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
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. 1-1
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
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.
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. 1-2
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.
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.
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.
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
- Traders
- Managers
- Directors
- Underwriters
- Planners
- Appraisers
11. The independent auditor for WestJet is KPMG LLP.
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
- Traders
- Managers
- Directors
- Underwriters
- Planners
- Appraisers
11. The independent auditor for WestJet is KPMG LLP.
Loading page 6...
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.
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.
Loading page 7...
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.
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.
Loading page 8...
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?
Quick Study 1-2
a. Do not record Meeting with the mechanical staff to determine new machine
requirements for next year.
b. Record Receiving the company’s utility bill detailing the usage for the past
month.
c. Do not record Analyzing last year’s sales report to determine if the discount policy
is effective in getting customers to buy in multiple quantities
d. Record Downloading the online bank statements and identifying customer
payments.
e. Do not record After an employee is interviewed, hiring them for the accounting
position.
Quick Study 1-3
a. Highlands United Church Non-business d. University of
Toronto
Business
b. Royal Alexandra Hospital Non-business e. Loblaw Business
c. Toronto-Dominion Bank Business f. World Vision Non-business
Quick Study 1-4
1. SP
2. C
3. P
4. SP
5. C
6. C
7. P
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?
Quick Study 1-2
a. Do not record Meeting with the mechanical staff to determine new machine
requirements for next year.
b. Record Receiving the company’s utility bill detailing the usage for the past
month.
c. Do not record Analyzing last year’s sales report to determine if the discount policy
is effective in getting customers to buy in multiple quantities
d. Record Downloading the online bank statements and identifying customer
payments.
e. Do not record After an employee is interviewed, hiring them for the accounting
position.
Quick Study 1-3
a. Highlands United Church Non-business d. University of
Toronto
Business
b. Royal Alexandra Hospital Non-business e. Loblaw Business
c. Toronto-Dominion Bank Business f. World Vision Non-business
Quick Study 1-4
1. SP
2. C
3. P
4. SP
5. C
6. C
7. P
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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
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 for
work to be done in February 2018. The $180,000 was recorded as
revenue during 2017. Delco’s year end is December 31.
Going
Concern
c. Delco’s December 31, 2017 balance sheet showed total assets of
$840,000 and liabilities of $1,120,000. The income statement for the
past 6 years has shown a trend of increasing losses.
Historical
Cost
d. Included in Delco’s assets was land and building purchased for
$310,000 and reported on the balance sheet at $470,000.
Business
Entity
e. Delco’s owner, Tom Del, consistently buys personal supplies and
charges them to the company.
Quick Study 1-10
a. Equity = $ 75,000 – $ 40,500 = $ 34,500
b. Liabilities = $300,000 – $ 85,500 = $214,500
c. Assets = $187,500 + $ 95,400 = $282,900
Quick Study 1-11
a. Equity = $374,700 – $252,450 = $122,250
b. Liabilities = $150,900 – $126,000 = $ 24,900
c. Assets = $ 37,650 + $112,500 = $150,150
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 for
work to be done in February 2018. The $180,000 was recorded as
revenue during 2017. Delco’s year end is December 31.
Going
Concern
c. Delco’s December 31, 2017 balance sheet showed total assets of
$840,000 and liabilities of $1,120,000. The income statement for the
past 6 years has shown a trend of increasing losses.
Historical
Cost
d. Included in Delco’s assets was land and building purchased for
$310,000 and reported on the balance sheet at $470,000.
Business
Entity
e. Delco’s owner, Tom Del, consistently buys personal supplies and
charges them to the company.
Quick Study 1-10
a. Equity = $ 75,000 – $ 40,500 = $ 34,500
b. Liabilities = $300,000 – $ 85,500 = $214,500
c. Assets = $187,500 + $ 95,400 = $282,900
Quick Study 1-11
a. Equity = $374,700 – $252,450 = $122,250
b. Liabilities = $150,900 – $126,000 = $ 24,900
c. Assets = $ 37,650 + $112,500 = $150,150
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Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. 1-11
Quick Study 1-12
a.
Allin Servicing
Income Statement
For Month Ended April 30, 2017
Revenues $300
Expenses 125
Profit (loss) 175
Allin Servicing
Statement of Changes in Equity
For Month Ended April 30, 2017
Tim Allin, capital, April 1 $ 50
Add: Investments by
owner $ 30
Profit 175 205
Total $255
Less: Withdrawals by owner 15
Tim Allin, capital, April 30 $240
Allin Servicing
Balance Sheet
April 30, 2017
Assets Liabilities
Cash $ 60 Accounts payable $ 25
Equipment 205 Equity
Tim Allin, capital 240
Total liabilities and
Total assets $265 equity $265
b.
Allin Servicing
Income Statement
For Month Ended May 31, 2017
Revenues $135
Expenses 85
Profit (loss) $ 50
Allin Servicing
Statement of Changes in Equity
For Month Ended May 31, 2017
Tim Allin, capital, May 1 $240
Add: Investments by
owner $ 60
Profit 50 $110
Total 350
Less: Withdrawals by owner 75
Tim Allin, capital, May 31 $275
Allin Servicing
Balance Sheet
May 31, 2017
Assets Liabilities
Cash $120 Accounts payable $ 45
Equipment 200 Equity
Tim Allin, capital 275
Total liabilities and
Total assets $320 equity $320
Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. 1-11
Quick Study 1-12
a.
Allin Servicing
Income Statement
For Month Ended April 30, 2017
Revenues $300
Expenses 125
Profit (loss) 175
Allin Servicing
Statement of Changes in Equity
For Month Ended April 30, 2017
Tim Allin, capital, April 1 $ 50
Add: Investments by
owner $ 30
Profit 175 205
Total $255
Less: Withdrawals by owner 15
Tim Allin, capital, April 30 $240
Allin Servicing
Balance Sheet
April 30, 2017
Assets Liabilities
Cash $ 60 Accounts payable $ 25
Equipment 205 Equity
Tim Allin, capital 240
Total liabilities and
Total assets $265 equity $265
b.
Allin Servicing
Income Statement
For Month Ended May 31, 2017
Revenues $135
Expenses 85
Profit (loss) $ 50
Allin Servicing
Statement of Changes in Equity
For Month Ended May 31, 2017
Tim Allin, capital, May 1 $240
Add: Investments by
owner $ 60
Profit 50 $110
Total 350
Less: Withdrawals by owner 75
Tim Allin, capital, May 31 $275
Allin Servicing
Balance Sheet
May 31, 2017
Assets Liabilities
Cash $120 Accounts payable $ 45
Equipment 200 Equity
Tim Allin, capital 275
Total liabilities and
Total assets $320 equity $320
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Last revised: May 24, 2016
Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. 1-12
Quick Study 1-13
1. $20,000 - $15,000 = $5,000 beginning capital on January 1, 2017
2. $5,000 + $3,000 + $8,000 - $4,000 = $12,000 ending capital on December 31, 2017
Quick Study 1-14
Assets = Liabilities + Equity
a. Increase/Decrease
b. Increase Increase
c. Decrease Decrease
d. Increase Decrease
e. Decrease Decrease
Quick Study 1-15
c 1. Supplies ................................................... $10
a 2. Supplies expense .................................... 22
c 3. Accounts receivable................................ 25
c 4. Accounts payable .................................... 12
c 5. Equipment ................................................ 40
b 6. Tim Roadster’s withdrawals in April ...... 35
c 7. Notes payable .......................................... 30
a 8. Utilities expense ....................................... 10
c 9. Furniture ................................................... 20
a 10. Revenue .................................................... 70
a 11. Rent revenue............................................. 35
a 12. Salaries expense ...................................... 45
b 13. Tim Roadster’s investments in April ....... 60
a+b 14. Profit* ........................................................ 28
*Calculated as: 70 + 35 – 22 – 10 – 45 = 28
Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. 1-12
Quick Study 1-13
1. $20,000 - $15,000 = $5,000 beginning capital on January 1, 2017
2. $5,000 + $3,000 + $8,000 - $4,000 = $12,000 ending capital on December 31, 2017
Quick Study 1-14
Assets = Liabilities + Equity
a. Increase/Decrease
b. Increase Increase
c. Decrease Decrease
d. Increase Decrease
e. Decrease Decrease
Quick Study 1-15
c 1. Supplies ................................................... $10
a 2. Supplies expense .................................... 22
c 3. Accounts receivable................................ 25
c 4. Accounts payable .................................... 12
c 5. Equipment ................................................ 40
b 6. Tim Roadster’s withdrawals in April ...... 35
c 7. Notes payable .......................................... 30
a 8. Utilities expense ....................................... 10
c 9. Furniture ................................................... 20
a 10. Revenue .................................................... 70
a 11. Rent revenue............................................. 35
a 12. Salaries expense ...................................... 45
b 13. Tim Roadster’s investments in April ....... 60
a+b 14. Profit* ........................................................ 28
*Calculated as: 70 + 35 – 22 – 10 – 45 = 28
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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.............................................. 12 + 30 = 42
6. Tim Roadster, capital (April 30, 2017) ........ 60 – 35 + 28 = 53
7. Total liabilities and equity ........................... 42 + 53 = 95
Quick Study 1-17
d 1. Loss ........................................................ 2 Income statement &
Statement of changes in equity
d 2. Rent expense.......................................... 22 Income statement
b 3. Rent payable .......................................... 6
a 4. Accounts receivable .............................. 14
d 5. Joan Bennish’s investments in May ..... 30 Statement of changes in equity
d 6. Interest income ...................................... 2 Income statement
d 7. Joan Bennish’s, capital, May 1, 2017 .... 0 Statement of changes in equity
a 8. Repair supplies ....................................... 5
b 9. Notes payable.......................................... 25
d 10. Joan Bennish’s withdrawals in May ...... 5 Statement of changes in equity
a 11. Truck ........................................................ 15
d 12. Consulting revenue................................. 18 Income statement
c 13. Joan Bennish, capital, May 31, 2017 ...... 23*
a 14. Cash ......................................................... 20
* See QS1-18 for details on how this amount was calculated; this calculation was not a
requirement of QS1-17.
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.............................................. 12 + 30 = 42
6. Tim Roadster, capital (April 30, 2017) ........ 60 – 35 + 28 = 53
7. Total liabilities and equity ........................... 42 + 53 = 95
Quick Study 1-17
d 1. Loss ........................................................ 2 Income statement &
Statement of changes in equity
d 2. Rent expense.......................................... 22 Income statement
b 3. Rent payable .......................................... 6
a 4. Accounts receivable .............................. 14
d 5. Joan Bennish’s investments in May ..... 30 Statement of changes in equity
d 6. Interest income ...................................... 2 Income statement
d 7. Joan Bennish’s, capital, May 1, 2017 .... 0 Statement of changes in equity
a 8. Repair supplies ....................................... 5
b 9. Notes payable.......................................... 25
d 10. Joan Bennish’s withdrawals in May ...... 5 Statement of changes in equity
a 11. Truck ........................................................ 15
d 12. Consulting revenue................................. 18 Income statement
c 13. Joan Bennish, capital, May 31, 2017 ...... 23*
a 14. Cash ......................................................... 20
* See QS1-18 for details on how this amount was calculated; this calculation was not a
requirement of QS1-17.
Loading page 14...
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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
CORNERSTONE CONSULTING
Statement of Changes in Equity
For Month Ended May 31, 2017
Joan Bennish, capital, May 1 .............................. $ 0
Add: Investments by owner ............................ 30
Total ............................................................... $30
Less: Withdrawals by owner .............................. $ 5
Loss ............................................................ 2 7
Joan Bennish, capital, May 31 ............................ $23
CORNERSTONE CONSULTING
Balance Sheet
May 31, 2017
Assets Liabilities
Cash ................................................ $20 Rent payable ............................. $ 6
Accounts receivable ...................... 14 Notes payable ........................... 25
Repair supplies .............................. 5 Total liabilities .......................... $31
Truck ............................................... 15 Equity
Joan Bennish, capital............... 23
Total liabilities and
Total assets .................................... $54 equity..................................... $54
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
CORNERSTONE CONSULTING
Statement of Changes in Equity
For Month Ended May 31, 2017
Joan Bennish, capital, May 1 .............................. $ 0
Add: Investments by owner ............................ 30
Total ............................................................... $30
Less: Withdrawals by owner .............................. $ 5
Loss ............................................................ 2 7
Joan Bennish, capital, May 31 ............................ $23
CORNERSTONE CONSULTING
Balance Sheet
May 31, 2017
Assets Liabilities
Cash ................................................ $20 Rent payable ............................. $ 6
Accounts receivable ...................... 14 Notes payable ........................... 25
Repair supplies .............................. 5 Total liabilities .......................... $31
Truck ............................................... 15 Equity
Joan Bennish, capital............... 23
Total liabilities and
Total assets .................................... $54 equity..................................... $54
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Last revised: May 24, 2016
Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. 1-15
EXERCISES
Exercise 1-1 (10 minutes)
a. Corporation
b. Sole proprietorship
c. Corporation
d. Partnership
e. Sole proprietorship
f. Sole proprietorship
g. Corporation
Exercise 1-2 (10 minutes)
External Users Decisions
Investor Whether to invest in the company. Whether to buy or sell
their stocks in the company.
Supplier Whether to sell to Starbucks? Will Starbucks be able to pay
for products? Does Starbucks represent ethical/socially
responsible practices that suppliers want to align their image
with?
Canada Revenue Agency Has Starbucks filed their tax return? Have they appropriately
reported their financial information and paid their taxes?
Should we audit Starbucks?
Customer Will the company be here to serve me in the long-run? Will
Starbucks continue to honour their loyalty program? Does
Starbucks represent ethical/socially responsible practices
that suppliers want to align their image with?
External Auditors Has Starbucks reported all of their financial information
appropriately in accordance with the appropriate accounting
standards? Have they recorded all of their transactions and
are they recorded at the correct amounts? Has Starbucks
disclosed all the necessary information to provide useful
information to it’s investors and other financial statement
users?
Lenders Should we provide a loan to Starbucks? Will Starbucks be
able to repay the loan? Should we take any assets as
collateral?
Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. 1-15
EXERCISES
Exercise 1-1 (10 minutes)
a. Corporation
b. Sole proprietorship
c. Corporation
d. Partnership
e. Sole proprietorship
f. Sole proprietorship
g. Corporation
Exercise 1-2 (10 minutes)
External Users Decisions
Investor Whether to invest in the company. Whether to buy or sell
their stocks in the company.
Supplier Whether to sell to Starbucks? Will Starbucks be able to pay
for products? Does Starbucks represent ethical/socially
responsible practices that suppliers want to align their image
with?
Canada Revenue Agency Has Starbucks filed their tax return? Have they appropriately
reported their financial information and paid their taxes?
Should we audit Starbucks?
Customer Will the company be here to serve me in the long-run? Will
Starbucks continue to honour their loyalty program? Does
Starbucks represent ethical/socially responsible practices
that suppliers want to align their image with?
External Auditors Has Starbucks reported all of their financial information
appropriately in accordance with the appropriate accounting
standards? Have they recorded all of their transactions and
are they recorded at the correct amounts? Has Starbucks
disclosed all the necessary information to provide useful
information to it’s investors and other financial statement
users?
Lenders Should we provide a loan to Starbucks? Will Starbucks be
able to repay the loan? Should we take any assets as
collateral?
Loading page 16...
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?
There are a number of users and decisions that can be identified.
Exercise 1-3 (20 minutes)
Accounting Role Typical Day
(1) External
Auditor
An external auditor is hired by a company’s board of directors to express an
opinion on whether their financial statements are prepared appropriately in
accordance with the accounting standards (CAS 200).
A typical day for an external auditor could involve:
• Working at the client’s site with a team of auditors.
• Each team member will be assigned sections of the financial
statements to audit.
• Interviewing the Chief Financial Officer, Controller, internal
accountants and employees from various departments to gain a
strong understanding of the company
• Understanding the company’s processes for how they sell
product/services, how they purchase product or supplies, how they
pay their employees.
• Reviewing the client’s financial statements
• Performing testing over the financial statements by selecting a
sample of items or transactions from the general ledger
• Reviewing supporting documents such as bank statements, invoices,
contracts
• Submitting completed sections to the senior auditor or manager for
review.
• Having a coffee break and lunch with the auditing team
Exercise 1-3 (continued)
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?
There are a number of users and decisions that can be identified.
Exercise 1-3 (20 minutes)
Accounting Role Typical Day
(1) External
Auditor
An external auditor is hired by a company’s board of directors to express an
opinion on whether their financial statements are prepared appropriately in
accordance with the accounting standards (CAS 200).
A typical day for an external auditor could involve:
• Working at the client’s site with a team of auditors.
• Each team member will be assigned sections of the financial
statements to audit.
• Interviewing the Chief Financial Officer, Controller, internal
accountants and employees from various departments to gain a
strong understanding of the company
• Understanding the company’s processes for how they sell
product/services, how they purchase product or supplies, how they
pay their employees.
• Reviewing the client’s financial statements
• Performing testing over the financial statements by selecting a
sample of items or transactions from the general ledger
• Reviewing supporting documents such as bank statements, invoices,
contracts
• Submitting completed sections to the senior auditor or manager for
review.
• Having a coffee break and lunch with the auditing team
Exercise 1-3 (continued)
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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.
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.
Loading page 18...
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
your colleague being disciplined by your employer.
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. Your colleague is acting against your
employer’s policy and a personal value of being honest.
b.
1. Relevant facts: It appears that the three people ahead of you entered without
tickets.
2. Ethical issues involved: Whether it is ethical watch a movie without purchasing a
ticket. Whether it is ethical for the ticket-taker to let non-paying patrons into the
movie theatre.
3. Fundamental principles and rules applicable to the matter in question: The movie
theater’s rule is that people must pay for a ticket to watch a movie. To watch a
movie without paying is like stealing. Stealing a movie viewing is not honest. The
three people have misrepresented themselves as paying patrons.
4. Established internal procedures: Patrons of the theatre must pay for the movie
they will watch. The ticket-taker needs to see a ticket before admitting people into
the theatre.
5. Alternative courses of action: Bring the situation up to the manager at the movie
theatre. The consequence will be that the ticket-taker will likely lose his/her job.
Do not take action as this situation does not involve you. This will likely lead to
more people entering the movie theatre without paying. This may lead to ticket
prices being increased to cover the cost of this kind of lost sale.
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
your colleague being disciplined by your employer.
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. Your colleague is acting against your
employer’s policy and a personal value of being honest.
b.
1. Relevant facts: It appears that the three people ahead of you entered without
tickets.
2. Ethical issues involved: Whether it is ethical watch a movie without purchasing a
ticket. Whether it is ethical for the ticket-taker to let non-paying patrons into the
movie theatre.
3. Fundamental principles and rules applicable to the matter in question: The movie
theater’s rule is that people must pay for a ticket to watch a movie. To watch a
movie without paying is like stealing. Stealing a movie viewing is not honest. The
three people have misrepresented themselves as paying patrons.
4. Established internal procedures: Patrons of the theatre must pay for the movie
they will watch. The ticket-taker needs to see a ticket before admitting people into
the theatre.
5. Alternative courses of action: Bring the situation up to the manager at the movie
theatre. The consequence will be that the ticket-taker will likely lose his/her job.
Do not take action as this situation does not involve you. This will likely lead to
more people entering the movie theatre without paying. This may lead to ticket
prices being increased to cover the cost of this kind of lost sale.
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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.
5. Alternative courses of action: The cashier could continue providing cash receipts
only if they are asked. Eventually, the supervisor and/or owner of the facility will
recognize that drop-in revenues are lower than the actual number of drop-in
customers attending the facility and the cashier will lose his/her job and perhaps
face criminal charges. Also, the prices may increase if the owner believes
revenues are decreasing. The cashier could follow procedure and provide all
customers with a receipt whether or not they ask for one. This cashier will be able
to work at the fitness center and earn wages for a longer period of time.
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.
Exercise 1-5 (10 minutes)
Description
B 1. Requires every business to be accounted for separately from its owner or
owners.
A 2. Requires financial statement information to be based on costs incurred in
transactions.
D 3. Requires financial statements to reflect the assumption that the business will
continue operating instead of being closed or sold.
C 4. Requires revenue to be recorded only when the earnings process is complete
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.
5. Alternative courses of action: The cashier could continue providing cash receipts
only if they are asked. Eventually, the supervisor and/or owner of the facility will
recognize that drop-in revenues are lower than the actual number of drop-in
customers attending the facility and the cashier will lose his/her job and perhaps
face criminal charges. Also, the prices may increase if the owner believes
revenues are decreasing. The cashier could follow procedure and provide all
customers with a receipt whether or not they ask for one. This cashier will be able
to work at the fitness center and earn wages for a longer period of time.
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.
Exercise 1-5 (10 minutes)
Description
B 1. Requires every business to be accounted for separately from its owner or
owners.
A 2. Requires financial statement information to be based on costs incurred in
transactions.
D 3. Requires financial statements to reflect the assumption that the business will
continue operating instead of being closed or sold.
C 4. Requires revenue to be recorded only when the earnings process is complete
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Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. 1-20
Exercise 1-6 (15 minutes)
Balance Sheet Income Statement Statement of Changes in
Equity
Assets Liabilities Owner’s Equity Revenue Expenses
Cash Accounts
Payable
Owner’s Capital,
Ending balance
Interest Income Advertising
Expense
Owner’s Capital,
Beginning balance
Accounts
Receivable
Interest
Payable
Service
Revenue
Fuel Expense Investment by Owner
Interest
Receivable
Salaries
Payable
Rent Revenue Insurance
Expense
Profit / Loss
Merchandise
Inventory
Unearned
Revenue
Interest
Expense
Withdrawals
Supplies Notes Payable Maintenance
Expense
Owner’s Capital, Ending
balance
Prepaid
Expenses
Other Expenses
Prepaid Rent Rent Expense
Land Salaries
Expense
Building Supplies
Expense
Vehicles Telephone
Expense
Equipment Utilities
Expense
Furniture Vehicle
Expenses
Wages Expense
Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. 1-20
Exercise 1-6 (15 minutes)
Balance Sheet Income Statement Statement of Changes in
Equity
Assets Liabilities Owner’s Equity Revenue Expenses
Cash Accounts
Payable
Owner’s Capital,
Ending balance
Interest Income Advertising
Expense
Owner’s Capital,
Beginning balance
Accounts
Receivable
Interest
Payable
Service
Revenue
Fuel Expense Investment by Owner
Interest
Receivable
Salaries
Payable
Rent Revenue Insurance
Expense
Profit / Loss
Merchandise
Inventory
Unearned
Revenue
Interest
Expense
Withdrawals
Supplies Notes Payable Maintenance
Expense
Owner’s Capital, Ending
balance
Prepaid
Expenses
Other Expenses
Prepaid Rent Rent Expense
Land Salaries
Expense
Building Supplies
Expense
Vehicles Telephone
Expense
Equipment Utilities
Expense
Furniture Vehicle
Expenses
Wages Expense
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Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. 1-21
Exercise 1-7 (10 minutes)
a) $516,000 – $492,000 = $24,000 profit
b) $165,000 – $240,000 = $75,000 loss
c) $32,000 + 0 – 0 + x = $86,000
x = $86,000 – $32,000
x = $54,000 profit
d) $48,000 + $40,000 – 0 + x = $52,000
x = $52,000 – $48,000 – $40,000
x = –$36,000 or a $36,000 loss
Exercise 1-8 (15 minutes)
(a) (b) (c) (d) (e)
Answers $ (19,750) $46,000 $7,000 $10,250 $102,000
Proofs:
Equity, January 1 ................................ $ 0 $ 0 $ 0 $ 0 $102,000
Owner’s investments
during the year ................................ 60,000 46,000 31,500 37,500 140,000
Profit (loss) for the year ......................... 15,750 30,500 (4,500) 10,250 (8,000)
Owner’s withdrawals
during the year ................................ (19,750) (27,000) (20,000) (15,750) (63,000)
Equity, December 31 ..............................$56,000 $49,500 $7,000 $32,000 $171,000
Exercise 1-9 (15 minutes)
EXTRAORDINARY STUDIOS
Income Statement
For Month Ended November 30, 2017
Revenues:
Wedding consulting revenue ............................ $22,000
Operating expenses:
Salaries expense ............................................... $6,000
Rent expense ..................................................... 2,550
Telephone expense ........................................... 1,680
Utilities expenses .............................................. 660
Total operating expenses .............................. 10,890
Profit .................................................................... $ 11,110
Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. 1-21
Exercise 1-7 (10 minutes)
a) $516,000 – $492,000 = $24,000 profit
b) $165,000 – $240,000 = $75,000 loss
c) $32,000 + 0 – 0 + x = $86,000
x = $86,000 – $32,000
x = $54,000 profit
d) $48,000 + $40,000 – 0 + x = $52,000
x = $52,000 – $48,000 – $40,000
x = –$36,000 or a $36,000 loss
Exercise 1-8 (15 minutes)
(a) (b) (c) (d) (e)
Answers $ (19,750) $46,000 $7,000 $10,250 $102,000
Proofs:
Equity, January 1 ................................ $ 0 $ 0 $ 0 $ 0 $102,000
Owner’s investments
during the year ................................ 60,000 46,000 31,500 37,500 140,000
Profit (loss) for the year ......................... 15,750 30,500 (4,500) 10,250 (8,000)
Owner’s withdrawals
during the year ................................ (19,750) (27,000) (20,000) (15,750) (63,000)
Equity, December 31 ..............................$56,000 $49,500 $7,000 $32,000 $171,000
Exercise 1-9 (15 minutes)
EXTRAORDINARY STUDIOS
Income Statement
For Month Ended November 30, 2017
Revenues:
Wedding consulting revenue ............................ $22,000
Operating expenses:
Salaries expense ............................................... $6,000
Rent expense ..................................................... 2,550
Telephone expense ........................................... 1,680
Utilities expenses .............................................. 660
Total operating expenses .............................. 10,890
Profit .................................................................... $ 11,110
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Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. 1-22
Exercise 1-10 (15 minutes)
EXTRAORDINARY STUDIOS
Statement of Changes in Equity
For Month Ended November 30, 2017
Jean Higgins, capital, November 1..................... $ 0
Add: Investments by owner ............................ 84,000
Profit ......................................................... 11,110 95,110
Total ............................................................... $95,110
Less: Withdrawals by owner .............................. 3,360
Jean Higgins, capital, November 30................... $91,750
Analysis component:
The owner, Jean Higgins, invested $84,000 of assets during the month, which caused
equity to increase. Also, profit earned during the month was $11,110 also causing equity
to increase during November. The total increases in equity during the month were a total
of $95,110 ($84,000 + $11,110).
NOTE: Students might point out that equity decreased by a total of $3,360 in withdrawals
which in combination with the total increase of $95,110 caused a net increase in equity of
$91,750.
Exercise 1-11 (15 minutes)
EXTRAORDINARY STUDIOS
Balance Sheet
November 30, 2017
Assets Liabilities
Cash ................................................ $16,000 Accounts payable..................... $ 7,500
Accounts receivable ...................... 17,000
Office supplies ............................... 5,000 Equity
Automobiles ................................... 36,000 Jean Higgins, capital ................ 91,750
Office equipment............................ 25,250 Total liabilities and
Total assets .................................... $99,250 equity..................................... $99,250
Analysis component:
$91,750 (or 92.44% calculated as $91,750/$99,250 × 100) of the total $99,250 assets are
financed by Jean Higgins, the owner of Extaordinary Studios.
Exercise 1-12 (15 minutes)
Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. 1-22
Exercise 1-10 (15 minutes)
EXTRAORDINARY STUDIOS
Statement of Changes in Equity
For Month Ended November 30, 2017
Jean Higgins, capital, November 1..................... $ 0
Add: Investments by owner ............................ 84,000
Profit ......................................................... 11,110 95,110
Total ............................................................... $95,110
Less: Withdrawals by owner .............................. 3,360
Jean Higgins, capital, November 30................... $91,750
Analysis component:
The owner, Jean Higgins, invested $84,000 of assets during the month, which caused
equity to increase. Also, profit earned during the month was $11,110 also causing equity
to increase during November. The total increases in equity during the month were a total
of $95,110 ($84,000 + $11,110).
NOTE: Students might point out that equity decreased by a total of $3,360 in withdrawals
which in combination with the total increase of $95,110 caused a net increase in equity of
$91,750.
Exercise 1-11 (15 minutes)
EXTRAORDINARY STUDIOS
Balance Sheet
November 30, 2017
Assets Liabilities
Cash ................................................ $16,000 Accounts payable..................... $ 7,500
Accounts receivable ...................... 17,000
Office supplies ............................... 5,000 Equity
Automobiles ................................... 36,000 Jean Higgins, capital ................ 91,750
Office equipment............................ 25,250 Total liabilities and
Total assets .................................... $99,250 equity..................................... $99,250
Analysis component:
$91,750 (or 92.44% calculated as $91,750/$99,250 × 100) of the total $99,250 assets are
financed by Jean Higgins, the owner of Extaordinary Studios.
Exercise 1-12 (15 minutes)
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Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. 1-23
WINDSOR LEARNING SERVICES
Income Statement
For Month Ended July 31, 2017
Revenues:
Tutoring revenue ............................................... $4,200
Textbook rental revenue ................................... 300
Total revenues................................................ $ 4,500
Operating expenses:
Office rent expense ........................................... $2,500
Tutors wages expense ...................................... 1,540
Utilities expense ................................................ 680
Total operating expenses .............................. 4,720
Loss .................................................................... $ 220
Exercise 1-13 (15 minutes)
WINDSOR LEARNING SERVICES
Statement of Changes in Equity
For Month Ended July 31, 2017
Milton Windsor, capital, July 1 ........................... $ 7,400
Add: Investments by owner ............................ 1,200
Total ............................................................... $ 8,600
Less: Withdrawals by owner .............................. $ 1,000
Loss ............................................................ 220 1,220
Milton Windsor, capital, July 31 ......................... $ 7,380
Analysis component:
Withdrawals of $1,000 by the owner, Milton Windsor, caused equity to decrease during
July, 2017. Also, the loss of $220 caused equity to decrease in July. The total decrease
in equity during the month of July was $1,220 (calculated as $1,000 + $220).
NOTE: Students might point out that equity increased by $1,200 of owner investments
which, in combination with the total decrease of $1,220, caused a net decrease in equity
of $20.
Exercise 1-14 (15 minutes)
Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. 1-23
WINDSOR LEARNING SERVICES
Income Statement
For Month Ended July 31, 2017
Revenues:
Tutoring revenue ............................................... $4,200
Textbook rental revenue ................................... 300
Total revenues................................................ $ 4,500
Operating expenses:
Office rent expense ........................................... $2,500
Tutors wages expense ...................................... 1,540
Utilities expense ................................................ 680
Total operating expenses .............................. 4,720
Loss .................................................................... $ 220
Exercise 1-13 (15 minutes)
WINDSOR LEARNING SERVICES
Statement of Changes in Equity
For Month Ended July 31, 2017
Milton Windsor, capital, July 1 ........................... $ 7,400
Add: Investments by owner ............................ 1,200
Total ............................................................... $ 8,600
Less: Withdrawals by owner .............................. $ 1,000
Loss ............................................................ 220 1,220
Milton Windsor, capital, July 31 ......................... $ 7,380
Analysis component:
Withdrawals of $1,000 by the owner, Milton Windsor, caused equity to decrease during
July, 2017. Also, the loss of $220 caused equity to decrease in July. The total decrease
in equity during the month of July was $1,220 (calculated as $1,000 + $220).
NOTE: Students might point out that equity increased by $1,200 of owner investments
which, in combination with the total decrease of $1,220, caused a net decrease in equity
of $20.
Exercise 1-14 (15 minutes)
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Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. 1-24
WINDSOR LEARNING SERVICES
Balance Sheet
July 31, 2017
Assets Liabilities
Cash ................................................ $ 1,600 Accounts payable..................... $ 1,500
Accounts receivable ...................... 2,000
Supplies .......................................... 1,280 Equity
Furniture ......................................... 1,800 Milton Windsor, capital ............ 7,380
Computer equipment ..................... 2,200 Total liabilities and
Total assets .................................... $8,880 equity..................................... $8,880
Analysis component:
$1,500 or 16.89% (calculated as $1,500/$8,880 × 100) of the total $8,880 assets held by
Windsor Learning Services are financed by debt.
Exercise 1-15 (20 minutes)
Assets – Liabilities = Equity
Beginning of the year ......................... $ 75,000 – $30,000 = $ 45,000
End of the year ................................... $120,000 – $46,000 = 74,000
(a) (b) (c) (d)
Answers $ 29,000 $86,000 $(51,000) $(4,000)
Proofs:
Equity, January 1 ................................$ 45,000 $ 45,000 $ 45,000 $ 45,000
Owner’s investments
during the year ................................ 0 0 80,000 75,000
Profit (loss) for the year ......................... 29,000 86,000 (51,000) (4,000)
Owner’s withdrawals
during the year ................................ (0) (57,000) (0) (42,000)
Equity, December 31 ..............................$74,000 $74,000 $74,000 $74,000
a. An alternative calculation:
$45,000 + 0 + x – 0 = $74,000; x = $29,000
b. An alternative calculation:
$45,000 + 0 + x - $57,000 = $74,000; x = $86,000
c. An alternative calculation:
$45,000 + $80,000 + x - 0 = $74,000; x = ($51,000) where the negative represents a
loss.
Exercise 1-15 (Continued)
Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. 1-24
WINDSOR LEARNING SERVICES
Balance Sheet
July 31, 2017
Assets Liabilities
Cash ................................................ $ 1,600 Accounts payable..................... $ 1,500
Accounts receivable ...................... 2,000
Supplies .......................................... 1,280 Equity
Furniture ......................................... 1,800 Milton Windsor, capital ............ 7,380
Computer equipment ..................... 2,200 Total liabilities and
Total assets .................................... $8,880 equity..................................... $8,880
Analysis component:
$1,500 or 16.89% (calculated as $1,500/$8,880 × 100) of the total $8,880 assets held by
Windsor Learning Services are financed by debt.
Exercise 1-15 (20 minutes)
Assets – Liabilities = Equity
Beginning of the year ......................... $ 75,000 – $30,000 = $ 45,000
End of the year ................................... $120,000 – $46,000 = 74,000
(a) (b) (c) (d)
Answers $ 29,000 $86,000 $(51,000) $(4,000)
Proofs:
Equity, January 1 ................................$ 45,000 $ 45,000 $ 45,000 $ 45,000
Owner’s investments
during the year ................................ 0 0 80,000 75,000
Profit (loss) for the year ......................... 29,000 86,000 (51,000) (4,000)
Owner’s withdrawals
during the year ................................ (0) (57,000) (0) (42,000)
Equity, December 31 ..............................$74,000 $74,000 $74,000 $74,000
a. An alternative calculation:
$45,000 + 0 + x – 0 = $74,000; x = $29,000
b. An alternative calculation:
$45,000 + 0 + x - $57,000 = $74,000; x = $86,000
c. An alternative calculation:
$45,000 + $80,000 + x - 0 = $74,000; x = ($51,000) where the negative represents a
loss.
Exercise 1-15 (Continued)
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Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. 1-25
d. An alternative calculation:
$45,000 + $75,000 + x - $42,000 = $74,000; x = ($4,000) where the negative
represents a loss.
Exercise 1-16 (10 minutes)
a.
If assets decreased by $15,000 during August, then
$25,000 + $15,000 = $40,000 Assets at August 1, 2017.
Therefore, Equity at August 1, 2017 = $40,000 - $10,000 = $30,000
b.
If liabilities increased by $9,000 during August, then
$10,000 + $9,000 = $19,000 Liabilities at August 31, 2017.
Therefore, Equity at August 31, 2017 = $25,000 - $19,000 = $6,000
Exercise 1-17 (15 minutes)
Assets Liabilities + Equity
Cash +
Accounts
Receivable +
Office
Supplies =
Accounts
Payable +
Marnie Wesson,
Capital
a) + $25,000 + $25,000
b) + $600 + $600
c) + 7,000 + 7,000
d)*
e) – 4,500 – 4,500
f) + $1,250 + 1,250
Totals $27,500 + $1,250 + $600 = $600 + $28,750
$29,350 = $29,350
*Note: For (d), since no exchange has occurred, no entry is required.
Exercise 1-18 (20 minutes)
Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. 1-25
d. An alternative calculation:
$45,000 + $75,000 + x - $42,000 = $74,000; x = ($4,000) where the negative
represents a loss.
Exercise 1-16 (10 minutes)
a.
If assets decreased by $15,000 during August, then
$25,000 + $15,000 = $40,000 Assets at August 1, 2017.
Therefore, Equity at August 1, 2017 = $40,000 - $10,000 = $30,000
b.
If liabilities increased by $9,000 during August, then
$10,000 + $9,000 = $19,000 Liabilities at August 31, 2017.
Therefore, Equity at August 31, 2017 = $25,000 - $19,000 = $6,000
Exercise 1-17 (15 minutes)
Assets Liabilities + Equity
Cash +
Accounts
Receivable +
Office
Supplies =
Accounts
Payable +
Marnie Wesson,
Capital
a) + $25,000 + $25,000
b) + $600 + $600
c) + 7,000 + 7,000
d)*
e) – 4,500 – 4,500
f) + $1,250 + 1,250
Totals $27,500 + $1,250 + $600 = $600 + $28,750
$29,350 = $29,350
*Note: For (d), since no exchange has occurred, no entry is required.
Exercise 1-18 (20 minutes)
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Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. 1-26
Assets Liabilities + Equity
Cash +
Accounts
Receivable +
Parts
Supplies + Equipment =
Accounts
Payable +
Stacey Crowe,
Capital
a) + $14,000 + $ 14,000
b) - 2,500 - 2,500
c) + $800 + $800
d) + $3,400 + $ 3,400
e) – $ 1,950 + $1,950
f)*
g) – $800 – $800
h) + $3,400 + $ 3,400
i) – $2,700 – $ 2,700
Totals $9,450 + $3,400 + $800 + $1,950 = $ 0 + $15,600
$15,600 = $15,600
*Note: For (f), since no exchange has occurred, no entry is required.
Exercise 1-19: (15 minutes)
b. Office Supplies were purchased paying cash of $500.
c. Office Furniture was purchased paying cash of $8,000.
d. Completed work for a client on credit; $1,000.
e. Purchased office supplies on credit; $400.
f. Paid $250 to a creditor.
g. Collected $750 cash from a credit customer.
Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. 1-26
Assets Liabilities + Equity
Cash +
Accounts
Receivable +
Parts
Supplies + Equipment =
Accounts
Payable +
Stacey Crowe,
Capital
a) + $14,000 + $ 14,000
b) - 2,500 - 2,500
c) + $800 + $800
d) + $3,400 + $ 3,400
e) – $ 1,950 + $1,950
f)*
g) – $800 – $800
h) + $3,400 + $ 3,400
i) – $2,700 – $ 2,700
Totals $9,450 + $3,400 + $800 + $1,950 = $ 0 + $15,600
$15,600 = $15,600
*Note: For (f), since no exchange has occurred, no entry is required.
Exercise 1-19: (15 minutes)
b. Office Supplies were purchased paying cash of $500.
c. Office Furniture was purchased paying cash of $8,000.
d. Completed work for a client on credit; $1,000.
e. Purchased office supplies on credit; $400.
f. Paid $250 to a creditor.
g. Collected $750 cash from a credit customer.
Loading page 27...
Last revised: May 24, 2016
Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. 1-27
Exercise 1-20 (20 minutes)
Assets = Liabilities + Equity Explanation
of Equity
Transaction
Cash + Accounts
Receivable
+ Supplie
s
+ Equipment = Accounts
Payable
+ Mailin
Moon,
Capital
a) + $3,000 + $2,500 +$5,500
Owner
Investment
b) + $6,500 +$6,500 Revenue
c) + $600 + $600
d) – $ 1,450 – $ 1,450 Sal. Expense
e)*
f) – $ 1,400 – $ 1,400 Rent Expense
g) + $4,500 +$4,500 Revenue
Totals $6,650 + $4,500 + $600 + $2,500 = $600 + $13,650
$14,250 = $14,250
*Note: For (e), since no exchange has occurred, no entry is required.
Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. 1-27
Exercise 1-20 (20 minutes)
Assets = Liabilities + Equity Explanation
of Equity
Transaction
Cash + Accounts
Receivable
+ Supplie
s
+ Equipment = Accounts
Payable
+ Mailin
Moon,
Capital
a) + $3,000 + $2,500 +$5,500
Owner
Investment
b) + $6,500 +$6,500 Revenue
c) + $600 + $600
d) – $ 1,450 – $ 1,450 Sal. Expense
e)*
f) – $ 1,400 – $ 1,400 Rent Expense
g) + $4,500 +$4,500 Revenue
Totals $6,650 + $4,500 + $600 + $2,500 = $600 + $13,650
$14,250 = $14,250
*Note: For (e), since no exchange has occurred, no entry is required.
Loading page 28...
Last revised: May 24, 2016
Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. 1-28
Exercise 1-21 (25 minutes)
Mailin Moon– Freelance Writing
Income Statement
For Month Ended March 31, 2017
Revenues:
Freelance writing revenue $11,000
Operating expenses:
Salaries expense $ 1,450
Rent expense 1,400
Total operating expenses 2,850
Profit $8,150
Mailin Moon– Freelance Writing
Statement of Changes in Equity
For Month Ended March 31, 2017
Mailin Moon, capital, March 1 $ 0
Add: Investment by owner $5,500
Profit 8,150 13,650
Mailin Moon, capital, March 31 $13,650
Mailin Moon– Freelance Writing
Balance Sheet
March 31, 2017
Assets Liabilities
Cash $6,650 Accounts payable $ 600
Accounts receivable 4,500
Supplies 600
Equipment 2,500
Equity
Mailin Moon, capital 13,650
Total assets $14,250 Total liabilities and equity $14,250
Analysis component:
a. Supplies of $600 were financed by accounts payable, a liability.
b. Equipment of $2,500 was financed by owner investment, an equity transaction.
c. Cash of $6,650 and Accounts receivable of $4,500 were financed by an investment
by owner of $3,000 and profit of $8,150. Profit includes the equity transactions of
revenues and expenses (revenues of $11,000 less expenses of $2,850).
Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. 1-28
Exercise 1-21 (25 minutes)
Mailin Moon– Freelance Writing
Income Statement
For Month Ended March 31, 2017
Revenues:
Freelance writing revenue $11,000
Operating expenses:
Salaries expense $ 1,450
Rent expense 1,400
Total operating expenses 2,850
Profit $8,150
Mailin Moon– Freelance Writing
Statement of Changes in Equity
For Month Ended March 31, 2017
Mailin Moon, capital, March 1 $ 0
Add: Investment by owner $5,500
Profit 8,150 13,650
Mailin Moon, capital, March 31 $13,650
Mailin Moon– Freelance Writing
Balance Sheet
March 31, 2017
Assets Liabilities
Cash $6,650 Accounts payable $ 600
Accounts receivable 4,500
Supplies 600
Equipment 2,500
Equity
Mailin Moon, capital 13,650
Total assets $14,250 Total liabilities and equity $14,250
Analysis component:
a. Supplies of $600 were financed by accounts payable, a liability.
b. Equipment of $2,500 was financed by owner investment, an equity transaction.
c. Cash of $6,650 and Accounts receivable of $4,500 were financed by an investment
by owner of $3,000 and profit of $8,150. Profit includes the equity transactions of
revenues and expenses (revenues of $11,000 less expenses of $2,850).
Loading page 29...
Last revised: May 24, 2016
Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. 1-29
Exercise 1-22 (20 minutes)
Assets = Liabilities + Equity Explanation
of Equity
Transaction
Cash +
Accounts
Receivable + Supplie
s
+ Equipment =
Accounts
Payable +
Omar Ali
a) + $4,300 +$15,000 +$19,300
Owner
Investment
b) +$1,600 +$1,600
c) +$950 +$950
d)*
e) +$550 +$550 Revenue
f) +$600 +$600 Revenue
g) -$200 -$200
h) -$250 -$250 Adv.
Expense
i) +$600 -$600
Totals $4,450 + $550 + $2,550 + $15,000 = $2,350 + $20,200
$22,550 = $22,550
*Note: For (d), since no exchange has occurred, no entry is required.
Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. 1-29
Exercise 1-22 (20 minutes)
Assets = Liabilities + Equity Explanation
of Equity
Transaction
Cash +
Accounts
Receivable + Supplie
s
+ Equipment =
Accounts
Payable +
Omar Ali
a) + $4,300 +$15,000 +$19,300
Owner
Investment
b) +$1,600 +$1,600
c) +$950 +$950
d)*
e) +$550 +$550 Revenue
f) +$600 +$600 Revenue
g) -$200 -$200
h) -$250 -$250 Adv.
Expense
i) +$600 -$600
Totals $4,450 + $550 + $2,550 + $15,000 = $2,350 + $20,200
$22,550 = $22,550
*Note: For (d), since no exchange has occurred, no entry is required.
Loading page 30...
Last revised: May 24, 2016
Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. 1-30
Exercise 1-23 (25 minutes)
Omar’s Yard Care
Income Statement
For Month Ended March 31, 2017
Revenues:
Yard care revenue $1,150
Operating expenses:
Advertising expense 250
Profit $ 900
Omar’s Yard Care
Statement of Changes in Equity
For Month Ended March 31, 2017
Omar Ali, capital, March 1 $ 0
Add: Investment by owner $19,300
Profit 900 20,200
Omar Ali, capital, March 31 $20,200
Omar’s Yard Care
Balance Sheet
March 31, 2017
Assets Liabilities
Cash $ 4,450 Accounts payable $ 2,350
Accounts receivable 550
Supplies 2,550
Equipment 15,000
Equity
Omar Ali, capital 20,200
Total assets $22,550 Total liabilities and equity $22,550
Analysis component:
The $900 of profit does not represent cash because all of the revenues ($550 + $600 =
$1,150) were on account. The $250 of advertising expense was paid in cash. The profit
(loss) on an income statement represents the profit (loss) that was actually earned which
is not necessarily going to agree to the profit (loss) actually received in cash. This is in
accordance with the revenue recognition principle which says that revenues (and also
expenses) are recorded at the time earned (or expensed in the case of expenses)
regardless of whether cash has been exchanged.
Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. 1-30
Exercise 1-23 (25 minutes)
Omar’s Yard Care
Income Statement
For Month Ended March 31, 2017
Revenues:
Yard care revenue $1,150
Operating expenses:
Advertising expense 250
Profit $ 900
Omar’s Yard Care
Statement of Changes in Equity
For Month Ended March 31, 2017
Omar Ali, capital, March 1 $ 0
Add: Investment by owner $19,300
Profit 900 20,200
Omar Ali, capital, March 31 $20,200
Omar’s Yard Care
Balance Sheet
March 31, 2017
Assets Liabilities
Cash $ 4,450 Accounts payable $ 2,350
Accounts receivable 550
Supplies 2,550
Equipment 15,000
Equity
Omar Ali, capital 20,200
Total assets $22,550 Total liabilities and equity $22,550
Analysis component:
The $900 of profit does not represent cash because all of the revenues ($550 + $600 =
$1,150) were on account. The $250 of advertising expense was paid in cash. The profit
(loss) on an income statement represents the profit (loss) that was actually earned which
is not necessarily going to agree to the profit (loss) actually received in cash. This is in
accordance with the revenue recognition principle which says that revenues (and also
expenses) are recorded at the time earned (or expensed in the case of expenses)
regardless of whether cash has been exchanged.
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Subject
Accounting