Questions and Answers of Understanding Financial Accounting

Petunia, the accountant for Bargain Ltd., is currently preparing the December 31, 2024, statement of financial position, and she asked you to help her classify the following liabilities:a. During
Game host Inc., a Calgary-based company, operates a number of hotels and casinos in Alberta. Exhibit 9.8 contains (a) from the company’s financial statements for the year ended December 31, 2020.
A manufacturing company sells its main product with a three-year warranty against defects. The company expects that 6% of the units sold will prove to be defective during the warranty period.
A manufacturing company sells motorcycles with a five-year warranty against manufacturer’s defects. The manufacturer expects that 0% of the motorcycles sold will prove to be defective in the first
Goodfood Market Corp. is a Quebec-based online grocery company. The company provides fresh meal solutions and grocery items to members across Canada. Exhibit 9.10 contains an excerpt from
On April 1, 2024, Düsseldorf Ltd. borrowed $500,000 for 20 years. Principal repayments of $25,000 and interest at 7% are due annually on March 31.Required a. Prepare all of the journal entries
On July 1, 2024, United Flag Company took out a 15-year loan for $150,000. Principal repayments of $10,000 and interest at 13% are due annually on June 30.RequiredPrepare all of the journal entries
Explain what a line of credit is and how it operates.
Sleep Country Canada Holdings Inc. is a specialty sleep retailer operating under the Sleep Country, Dormez-vous, and Endy banners. Exhibit 9.9 contains an extract from Note 3 detailing Sleep
Metro Inc. is one of Canada’s leading food retailers and distributors and operates a network of supermarkets, discount stores, and drugstores. Exhibit 10.9A includes the company’s statement of
You are studying with some classmates, and one of them states the following:A company’s suppliers would prefer that it have a lower accounts payable turnover ratio as that indicates that the
Exhibits 10.11A contain excerpts from the University of Toronto’s annual financial report for the year ended April 30, 2021.Required a. Explain what it means when it states that the debentures
Alimentation Couche-Tard Inc. operates over 12,000 convenience stores in North America, Ireland, Scandinavia, Poland, the Baltics, and Russia. The Laval, Quebec–based company generates income
Cascades Inc. produces and markets packaging and tissue products. Exhibit 10.10 contains Note 13 from the company’s 2020 annual report detailing long-term debt. Amounts are in millions of
What is meant by the term provisions?
A company takes out a seven-year, $750,000 mortgage on December 1. The interest rate on the mortgage is 6.0% per year, and blended payments of $10,956 (including both interest and principal) are to
Clara’s Cycle Booth Ltd. had the following transactions involving current liabilities in its first year of operations: 1. The company ordered bicycles from suppliers for $466,000, on credit.
What is meant by the term breakage?
Explain the difference between an assurance-type warranty and a service-type warranty.
What is meant by the term source deductions?
Big Rock Brewery Inc. is a regional producer of craft beers and cider. The company’s products are sold in six provinces and two territories in Canada. Exhibits 10.15B contain extracts from Big
Rogers Sugar Inc. is headquartered in Vancouver, but has operations in Alberta, Ontario, Quebec, and New Brunswick. The company is the largest producer of refined sugar in Canada and also packages
Deleau Equipment Ltd. issued 10% five-year bonds with a face value of $80 million on October 1, 2024. The bonds were issued at par and pay interest on March 31 and September 30 each year. Deleau’s
Morneau Automation Ltd. issued 6%, 10-year bonds with a face value of $100 million at par on May 1, 2024. The bonds pay interest on October 31 and April 30 each year. The first interest payment was
Spring Water Company Ltd. needed to raise $50 million of additional capital to finance the expansion of its bottled water facility. After consulting an investment banker, it decided to issue bonds.
Volta Desalination Ltd. needed to raise $150 million of additional capital to finance the design, development, and construction of its water desalination facility. Volta decided to issue bonds that
Big Rock Brewery Inc. is a Calgary-based producer of premium, all-natural craft beers and other alcoholic beverages, which are sold in six provinces and two territories in Canada. Exhibit 10.16 is an
EDC Corp. issues bonds with a face value of $300 million that mature in 14 years. The bonds carry a 4.0% interest rate and are sold at 94.848 to yield 4.5%. They pay interest
Explain the ramifications if a company fails to meet its loan covenants.
Bombardier Inc. is a Canadian manufacturer of aircraft and rail transportation equipment and systems. Exhibit 10.17 contains an excerpt from Note 42 of the company’s 2020 annual report detailing
Explain how a green bond differs from a regular bond. Why might a company choose to issue green bonds?
On August 1, 2024, Tra Vinh Corporation issued $120 million in 5% bonds, with interest payable on January 31 and July 31 each year. The market yield rate for these bonds on the date of issuance was
On November 1, 2024, Robert L. Carroll Paleontology Museum Inc. issued $150 million in 13% bonds, with interest payable on April 30 and October 31 each year. The bonds were issued at a price of
OPoole Corporation develops and markets a harness in which a baby may be placed to bounce up and down. OPoole is considering approaching the bond market to raise funds to support the expansion of its
Choose a company as directed by your instructor and do the following: a. Prepare a quick analysis of the non-current liability accounts by listing the beginning and ending amounts in these
Amos Satellites Inc., a satellite communication provider, wants to develop the Internet of Things (IoT) by launching a constellation of next-generation satellites in a low Earth orbit (LEO). Amos
Cansat, a Crown corporation owned by the government, issued bonds to finance the construction of the next generation of observation satellites. On January 1, 2024, Cansat issued 7%, 15-year bonds
Uchida Genetics Corporation develops and markets biological pharmaceuticals. Uchida is approaching the bond market to raise money to buy equipment to manufacture a new biological therapy. The
The statement of financial position as of December 31, 2024, for Hopps Corporation follows:Hopps Corporation has a cash balance of $100 million and the current portion of long-term debt is $75
You are a member of the management team at a start-up company that will manufacture electric vehicles. At one of the initial meetings of the management group, the CEO stated:“I understand how
On January 1, 2024, Bountee Ltd. leased a machine from Vector Equipment Ltd. The machine had cost Vector $420,000 to manufacture, and would normally have sold for about $600,000. The lease was for 10
Note 17 to the March 28, 2021, financial statements of Canada Goose Holdings Inc. is shown in Exhibit 11.11. All dollar amounts are in thousands.Required a. Describe the differences between the
The statement of financial position as of December 31, 2024, for Taube Corporation follows:The company’s management is evaluating a couple of options to finance the acquisition of new equipment
MUHC Ltd. leased a microsurgical staple gun on January 1, 2024, from George Klein Surgical Equipment Ltd. The three-year lease contract called for monthly payments of $10,870 to be made at the end of
Ingenuity Corporation has accumulated a significant amount of debt as a result of the recent launch of a constellation of satellites. It is currently considering acquiring and launching its largest
Ferguson Theatres Inc. operates specialty film format theatres that display images of greater size and higher-quality resolution. Ferguson is considering expanding its theatres in China and needs to
Information extracted from the financial statements of Sleep Country Canada Holdings Inc. for the years ending December 31, 2018, 2019, and 2020 is given in Exhibit 11.12.Requireda. Calculate Sleep
The information below is taken from the shareholders’ equity section of the statement of financial position for Harcus Cable:RequiredProvide the journal entries for the following: a. The
The consolidated statement of earnings for Linamar Corporation appears in Exhibit 11.13A. The company’s dividend policy is presented in. The market price of Linamar’s shares on December 31, 2020,
Explain why a lender might require a loan covenant that stipulates a maximum debt to equity ratio.
Teed’s Manufacturing Corporation has the following shareholders’ equity at December 1, 2024:The company was formed in January 2022 and there has been no change in share capital since that time.
Major Communications Ltd., a publicly traded company that specializes in data capture, has been in operation for several years. On October 1, 2023, it had 10 million common shares authorized and 1.5
Prince Observation incorporated on May 1, 2024, and was authorized to issue 500,000 common shares and 100,000 5%, non-participating, convertible preferred shares. During the remainder of 2024, the
Vancouver-based Aritzia Inc. designs apparel and accessories, which it sells in retail locations and online, including 61 stores in Canada and 20 in the United States. The share capital note from the
Martineau Inc. is a Vancouver-based manufacturer of swimwear. Since going public in 2013, Martineau’s common shares have been split as follows:Martineau announced in December 2020 that it would
HighTech Inc. was a small company started by four entrepreneurs a few years ago. They each initially invested $200,000 and sold $1 million in preferred shares to a wealthy private investor. The
Estabrook Ltd., which has a December 31 year end, had the following shareholders’ equity account balances as at December 31, 2024:Common shares (1,060,000 shares issued and outstanding)
Winifred Inc., which has a December 31 year end, had the following shareholders’ equity account balances as at December 31, 2024: Common shares (1,350,000 shares issued and
McEwen Corporation began operations in 2022 with the following capital structure: 1. Common shares, Class A: 8 million authorized and outstanding. The Class A common shares are entitled to 10
Massawippi Co. has 10 million authorized common shares. The company has issued 4.4 million but, due to some share repurchases and cancellations, only 4.2 million were outstanding at the beginning of
Choose a company as directed by your instructor and answer the following questions. a. Prepare a quick analysis of the shareholders’ equity accounts by doing the following: i. List their
E. MacGill Inc. paid out cash dividends at the end of each year as follows:Year Dividends2022 ..................$525,0002023
Travato Company paid out cash dividends at the end of each year as follows:Year Dividends2022 ......................$140,0002023
On October 1, 2024, the board of directors of Tecumseh Corporation declared a 30% stock dividend. On the declaration date, there were 55,000 common shares issued and outstanding. The fair market
On December 31, 2024, Talbot Corporation’s common shares had a market price of $25 per share before any stock dividend or split, and the shareholders’ equity section of the balance sheet appeared
The shareholders’ equity of Henry Byce Ltd. at the end of 2024 and 2023 appeared as follows:Byce began operations in 2022. The 50,000 preferred shares issued have been outstanding since 2022.
The shareholders’ equity of Deer Ltd. at the end of 2024 and 2023 appeared as follows:During 2024, Deer paid a total of $125,000 in cash dividends.Required a. Assume the preferred shares were
Flatfish Limited reported the following items in shareholders’ equity on December 31, 2024:Required a. No dividends were declared in 2022 or 2023; however, in 2024, cash dividends of $5
The following selected financial information was extracted from the December 31, 2024, financial records of Fidani Corporation:The company’s board of directors is considering declaring a dividend.
Bitter Sea Ltd. began operations on January 2, 2024. During the year, the following transactions affected shareholders’ equity: 1. Bitter Sea’s articles of incorporation authorize the
The shareholders’ equity section of the statement of financial position of Dolce Corporation as at December 31, 2024, is given below:The board of directors for Dolce Corporation feels it is
On January 15, 2024, the board of directors of Miz Corporation voted to consolidate its outstanding common shares on the basis of 1 post-consolidation common share for every 20 pre consolidation
The shareholders’ equity section of the statement of financial position of Del Rosso Winery Inc. at December 31, 2024, is given below:On December 31, 2024, the board of directors proposed a
OCloud Corporation’s suite of software products and services provides secure and scalable solutions for global companies. The following is an extract from the company’s 2024 and 2023 comparative
Ostuni Limited is a Niagara-on- the-Lake, Ontario–based winery producing blended, premium, and ultra-premium wines, which are sold globally. The company has a strong distribution network in Canada
Explain what the ex-dividend date is and the implications for an investor who purchases shares on that date.
Cedar Appliance Sales and Service Ltd. owns several retail and service centres in northern British Columbia. Financial ratios for the company for the years ended December 31, 2024 and 2023, are
Comparative financial statement data for Cool Brewery Ltd. and Northern Beer Ltd., two competitors, follow (amounts in thousands):Required a. Prepare a common-size analysis for 2024 for Cool
Comparative financial statement data for Alba Ltd. and Matera Ltd., two competitors, follow:Required a. Prepare a common-size analysis of the 2024 statement of income data for Alba Ltd. and
Differentiate between the dividend yield and the dividend payout ratio.
The financial data for Cumberland Drilling Ltd. are as follows (amounts in thousands):Required a. Calculate the current and quick ratios for 2021 through 2024. b. Comment on Cumberland’s
The financial data for Alouette Resources Ltd. are as follows (amounts in thousands):Required a. Calculate the current and quick ratios for 2021 through 2024. b. Comment on Alouette’s
Waterloo Brewing Ltd. is a Kitchener, Ontario– based public company. The company is a producer and distributor of beer, cider, and other alcohol-based products. The company primarily serves the
The management of Hencky Corporation is developing a loan proposal to present to a local investor. The company is looking for a $1-million loan to finance the research and development costs of
The financial data for Michaels’ Foods Inc. and Sunshine Enterprises Ltd. for the current year are as follows (amounts in thousands):Required a. Calculate the accounts receivable turnover for
The financial data for Ken’s Fresh Fruits Incorporated and Al’s Supermarket Ltd. for the current year are as follows:Required a. Calculate the inventory turnover for each company. b.
Manitoba Manufacturing Inc. (MMI) has a loan from the Canadian National Bank to help finance its working capital. The terms of the loan are that the bank will lend MMI an amount up to 33% of its
Choose a company as directed by your instructor and answer the following questions: a. Using the ratios given in the text, prepare an analysis of the company for the past two years with respect
Value Seller Inc. (VSI) has a short-term working capital loan to help finance its working capital. The terms of the loan enable VSI to borrow an amount of up to 35% of its inventory balance and 55%
The following financial information relates to Smooth Suds Brewery Ltd. (amounts in thousands):RequiredFor each year: a. Calculate the return on equity. Comment on the trend in this
Two companies in the transportation industry had the following information:Required a. Calculate the P/E ratios for both companies and comment on which is more affordable from that
Superior Kitchens and Bathrooms Ltd. is a small business that sells kitchen and bathroom fixtures and accessories and also does design and installation. The business was started three years ago by
HomeStar Ltd. is a chain of retail hardware stores with total assets of $2.5 billion. Selected financial ratios for HomeStar are as follows:In 2022, HomeStar was affected by a decline in the demand
The Pine Boutique Ltd. operates several stores selling pine furniture. Selected financial ratios are as follows:In 2022, Pine Boutique decided to change its strategy from selling high-end furniture
The following information comes from the accounting records of Clabber Ltd. for the first three years of its existence:Required a. Based on the above information, analyze and comment on the
In January 2024, Burrard Shipyards Ltd. (“BSL”) was awarded a $42-million contract to construct a non-combat hospital ship for the Royal Canadian Navy. The contract was part of the federal
Explain why financial statement users need to be cautious when relying on non-IFRS measures.
In March 2024, VanHoof Engineering Ltd. (“VHEL”) was awarded an $86-million contract to construct a bridge over the South Saskatchewan River for the City of Saskatoon. VHEL estimated that it
Explain the difference between measuring progress on a contract using an input method versus an output method.
In January 2024, Burrard Shipyards Ltd. (“BSL”) was awarded a $42-million contract to construct a non-combat hospital ship for the Royal Canadian Navy. The contract was part of the federal

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