Questions and Answers of Understanding Financial Accounting

Suppose that your company sells appliances to customers under sales contracts that allows them to pay for the appliance in monthly payments over one year. Credit checks are performed at the time of
The following information was taken from Egeland Ltd.’s adjusted trial balance as at July 31, 2020:Sales revenue..................................................$2,788,800Interest expense
Cartier Custom Homes Inc. manufactures and sells pre-fab homes. These homes are manufactured in a controlled environment to ensure a consistent and higher quality, which results in greater customer
The following account balances are taken from Ballistik Ltd.’s adjusted trial balance at January 31, 2020:Requireda. Prepare a single-step statement of income for the year ended January 31, 2020.b.
You have been provided with the following account balances for Broiler Ltd. for the years ended September 30, 2020, and 2021:Requireda. Prepare a multi-step comparative statement of income for
The statement of income for J. T. Stone Manufacturing Inc. for the years 2020 to 2022 is below.RequiredDetermine the missing amounts. J. T. Stone Manufacturing Inc. Statement of Income For the year
Kohlrabi Electronics Ltd. operates an online electronics business selling hardware and software. Customers confirm the goods ordered and pay for their purchase before Kohlrabi ships the merchandise
Millionaire Ride Ltd. operates an online booking service for luxury car rentals around the world. Users of the company’s website booked luxury cars totalling $8.4 million in 2020. Bookings are
Sound Sleeper Ltd. manufactures and sells mattresses to retailers across Canada. In 2020, Sound Sleeper signed a two-year contract with Zzz Ltd. to supply it with 40,000 mattresses at a price of $100
Gourmand Dinner Box Inc. is a catering company that sells meal kits that its customers can take home and quickly prepare. The company sells its meal kits at local grocery stores and has recently
ADM Ltd. is a public company that manufactures and sells satellite systems and provides support services. ADM’s customers can purchase satellites or support services separately, but the company
Derby Transportation Inc. designs and builds trains for rail networks across Canada. The company, which is publicly traded, has an October 31 year end. On March 15, 2020, Derby Transportation signed
The following are independent situations.1. You bought a printer from Best Buy’s online site and paid with your credit card on June 14, 2020. The printer was delivered on June 18. You paid the
The following information was taken from Riddell Ltd.’s adjusted trial balance as at April 30, 2020:Sales revenue.................................................................$1,045,800Interest
Navaria Inc. manufactures and sells chair lift mobility aids. These are chairlift systems designed for in home use to aid persons with mobility challenges. The company sells its systems online and
The following account balances are taken from Sherwood Ltd.’s adjusted trial balance at June 30, 2020:Requireda. Prepare a single-step statement of income for the year ended June 30, 2020.b.
You have been provided with the following account balances for Webber Ltd. for the years ended November 30, 2020, and 2021:Requireda. Prepare a multi-step, comparative statement of income for Webber
Kabili Bites Ltd. operates a chain of restaurants across Canada. Most of the company’s business is from customers who enjoy in-restaurant lunches and dinners and pay before they leave. The company
The statement of income for DiTuri Manufacturing Inc. for the years 2018 to 2020 is presented below.RequiredCalculate the missing amounts on the statement of income. DITURI MANUFACTURING INC.
Beach Life Ltd. operates an online booking service restricted to beachfront properties around the world. Users of the company’s website booked beach rentals totalling $7.8 million in 2020. Bookings
GoWeb IT Inc. is a public company that manufactures and sells IT systems and also provides IT training and support. GoWeb’s customers can purchase IT system hardware or support services separately,
Cool-IT Ltd. manufactures and sells air conditioning equipment to retailers across North America. In 2020, Cool-IT signed a two-year contract with BigMart Ltd. to supply it with 60,000 units at a
Chow Publications Inc. is a publicly traded media company focused on products for the home chef market. The company publishes a monthly magazine that can be purchased at newsstands and is available
TreeHold Corp. designs and builds custom harvesting equipment for logging companies across Canada. The company, which is publicly traded, has a May 31 year end. On February 18, 2020, TreeHold signed
The following are independent situations.1. The insurance policy on your car starts February 1, 2020, and covers one year. You paid the insurance company $1,800 on January 28, 2020.2. Porter Airlines
Explain the difference between the consignor and consignee in a consignment arrangement. When would each recognize revenue?
Explain the difference between assurance and service warranties, and how they affect the recognition of revenue under the contract-based approach.
If a company provides customers with the right to return goods, explain how this impacts the recognition of revenue under the contract-based approach.
Explain what sales discounts are and how they are accounted for under the contract-based approach to revenue recognition.
Describe the accounting treatment for a deposit made by a customer for the future delivery of goods. Refer to the five-step model in your explanation.
Explain what is meant by stand-alone selling price and how it is determined.
Explain when revenue should be recognized from the provision of services under the contract-based approach.
Explain the meaning of “performance obligation.”
Explain what is meant if a company’s net contract position has increased.
Explain, in your own words, each of the five steps used to determine when and how much revenue should be recognized under the contract-based approach.
Identify and explain the difference between the contract-based and earnings-based approaches to revenue recognition.
You have been retained by Downunder Company to straighten out its accounting records. The company’s trusted accountant for the past 25 years suddenly retired to a tropical island in the South
In the middle of January 2021, Mark Mbeke, the owner of Mbeke’s Hardware Store, decided to expand the business by buying out a local lumberyard. To finance the purchase, Mark had to obtain
Shirley Sze incorporated Shirley’s Snack Shop on April 30, 2020, by investing $5,000 in cash. The following is a summary of the other events affecting the business during its first eight months of
Samir Sarkov incorporated Sentry Security Services and began operations on January 1, 2020. After a busy year, Samir thinks his business has done well, at least in terms of the volume of work done.
Big Rock Brewery Inc. is a regional producer of premium craft beers and cider, which are sold across Canada. Exhibit 3.32 contains an excerpt from the company’s consolidated financial statements
North West Company Inc. is a leading retailer to underserved rural communities and urban markets in Northern and Western Canada and internationally. Its stores off er a broad range of products and
High Liner Foods Inc. operates in the North American packaged foods industry and primarily processes and markets frozen seafood and distributes products to retail and food service customers. Exhibit
Indigo Books & Music Inc. is Canada’s largest book, gift, and specialty toy retailer. Exhibits 3.28 and 3.29 contain excerpts from the company’s consolidated financial statements dated April
You are working with other students analyzing a set of fi nancial statements as part of a group project.One of your classmates states the following:“I think there is a problem with the company’s
You are studying with some classmates and are reviewing each other’s responses to the following question:“Explain why closing entries are made. What are the two objectives that are accomplished
You are studying with some classmates and are reviewing each other’s responses to the following question:“Explain why closing entries are made. What are the two objectives that are accomplished
While preparing for an upcoming exam, you are studying with some classmates when one of them asks the following:“Am I correct that revenue and expense accounts are temporary extensions of retained
You are studying with some classmates and are reviewing each other’s responses to the following question:“How does the debit and credit system work?”Your classmate responds as follows:“Assets
A friend came to ask you a question about accounting for a small business she started at the beginning of the year. She said that her accounting software had a “closing entry” option. She was
Assume that you are part of a commercial lending team for a bank. As part of the loan terms, one of the bank’s clients must submit monthly financial statements for review. The client has just
One of your friends, who is also a classmate, came to you and asked the following:“I’m confused about the terms deferral and accrual. For me, it is easiest to think about how the receipt of cash
One of your friends, who is also a classmate, came to you in the library and asked you the following question:“I don’t understand why I need to make two journal entries to record the sale of
One of your friends, who is a small business owner, knows you are taking introductory accounting and asked you the following question:“I am looking for a new accountant to do my books and taxes.
One of your friends, who is a small business owner, knows you are taking introductory accounting and asked you the following question:“If my trial balance is in balance, can I conclude that my
One of your friends, who is also a classmate, came to you in the library and asked if you can explain the concept of normal balances to her. She was busy on social media during the part of the class
You have been asked to give a brief presentation to members of your local chamber of commerce regarding the importance of the chart of accounts in relation to managing their business.RequiredPrepare
Your assistant prepared the following adjusted trial balance data for Commerce Company on December 31, 2020. The accounts are arranged in alphabetical order.Requireda. Calculate the net income for
Eric Shehan is a student working on an internship at Mahon Ltd. On December 31, 2020, the company had its year end. Eric’s boss brought him the following information:These account amounts are
West Coast Recycling Ltd. (WRCL) is a Nanaimo, British Columbia-based company specializing in the collection and reprocessing of glass and plastic drinking containers. The company also has a retail
Evergreen Retail Company, whose fiscal year end is December 31, had the following transactions in its first year of operations:1. Issued common shares for $65,000 cash on January 1, 2020.2. Borrowed
A. J. Smith Company started business on January 1, 2020, and the following transactions occurred in its first year:1. On January 1, the company issued 12,000 common shares at $25 per share.2. On
Sofia Wholesale Ltd. was incorporated on January 1, 2020. The following transactions occurred in 2020:1. On January 1, the company issued 100,000 common shares for $3 per share.2. On January 2, the
Presented below are the balances from Zoë Developments Ltd.’s general ledger as at January 31, 2020:Requireda. Prepare the necessary closing entries for Zoë Developments at January 31.b.
Aquarium World Ltd. (AWL) was incorporated in 2017 and imports fish tanks and related supplies for the saltwater aquarium market. AWL primarily imports from Asian suppliers and is a wholesaler
The following trial balance before adjustments is for Snowcrest Ltd. on December 31, 2020:Data for adjusting entries:1. As at December 31, 2020, 80% of the wages that had been paid in advance to the
Le Petit Croissant Ltd. (LPC) is a wholesale bakery that supplies flash frozen croissants to restaurants, hotels, and other commercial customers. LPC began operating in August 2020 and had the
Sparkling Clean Dry Cleaners Inc. began operations on January 1, 2020. In its first year, the following transactions occurred:1. Issued common shares for $150,000 cash.2. Purchased dry cleaning
For each of the following transactions, prepare journal entries:a. The company issued common shares for $150,000.b. The company borrowed $75,000 from a bank.c. Inventory costing $47,200 was purchased
For each of the following accounts, identify what type of account it is and state whether it is a temporary or permanent account. Use the following abbreviations for account type (A – Asset, L –
For each of the following accounts, identify what type of account it is and state what its normal balance would be. Use the following abbreviations for account type (A – Asset, L – Liability, SE
For each of the following accounts, identify what type of account it is and state what its normal balance would be. Use the following abbreviations for account type (A – Asset, L – Liability, SE
Jake Fromowitz owns and operates a tire and auto repair shop named Jake’s Jack’em and Fix’em Shop. During the current month, the following activities occurred:1. The shop charged $8,500 for
Little Lads and Ladies Ltd. sells children’s clothing. At the end of December 2020, it had the following adjusted account balances, which are listed in random order:Requireda. Identify the
On December 31, 2020, Information Inc. completed its third year of operations. Abdul Mukhtar is a student working part-time in the company’s business office while taking his first accounting
Perfect Pizza had the following account balances at December 31, 2019:During 2020, the following transactions occurred:1. Purchases of ingredients and supplies (inventory) were $230,000, all on
On December 31, 2019, Clean and White Linen Supplies Ltd. had the following account balances:In 2020, the following transactions occurred:1. On January 1, paid $3,900 for a three-year fire insurance
Hughes Tools Company started business on October 1, 2019. Its fiscal year runs through to September 30 the following year. The following transactions occurred in the fiscal year that started on
Singh Company started business on January 1, 2020. The following transactions occurred in 2020:1. On January 1, the company issued 10,000 common shares for $250,000.2. On January 2, the company
Presented below are the balances from Elsie’s Electronics Ltd.’s general ledger as at September 30, 2020:Requireda. Prepare the necessary closing entries for Elsie’s Electronics at September
The trial balance for Cozy Fireplaces Inc. for December 31, 2020, follows:Additional information for adjusting entries:1. The deposits from customers were for future deliveries. As at December 31,
Off copy Ltd. (OL) is an office supply company that also sells and services commercial office copiers. OL was founded in 2016 and has seen significant growth since then. OL’s bookkeeper retired in
Sweet Dreams Chocolatiers Ltd. began operations on January 1, 2020. During its first year, the following transactions occurred:1. Issued common shares for $200,000 cash.2. Purchased $475,000 of
Chapati Company started business on January 1, 2020. Some of the events that occurred in its first year of operations follow:Transactions1. An insurance policy was purchased on February 28 for
For each of the following accounts, identify what type of account it is and state whether it is a temporary or permanent account. Use the following abbreviations for account type (A – Asset, L –
For each of the following accounts, identify what type of account it is and state what its normal balance would be. Use the following abbreviations for account type (A – Asset, L – Liability, SE
For each of the following accounts, identify what type of account it is and state what its normal balance would be. Use the following abbreviations for account type (A – Asset, L – Liability, SE
Discuss why one company might prepare adjusting journal entries and financial statements monthly and another might do so on a quarterly basis. Do companies close their books after preparing
Explain which types of accounts are considered to be temporary and why this is the case.
Explain the purpose of the Income Summary account. Why is it used in the closing entry process?
Explain why adjusting entries are needed, and identify two key things that should be kept in mind when preparing them.
Explain the difference between deferred revenue and accrued revenue. Provide an example of each.
Explain what you know about a company if the retained earnings account balance has a credit balance at the beginning of the year.
Explain the purpose of the general ledger. Why is it necessary if all transactions have already been recorded in the general journal?
Indicate the type of account (asset, contra-asset, liability, shareholders’ equity, revenue, expense, or dividends declared) and whether it normally has a debit balance or a credit balance:a.
Indicate the type of account (asset, liability, shareholders’ equity, revenue, expense, or dividends declared) and whether it normally has a debit balance or a credit balance:a. Sales Revenueb.
In general terms, explain the purpose of the statement of income and the statement of financial position. Outline the type of information that each statement presents, and explain the basic
Mega Manufacturing has calculated the following financial ratios, based on the company’s comparative financial statements for 2020 and 2019:RequiredBriefly explain what each ratio indicates, and
Excerpts from the 2016 financial statements of Gildan Activewear Inc. are in Exhibits 1.30A to 1.30C. In the questions below, the year 2016 refers to Gildan’s fiscal year ended January 1, 2017,
The major financial statements of Ten Peaks Coffee Company Inc. from its 2016 annual report are included in Exhibits 1.29A to 1.29C. Note that its fiscal year end is December 31, 2016. EXHIBIT

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