Questions and Answers of Financial Accounting Tools For Business

AP Randal Inc.'s balance sheet, dated October 28, 2025, includes the following liabilities and stockholders' equity items (in millions).Instructions Prepare the liabilities and stockholders' equity
Suppose the following information is available for Callaway Golf Company for the years 2025 and 2024. (Dollars are in thousands, except share information.)There were 73,139,000 shares of common stock
These financial statement items are for Fairview Corporation at year-end, July 31, 2025.Instructionsa. Prepare an income statement and a retained earnings statement for the year. Fairview Corporation
The chief financial officer (CFO) of Myeneke Corporation requested that the accounting department prepare a preliminary balance sheet on December 30, 2025, so that the CFO could get an idea of how
Condensed statement of financial position and comprehensive income statement data for Clack Ltd. follow:
Condensed statement of financial position and income statement data for Pitka Corporation follow:
Which ratio(s) should be used to help answer each of these questions?(a) How efficient is the company in using its assets to produce sales?(b) How near to sale is the inventory on hand?(c) How
(a) Distinguish among the following bases of comparison: intracompany, intercompany, and industry average. (b) Explain which analysis technique(s)—horizontal analysis, vertical analysis, or ratio
Two methods of financial statement analysis are horizontal analysis and vertical analysis. Explain how these two methods are similar, and how they differ.
The comparative statement of financial position for Dagenais Retailers Ltd. follows:
Jain Corporation reported net cash provided by operating activities of $325,000, net cash used by investing activities of $250,000, and net cash provided by financing activities of $70,000. In
Give examples of cash-and accrual-based ratios that measure (a) liquidity, and (b) solvency.
Why and how is depreciation and amortization expense reported in the operating activities section of a statement of cash flows prepared using the indirect method?
Goh Corporation changed its method of reporting operating activities from the indirect method to the direct method in order to make its statement of cash flows more informative to its readers. Will
What is a statement of cash flows and why is it useful?
What is the difference between realized gains/ losses and unrealized gains/losses?
Hampton Corporation’s statement of financial position at December 31, 2014, is presented below.
What conditions must be met before a cash dividend can be paid?
For each of the following independent situations, indicate whether it should be recorded as a provision or disclosed as a contingent liability for a publicly traded company reporting under IFRS.
Clear Images Ltd. has been in operation for several years. It purchases, customizes, and sells studio sets for its clients. The company’s post-closing trial balance at July 31, 2015, the end of its
Two brewing companies that compete against each other are Northern Ale Ltd. (NAL) and Brew Right Inc. (BRI). The industry is experiencing a slump and each company has undertaken a different strategy
Delicious Limited competes in the fast food industry with Scrumptious Limited. Delicious embarked on a major expansion in 2015, borrowing a large amount of money and acquiring a small competitor. The
The Second Cup Limited and Starbucks Corporation reported the following information in 2012:
Give an example of an industry that would be characterized by (a) a high asset turnover and low profit margin, and (b) a low asset turnover and high profit margin.
Contrast the effects of the three depreciation methods on (1) depreciation expense, (2) profit, (3) accumulated depreciation, and (4) carrying amount in each of the following: (a) the early years of
Contrast the effects of the three depreciation methods on (1) depreciation expense, (2) profit, (3) accumulated depreciation, and (4) carrying amount in each of the following: (a) the early years of
Shown below are the T accounts relating to equipment that was purchased for cash by a company on the first day of the current year. The equipment was depreciated on a straight-line basis with an
Gildan Activewear Inc. reported the following selected financial information (all in U.S. $ millions): net sales of $1,948 in 2012, $1,726 in 2011, and $1,311 in 2010. The company also reported a
Indicate whether each of the following items should be recorded as property, plant, and equipment (PP&E) or an intangible asset (I) on the statement of financial position. If the asset does not
The following ratios are for Lin Inc. Instructions(a) Is Lin’s short-term liquidity
Refer to E8–7 for information about the note between Passara Supply Corp. and Wright, Inc. Round calculations to the nearest dollar.InstructionsRecord the transactions related to the note on
Using the information provided in BE8–11 above, prepare the journal entries that Red River Enterprises will record regarding the issue of the note and the purchase of the merchandise inventory. Red
At the end of 2014, Searcy Corp. has accounts receivable of $600,000 and an allowance for doubtful accounts of $36,000. On January 24, 2015, Searcy learns that its $8,000 receivable from Hutley Inc.
Presented below are several receivables transactions. For each transaction, indicate whether the receivables should be reported as accounts receivable, notes receivable, or other receivables on a
What is the difference between honouring a note receivable at maturity and dishonouring a note at maturity?
The “All About You” feature in this chapter helped you understand the importance of knowing the cost of your education and planning for the amount of debt you are willing to take on. The Investor
Match each of the following control activities with its appropriate description.1. Authorization of transactions and activities2. Segregation of duties3. Documentation4. Physical controls5.
In the corner grocery store, all the clerks make change out of the same cash register drawer. Is this a violation of an internal control activity? Explain.
Identify and describe the five primary components of a good internal control system.
In the “All About You” feature in this chapter, you learned about inventory control. Suppose, after graduating, that you accept a job as a manager for a retail store that sells high-end and
Tascon Corporation sells coffee beans, which are sensitive to price fluctuations. The following inventory information is available for this product at December 31, 2014:
Rita Pelzer was just hired as the assistant controller of Zaz Stores Ltd., a retail company. Among other things, the payment of all invoices is centralized in one of the departments Rita will manage.
Phantom Book Warehouse Ltd. distributes hardcover books to retail stores. At the end of May, Phantom’s inventory consists of 175 books purchased at $18 each. Phantom uses a perpetual inventory
In 2015, Modder Corporation reported net sales of $250,000, cost of goods sold of $137,500, operating expenses of $50,000, and income tax expense of $20,000. In 2014, it reported net sales of
Explain where each of the following items would appear on (a) a single-step income statement and (b) a multiple-step income statement where expenses are classified by nature: depreciation expense,
Which type of income statement—single-step or multiple-step—does Shoppers Drug Mart use? You can find its financial statements in Appendix A at the back of this textbook.
The following independent events for New Age Theatre Ltd. during the year ended November 30, 2015, require a journal entry or an adjusting journal entry, or both. The company adjusts its accounts
Zheng Corporation had the following selected transactions in the month of March. The company adjusts its accounts monthly.1. Th e company has an 8%, $12,000 bank loan payable due in one year.
Greenock Limited has the following information available for accruals for the year ended December 31, 2015. The company adjusts its accounts annually.1. The December electric bill for $425 was
Action Quest Games Inc. adjusts its accounts annually. The following information is available for the year ended December 31, 2015:1. Purchased a one-year insurance policy on June 1, for $1,800
On April 1, Adventures Travel Agency, Inc. began operations. The following transactions were completed during the month:1. Issued common shares for $24,000 cash.2. Obtained a bank loan for $7,000.3.
Two students are discussing the use of a trial balance. They wonder whether the following errors, each considered separately, would prevent the trial balance from balancing. What would you tell the
What is an accounting information system? Describe some of the factors that may impact the design of a company’s information system.
The TD Bank has a price-earnings ratio of 12 times, while CIBC has a price-earnings ratio of 10 times. Which company do investors appear to favour?
Every company needs to plan in order to move forward. Its top management must consider where it wants the company to be in three to ve years. Like a company, you need to think about where you want to
The basic accounting equation is Assets = Liabilities 1+ Shareholders’ Equity. Replacing words with dollar amounts, what is Shoppers Drug Mart’s accounting equation at December 29, 2012?
Distinguish between internal and external users of accounting information.
What is accounting?
Commuter Rail Ltd., which follows IFRS, sells student rail passes for $160 for a fourmonth semester (January to April). Using the five-step model, determine the amount of revenue that Commuter Rail
NFI Group Inc. reported the following measures for 2018 and 2017:Is NFI’s solvency improving or deteriorating? Explain. Debt to total assets Times interest earned Free cash flow (in U.S. $
Under the direct method, what information is needed to calculate the amount of cash received from customers? What information is needed to calculate cash paid to suppliers?
Your uncle is considering buying a coffee shop in a small town. He is not worried about financing because he does not need to borrow money to buy this business. He is not worried about competition
A retired investor who buys common shares to earn dividend income rather than for price appreciation is about to buy the shares of Company A because its dividend yield is much higher than the yield
Identify the ratio(s) that should be used to help answer each of these questions:a. How efficient is the company in using its assets to produce sales?b. How near to sale is the inventory on hand?c.
Describe the direct method for determining net cash provided (used) by operating activities.
Many retailers have loyalty card programs that allow these companies to collect data about their customers. How could these data be used to improve the operating cash flows of these retailers?
If a company’s free cash flow has declined because of lower operating cash flows and management cannot find ways to improve operating cash flows, what cash flow–related steps might that company
In general, would you expect a growing, healthy company to report cash provided by or used by its operating, investing, and financing activities? Explain.
Explain why preparing the operating activities section using the indirect method is useful in understanding a company’s management of its noncash working capital.
Why and how is depreciation, depletion, and amortization expense reported in the operating activities section of a statement of cash flows prepared using the indirect method?
Explain how the statement of income, statement of comprehensive income, statement of changes in equity, and statement of financial position are interrelated.
Why are financial statements consolidated when an investor controls a subsidiary?
Explain how, and why, investment income differs when an investor accounts for a strategic long-term equity investment using the (a) Cost model, (b) Equity method, and (c) Fair value
Identify and explain what an investor includes in the carrying amount of a strategic equity investment using the (a) Cost model,(b) Equity method, and (c) Fair value through profit or loss
If your company is planning to invest in a company that owns several hotels on Vancouver Island, what are some types of data not found in that company’s financial statements that you may want to
As the data that can be used to make investment decisions become more readily available, do you think that investment decisionmaking can be automated and not require human judgement? If so, what is a
What are three reasons why companies may choose to invest in debt and equity securities?
What conditions must be met before a cash dividend on a common share can be declared?
What is the difference between a rate reset preferred share and a fixed-rate preferred share? Which would be more attractive to investors if interest rates were forecast to rise over the long term?
Shown below are some equity transactions for Stefanek Ltd., a new company, which reports under IFRS.InstructionsFor each, state whether common shares, retained earnings, and cash flow will increase,
How can we calculate the price of a bond?
What causes a bond price to be lower or higher than its face value?
Explain how an operating line of credit can help a company’s liquidity and why it is considered more flexible than most other bank loans such as mortgages.
Distinguish between liquidity and solvency. Provide an example of two ratios that can be used to measure each and indicate whether an increase in each ratio from one year to the next would be
In general, what are the requirements for the financial statement presentation of (a) Current liabilities and (b) Non-current liabilities?
Identify two advantages and two disadvantages of debt financing.
A company has just received a mortgage from a bank to finance the purchase of a property. Since the mortgage agreement specifies a fixed rate of interest and the company can calculate the interest
Explain how a grocer like Sobeys might be able to use data from its loyalty card program to improve its cash flows from operating activities.
What criteria must be met before an uncertain liability can be recorded as a provision? What conditions are necessary to disclose only a contingent liability?
Why do companies record an employee benefits expense when processing payroll?
What are the three most common, mandatory deductions withheld from employee paycheques?
What information about non-current assets should be disclosed in the notes to the financial statements for a company reporting under IFRS? Under ASPE?
If a sports team sold season’s ticket packages to customers, what should the team record at the time of sale? What should the company record when the team plays one of its games? Should the company
Evergreen Inc. owns these assets at the statement of financial position date:a. What amount should be reported as cash and cash equivalents in the statement of financial position?b. For any item not
Why would a company use an operating line of credit?
In what way do research expenses differ from development costs?
Under IFRS, explain how a company will record leases extending beyond one year.
Explain if the use of data analytics to generate automatic phone calls or email notifications whenever a customer deviates from their normal payment patterns could increase a company’s net income,
What impact might the use of data analytics–informed credit decisions have on a company’s statement of income?
What does it mean if Allowance for Doubtful Accounts has a debit balance? What does this tell you about the accounts receivable, allowance for doubtful accounts, and bad debts expense in the

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