Solution Manual for Principles of Financial Accounting, Canadian Edition

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Weygandt, Kieso, Kimmel, Trenholm, Kinnear, Barlow, Atkins: Principles of Financial Accounting, Canadian EditionSolutions Manual1-1Chapter 1CHAPTER 1Accounting in ActionASSIGNMENT CLASSIFICATION TABLEStudy ObjectivesQuestionsBriefExercisesExercisesProblemsSet A1. Identify the use andusers of accountingand the objective offinancial reporting.1, 2, 3,4,51, 21, 312. Compare differentforms of businessorganizations andexplain how Canadianaccounting standardsapply to theseorganizations.6, 7, 83, 4, 102, 3, 72, 53. Describe thecomponents of thefinancial statementsandexplain theaccounting equation.9, 10, 11,12, 135, 6, 7, 8,9, 12, 14,153, 4, 5, 63, 4, 6,74. Determine what eventsare recognized in thefinancial statementsand how the eventsare measured.14, 15107, 85,7, 85. Analyze the effects ofbusiness transactionson the accountingequation.16, 1711, 12,13, 149, 10, 11,126, 7, 86. Prepare financialstatements.18, 1915, 1617, 18, 1913, 14,15, 167, 8, 9,10

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Weygandt, Kieso, Kimmel, Trenholm, Kinnear, Barlow, Atkins: Principles of Financial Accounting, Canadian EditionSolutions Manual1-2Chapter 1ASSIGNMENT CHARACTERISTICS TABLEProblemNumberDescriptionDifficultyLevelTimeAllotted (min.)1AIdentifyusers and use of accounting information.Simple15-202ADetermine forms of business organizationandtypes of accounting standards.Simple15-203ADetermine missing items.Moderate20-254AClassify accounts and prepare accountingequation.Simple20-305AAssess accounting treatment.Moderate20-256AAnalyze transactions and calculate owner’s equity.Simple35-457AAnalyze transactions and prepare balance sheet.Simple40-508AAnalyze transactions and prepare financialstatements.Moderate40-509APrepare financial statements.Simple35-4510ADetermine missing amounts,and comment.Moderate35-45

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Weygandt, Kieso, Kimmel, Trenholm, Kinnear, Barlow, Atkins: Principles of Financial Accounting, Canadian EditionSolutions Manual1-3Chapter 1BLOOM’S TAXONOMY TABLECorrelation Chartbetween Bloom’s Taxonomy, Study Objectives and End-of-Chapter MaterialStudy ObjectiveKnowledgeComprehensionApplicationAnalysisSynthesisEvaluation1.Identify the use andusers ofaccountingand the objective offinancial reporting.Q1-4BE1-1E1-3Q1-1Q1-2Q1-3Q1-5E1-1BE1-2P1-1A2.Compare differentforms of businessorganizations andexplain howCanadianaccountingstandards apply tothese organizations.Q1-8E1-3Q1-6Q1-7BE1-3BE1-4BE1-10E1-2E1-7P1-5AP1-2A3.Describe thecomponents of thefinancial statementsand explain theaccounting equation.Q1-9Q1-10Q1-11Q1-12Q1-13E1-3BE1-5E1-6BE1-6BE1-7BE1-8BE1-9BE1-14BE1-15E1-4E1-5P1-3AP1-4AP1-6AP1-7ABE1-24.Determine whatevents arerecognized in thefinancial statementsand how the eventsare measured.Q1-14Q1-15BE1-10E1-7E1-8P1-5AP1-7AP1-8A5.Analyze the effectsof businesstransactions on theaccounting equation.Q1-16E1-9Q1-17BE1-11BE1-13BE1-14E1-10E1-11E1-12P1-6AP1-7AP1-8ABE1-12

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Weygandt, Kieso, Kimmel, Trenholm, Kinnear, Barlow, Atkins: Principles of Financial Accounting, Canadian EditionSolutions Manual1-4Chapter 1BLOOM’S TAXONOMY TABLE (Continued)Study ObjectiveKnowledgeComprehensionApplicationAnalysisSynthesisEvaluation6.Prepare financialstatements.Q1-18Q1-19BE1-15BE1-16BE1-17BE1-18BE1-19E1-13E1-14E1-15E1-16P1-7AP1-8AP1-9AP1-10ABroadening YourPerspectiveContinuingCookie ChronicleBYP1-1BYP1-2BYP1-3BYP1-4

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Weygandt, Kieso, Kimmel, Trenholm, Kinnear, Barlow, Atkins: Principles of Financial Accounting, Canadian EditionSolutions Manual1-5Chapter 1ANSWERS TO QUESTIONS1.Accountingisthefinancialinformationsystemthatprovidesusefulfinancialinformationtoeverypersonwhoownsanduseseconomicresources or otherwise engages in economic activity.2.Understanding the basics of accounting is helpful for everyone. Studyingaccounting allows you to learn how the world of business actually works.Learning how to read and interpret financial information will provide youwith a valuable set of skills.3.Internal users are those who plan, organize, and run businesses andinclude managers, supervisors, directors, and company officers. Externalusers work for other organizations but have reasons to be interested in thecompany’s financial position and performance,and includecurrentorpotentialinvestors (owners), and creditors.Internal usersmaywantanswerstoseveraltypesofquestions.Forexample,the finance department wants to know if thereisenough cash topay the bills. The marketing department wants to know what price thebusiness should use in selling its products to maximize profits. The humanresources department wants to knowhow many people the business canafford to hire. The production department wants toknowwhich productlinesmake the business the most profit.Externalusersmaywantanswertoseveraltypesofquestions.Forexample,investors want to know if the company is earning enough to givethem a return on their investment. Creditors want to know if the companyis able to pay its debts as they come due. Labour unions want to knowwhether the owners can afford to pay increased wages and benefits.Customers are interested in whether a company will continue to honour itsproduct warranties and support its product lines. Taxing authorities want toknow whether the company respects the tax laws. Regulatory agencieswant to know whether the company is respecting established rules.4.The main objective of financial reporting is to provideusefulinformationtoinvestorsandcreditors(externalusers)tomakedecisionsaboutabusiness.Usersmay be potential investors who need to decide if theywish to invest in the business or they may be creditors deciding if theywish to lend money to the business. These users want to know if thebusiness is runningsuccessfully and can generate cash and earn a profit.

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Weygandt, Kieso, Kimmel, Trenholm, Kinnear, Barlow, Atkins: Principles of Financial Accounting, Canadian EditionSolutions Manual1-6Chapter 1QUESTIONS (Continued)5.Ethics is a fundamental business concept. If accountants do not have ahigh ethical standard,the information they produce will not have anycredibility.Ethics are important to statement users becauseitprovidesthem comfortthat the financial information they are using iscredible and reliable.6.a)Aproprietorshipisaprivatebusinesswithoneownerwhohasunlimited liability for thebusiness. The proprietorship has a limited lifetied to the life of the owner.Proprietorships do not pay tax, the ownerdoes.b)Apartnershiphasessentiallythesamecharacteristicsasaproprietorship except thatin a partnership,there is more than oneowner.Apartnership need not be a private business, although itusually is.c)Forcorporations, the owners areone or moreshareholderswhoenjoy limited liability. The corporation pays income taxesandcanhavean indefinite livesinceits ownership units,in the form of shares,areeasily transferredto other owners.Public corporations issuepublicly traded shares. That is, their shares are listed on Canadianorotherstock exchanges.d)Private corporationshave essentially the same characteristics aspublic corporations exceptthat theydo not issue publicly tradedshares.

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Weygandt, Kieso, Kimmel, Trenholm, Kinnear, Barlow, Atkins: Principles of Financial Accounting, Canadian EditionSolutions Manual1-7Chapter 1QUESTIONS (Continued)7.The users of financial informationonpublic companies have differentneeds than the users of financial informationonprivate companies. Publiccorporationsneedthe opportunity to present financial information usingaccounting rulesthat are consistent withthose used globally. To do this,publiccompaniesneedtofollowInternationalFinancialReportingStandards (IFRS).Doing so helps Canadian companies compete in aglobal market.But following this set ofpoliciesand standardsisoftennotessentialor cost effective forprivately owned businesses.Theusersofprivate companyfinancial statements oftendo notrequire theextensivemeasurementsanddisclosuresrequiredbyIFRSandthusprivatecompanies may report under Accounting Standards for Private Enterprises(ASPE).Companies are required to disclose whichGenerally Accepted AccountingPrinciples(GAAP)theyarefollowinginthenotestotheirfinancialstatements.Thus users should read the notes in order to determine whichgenerally accepted accounting principles a business has followed.8.The economic entityconceptstates that economic events can be identifiedwith a particular unit of accountability. Thisconceptrequires that theactivities of the entity be kept separate and distinct from the activities of itsowners and all other economic entities.9.The basic accounting equation is Assets= Liabilities + Owner's Equity andthe expanded accounting equation isAssets = Liabilities + Owner'sCapital−Owner’s Drawings + Revenue−Expenses.The equation is the basis forrecording and summarizing all of the economic events and transactions ofa business.10.(a)Assetsareeconomicresources,owned by abusiness,thatarecapableof providing future services or benefits. Liabilities arecurrentobligations, arising from past events,to make future payments ofassets or services. Put more simply, liabilities are existing debts andobligations. Owner's equity is the ownership claim on the assets.(b)Revenues and investments by the owner increaseowner's equity.Drawingsand expensesdecrease owner’s equity.

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Weygandt, Kieso, Kimmel, Trenholm, Kinnear, Barlow, Atkins: Principles of Financial Accounting, Canadian EditionSolutions Manual1-8Chapter 1QUESTIONS (Continued)11.AccountsReceivablerepresentamountsowedtothebusinessbyitscustomers for services performed, but for which collection has not yetbeenreceived. Accounts Payable represent amounts owed by the business forservices or goods received, but for which payment has notyetbeen made.12.Revenues occur from providing services, selling merchandise inventory,renting property and lending money.Revenues increase profit.The resultof a business realizing revenue is an increaseinthe business’s assets ordecrease initsliabilities.Revenuesincrease owner’s equity.Expenses arecostsincurred to earn revenue. Expenses are the cost ofassets that areconsumed andservices that areusedby abusiness in its activities.Expensesdecrease profit.Expenses decreaseabusiness’sassetsorincreaseitsliabilities.Revenues minus expenses equals profit.13.The balance sheet depicts the accounting equation and so it reports theassets, liabilities and owner’s equity of a business at a point in time. Theincome statement is a summary of the results of thebusiness’s operatingactivitiesaimedtoincreaseprofit.Theincomestatementreportstherevenues and the expenses for a period in time.14.Wayneis incorrect. Not all eventsaretransactionsrecognized in theaccounting records.Only events that cause changes in assets, liabilities,or owner’s equityand can be reliably measured in monetary termsshouldbe recorded.For example, a business might sign a lease for a store.Although this event obligates the business for the payment of rentinthefuture, it is notyeta transaction as no assets havebeenexchanged by thebusiness and its landlord.Another example is when an employee is hired.Notransactionhasoccurred,andnothingwillberecordeduntiltheemployee has started working and earning wages.15.The monetary unit assumption requires that only transaction data capableof being expressed in terms of money can be included in the accountingrecords of the economic entity. As a result, information that cannot beobjectively measured in dollars cannot be included. For example, a skilledmanager may add value to a company, but since that skill cannot beobjectively measured in dollars, it is not included as an asset of thecompany. Another important part of the monetary unit assumption is thatthe unit of measure remains sufficiently constant over time. In other words,inflation is ignored.

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Weygandt, Kieso, Kimmel, Trenholm, Kinnear, Barlow, Atkins: Principles of Financial Accounting, Canadian EditionSolutions Manual1-9Chapter 1QUESTIONS (Continued)16.Yes, a business can enter into a transaction in which only the left side ofthe accounting equation is affected. An example would be a transactionwhere an increase in one asset is offset by a decrease in another asset,such as when equipment is purchased for cash (resulting in an increase inthe equipment account which is offset by a decrease in the cash account).17.No, this treatment is not proper. While the transaction does involve adisbursement of cash, it does not representanexpense. Expenses aredecreasesin owner's equity resulting from business activities entered intofor the purpose of earningprofit. This transaction is a withdrawal of capitalfrom the business by the owner and should be recorded as a decrease inboth cash and owner’s equity.18.Yes.Profitdoesappearontheincomestatement—it is the result ofsubtracting expenses from revenues. In addition,profitappears in thestatement of owner's equity—it is shown as an addition to the beginning-of-period capital. Indirectly, theprofitof a company is also included in thebalance sheet, as it is included in the capital account, which appears in theowner's equity section of the balance sheet.19.It is likely that the use of rounded figures would not change the decisionsmade by the users of the financial statements. As well, presenting theinformationinthismannermakethestatementseasiertoreadandanalyze,thereby increasing theirusefulnessto the users.

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Weygandt, Kieso, Kimmel, Trenholm, Kinnear, Barlow, Atkins: Principles of Financial Accounting, Canadian EditionSolutions Manual1-10Chapter 1SOLUTIONS TOBRIEF EXERCISESBRIEF EXERCISE 1-1(a)(b)Kind ofInternal orUserDecisionExternal UserOwner4InternalMarketing manager3InternalCreditor2ExternalChief financial officer5InternalLabour union1ExternalBRIEF EXERCISE 1-2a.Thestudent is provided with the opportunity to cheat onan exam.b.A production supervisor might become aware of a defectin a company’s product that is ready to shipbut his/herbonus is based on volume of shipments.c.A salesperson might be provided with the opportunity tonot report cash salesand pocket the cash instead.d.A bankeris ableto approve a loan foranunqualifiedfamily member.e.TheprimeministerofCanadainterferesinapoliticalinquiry of a politicalfriend.BRIEF EXERCISE 1-3(a)P(b)C(c)PP

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Weygandt, Kieso, Kimmel, Trenholm, Kinnear, Barlow, Atkins: Principles of Financial Accounting, Canadian EditionSolutions Manual1-11Chapter 1BRIEF EXERCISE 1-4(a)F(b)F(c)F(d)T(e)TBRIEF EXERCISE 1-5Balance Sheet orComponentIncome Statement(a)RevenuesIncome Statement(b)AssetsBalance Sheet(c)Owner’s EquityBalance Sheet(d)LiabilitiesBalance Sheet(e)ExpensesIncome StatementBRIEF EXERCISE 1-6(a)$75,000−$24,000 = $51,000 (Owner's Equity)(b)$150,000 + $91,000 = $241,000 (Assets)(c)$89,000−$52,000 = $37,000 (Liabilities)

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Weygandt, Kieso, Kimmel, Trenholm, Kinnear, Barlow, Atkins: Principles of Financial Accounting, Canadian EditionSolutions Manual1-12Chapter 1BRIEF EXERCISE 1-7(a)$600,000 − ($600,000×⅓) = $400,000 (Liabilities)(b)$280,000 + $130,000 − $40,000 + $440,000 − $330,000= $480,000 (Total assets)(c)$90,000−($35,000−$7,000 + $55,000−$45,000)= $52,000 (Total liabilities)BRIEF EXERCISE 1-8Assets =Liabilities + Owner’s Equity$850,000 = $550,000 + XOwner’s Equity = Assets−Liabilities$300,000 = $850,000−$550,000(a)($850,000 + $130,000)−($550,000−$80,000)= $510,000(Owner's equity)(b)($550,000−$95,000) + ($300,000−$40,000 + $100,000)= $815,000(Assets)(c)($850,000 + $100,000)−($300,000 + $185,000−$50,000)= $515,000(Liabilities)(d)($850,000 +$45,000)−($550,000−$50,000)=$395,000ending balanceOwner’sequity$395,000+ $40,000−$300,000 = $135,000 Profit

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Weygandt, Kieso, Kimmel, Trenholm, Kinnear, Barlow, Atkins: Principles of Financial Accounting, Canadian EditionSolutions Manual1-13Chapter 1BRIEF EXERCISE 1-9(a)(b)1.Accounts receivableABS2.SalariespayableLBS3.SalariesexpenseSOEIS4.SuppliesABS5.Supplies expenseSOEIS6.S. Knoler, capitalSOESOE & BS7.Service revenueSOEIS8.EquimentABS9.NotespayableLBS10.CashABS11.Prepaid expenseABS12.S. Knoler, drawingsSOESOEBRIEF EXERCISE 1-10(a)5.Monetary unit assumption(b)1.Costprinciple(c)4.Economic entity assumption(d)2.Generally accepted accounting principles(e)3.Going concern assumption

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Weygandt, Kieso, Kimmel, Trenholm, Kinnear, Barlow, Atkins: Principles of Financial Accounting, Canadian EditionSolutions Manual1-14Chapter 1BRIEF EXERCISE 1-11Trans-actionAssetsLiabilitiesOwner's EquityCapitalDrawingsRevenuesExpenses(a)+$250+$250NENENENE(b)+500NENENE+$500NE(c)–300NENENENE–$300(d)–250–250NENENENE(e)+1,000NE+$1,000NENENE(f)–400NENE–$400NENE(g)NENENENENENE(h)+500 /–500NENENENENE(i)+450+450NENENENEBRIEF EXERCISE 1-12Expenses only1, 4Drawings only2Both (intersection of Venn diagram)3, 5BRIEF EXERCISE 1-13DescriptionTransaction Analysis(a)Cash collected on account.6(b)Owner invests cash in the business.1(c)Supplies are purchased onaccount.3(d)Company provides service on account.4(e)Payment on account made to supplier.5(f)Company purchases an insurance policy.

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Weygandt, Kieso, Kimmel, Trenholm, Kinnear, Barlow, Atkins: Principles of Financial Accounting, Canadian EditionSolutions Manual1-15Chapter 1BRIEF EXERCISE 1-14E(a)Cost incurred for advertisingR(b)Commission earningsI(c)Equipment received from company ownerE(d)Amounts paid to employeesNE(e)Cash paid to purchase equipmentR(f)Services performed on accountR(g)Rent receivedE(h)Utilities incurredD(i)Cashwithdrawn bycompany ownerNE(j)Collection of an account receivableNE(k)Cash collected in advance of providing serviceBRIEF EXERCISE 1-15(a)$68,000−$25,000−$50,000 = drawings $7,000(b)$65,000+$33,000−$68,000 =profit$30,000(c)$65,000 Ending balance 2014= Opening balance 2015(d)$65,000 + $20,000 + 17,000−$12,000 = $90,000

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