2. Ethical issues involved: Whether it is ethical to only provide a cash register
receipt if a customer asks.
3. Fundamental principles and rules applicable to the matter in question: The fitness
centre would require the cashier to perform all of their duties. It is not honest for
the cashier to intentionally or unintentionally not perform all of their duties.
4. Established internal procedures: The fitness centre requires that all sales are
recorded in the cash register and the customer receives a receipt.

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

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