Questions and Answers of Understanding Financial Accounting

During a study session, one of your classmates states the following:“Companies with contracts that span multiple periods can choose to use either the percentage-of- completion method or the
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 what it means if a company reports a contract liability in relation to a long-term contract.
In January 2024, the City of Victoria entered into a contract with LightRail Canada Ltd. (“LRCL”) to construct a rapid transit line in the city. The contract, which was being funded by the City
In January 2024, the Province of Ontario awarded Coté Contracting Ltd. (“CCL”) a $52.5 million contract to construct a new seniors’ care facility adjacent to the Humber River Hospital in
During a study session, one of your classmates states the following:“If a company is unable to measure the degree of completion on a long-term contract, it must use the zero-profit method. With
Explain the difference between the percentage-of-completion method and zero-profit method in terms of when a company reports the profits earned on a long-term contract.
During a study session, one of your classmates states the following:“All companies can choose to use the revaluation model, but if they choose to use it, it must be used for all of the assets in
Briefly explain the advantage of following the proportionate approach under the revaluation model.
Atlantic Docks Ltd. (“ADL”), a public company, constructed new wharf facilities at a cost of $3.1 million. These facilities became operational on April 5, 2022, and ADL commenced depreciating
Jeanmich Ltd. (“JL”), a public company, purchased a warehouse on January 8, 2022. The company paid $5.6 million. The land was valued at $1 million and the warehouse building was valued at $4.6
Briefly explain the disadvantage of following the asset adjustment approach under the revaluation model.
VI Timber Ltd. (VITL), a public company, purchased it first piece of low impact harvesting equipment on November 5, 2022, at a cost of $480,000. At the time of purchase, VITL’s management
On October 12, 2022, Talca Ltd. (TL), a public company, purchased a piece of equipment at a cost of $432,000. At the time of purchase, TL’s management determined that the equipment would have a
Explain the difference between a strategic and non-strategic investment.
Cameron Ltd. purchased $150,000 of corporate bonds on January 1, 2024. The bonds have a three-year term and are paying interest at a rate of 3% semi-annually on July 1 and January 1. The bonds are
Arrowsmith Ltd. purchased $300,000 of corporate bonds on January 1, 2024. The bonds have a three-year term and are paying interest at a rate of 4% semi-annually on July 1 and January 1. The bonds are
While working with your study group, one of your fellow students makes the following statement:“There is no substantive difference in the accounting for equity investments. They are all carried at
Explain the difference between an economic entity and a legal entity.
Scaiff Ltd. purchased $250,000 of corporate bonds on January 1, 2024. The bonds have a three-year term and are paying interest at a rate of 6% semi-annually on July 1 and January 1. The bonds are
Shiatsu Ltd. purchased $200,000 of corporate bonds on January 1, 2024. The bonds have a three-year term and are paying interest at a rate of 9% semi-annually on July 1 and January 1. The bonds are
While at a board meeting, one of your fellow board members makes the following statement:“We have made a significant investment in X Ltd., owning 35% of the company’s voting shares. We know that
Explain what it means if a company prepares consolidated financial statements.
On January 1, 2024, Waxwing Company acquired a portion of the common shares of Jenk Company. The data relating to the acquisition and the first year of operations are as follows:Both companies close
Peterson Ltd. had the following transactions: 2024Jan. 15 Peterson acquired 400 shares of Harris Ltd. at a cost of $60 per share.Feb. 28 Harris Ltd. declared and paid dividends of $0.80 per
Explain when it is appropriate for a company to account for an investment using the amortized cost model.
Explain how a company determines whether it should be accounting for an investment at fair value through other comprehensive income or at fair value through profit or loss.
Explain how a company can determine whether or not it has the ability to exercise significant influence over a company it has invested in.
On January 1, 2024, Casey Incorporated acquired 25% of the outstanding common shares of List Company Ltd. The details of the acquisition and the earnings for List are as follows:Assume that the net
On July 31, Porter Ltd. purchased Rachel Excavation Inc. for $1.9 million cash. Immediately before the acquisition on July 31, the statements of financial position for the two companies were as
Explain the difference between an associate and a subsidiary. How does this change how these investments are accounted for?
On January 1, 2024, Gilly Incorporated acquired 30% of the outstanding common shares of Tuna Company Ltd. The details of the acquisition and the earnings for Tuna are as follows:Assume that the net
On June 18, 2024, Down Company purchased 100% ownership of Topp Company for $3,560,000. Immediately prior to the purchases, the companies reported the following amounts:The balance was related to
The following information comes from the accounting records of Tableak Ltd.:Required a. Based on the above information, analyze and comment on the changes in the company’s profitability and
Metro Inc. is one of Canada’s leading food retailers and distributors. It owns and operates a network of supermarkets and pharmacies in Quebec and Ontario under banners including Metro, MetroPlus,
Reitmans (Canada) Limited is a leading Canadian retailer that operates more than 415 stores under the Reitmans, RW&CO, and Penningtons banners. Exhibit 8.27 provides an extract from Reitmans’
Maple Leaf Foods Inc. is a producer of food products under leading brands including Maple Leaf, Maple Leaf Prime, Schneiders, and Country Natural. Exhibit 8.29 is an extract from Maple Leaf’s
Touch and Go Flight Academy acquired a new site for its training operations. The company was able to find a small unused airport with an updated runway and hangar that could be used to accommodate a
Spin Master Corp. is a Toronto-based company that designs, markets, and sells entertainment products for children. Exhibit 8.30 is an extract from Spin Master’s consolidated financial statements
On April 7, 2024, Scoop Corporation purchased two excavators at an auction for a combined total cost of $330,000. The excavators were listed in the auction catalogue at $125,000 for excavator A and
On January 1, 2024, SugarBear Company acquired equipment costing $150,000, which will be depreciated on the assumption that the equipment will be useful for five years and have a residual value of
One of your fellow members on the board of directors of a local organization made the following statement at a recent meeting:“Depreciation is related to the loss of value or the decline in the
Choose a company, as directed by your instructor.Required a. Use the consolidated statements of financial position and the notes to the financial statements to prepare an analysis of property,
Conservative Company purchased a warehouse on January 1, 2019, for $400,000. At the time of purchase, Conservative anticipated that the warehouse would be used to facilitate the expansion of its
A machine that produces cellphone components is purchased on January 1, 2024, for $100,000. It is expected to have a useful life of four years and a residual value of $10,000. The machine is expected
Far North Airways Ltd. purchased a used Cessna 280 Caravan for its flight operations in September 2024. Far North paid $2,465,000 for the plane. Based on past experience, management has determined
In August 2024, Heavy-lift Helicopters Ltd. purchased a new helicopter for its logging and heavy lift operations at a cost of $1.2 million. Based on past experience, management has determined that
Webber Ltd. purchased the net assets of Sitter Inc. in January 2024 for $8,546,000. Appraisals indicated that the fair values of the assets purchased and liabilities assumed were as follows:The
During a study session, one of your classmates states the following:“Accelerated depreciation means that depreciation expense is being front-loaded. In other words, more of the capital asset is
Trust Holdings Ltd. purchased the net assets of Future Ltd. in January 2024 for $9,746,000. Trust had appraisals conducted that indicated that the fair values of the assets purchased and liabilities
Prepare all necessary journal entries for 2024, 2025, and 2026 related to each of the following scenarios: a. On January 1, 2024, Leeuwen Ltd. purchased a piece of machinery for $37,000. At the
Lundstrom Ltd. (LL) has a December 31 year end. The company purchased a piece of equipment on June 22, 2024, at a cost of $448,000. LL’s management estimated that this piece of equipment would have
SP Ltd. has a December 31 year end. On April 2, 2024, SP purchased a piece of equipment at a cost of $180,000. SP’s management estimated that this piece of equipment would have a useful life of
On March 1, 2023, Zephur Winds Ltd. purchased a machine for $80,000 by paying $20,000 down and issuing a note for the balance. The machine had an estimated useful life of nine years and an estimated
Jijang Excavations Ltd. (JEL) operates specialized equipment for installing natural gas pipelines. JEL, which has a December 31 year end, began 2024 with a single piece of equipment that had been
Kulle Optical Ltd. purchased optical lens coating equipment for $94,000 on January 1, 2024. At that time, management determined that the equipment would have a useful life of five years and a
iMotors Ltd. wanted to improve its assembly line and purchased robotic equipment for $3.6 million on January 1, 2024. At that time, management determined that the equipment would have a useful life
On January 29, 2024, Western Potash Ltd. purchased mining equipment for one of its operations. The company paid $903,000, and Western’s management expected that the equipment would be able to
Laurin Limited purchased equipment on October 8, 2021, at a cost of $368,000. Laurin’s management estimated that the equipment would have a useful life of four years and a residual value of
On July 1, 2020, Steelman Company acquired a new machine for $140,000 and estimated it would have a useful life of 10 years and residual value of $7,000. At the beginning of 2023, the company decided
Explain how right-of-use assets differ from property, plant, and equipment and why they are presented as a separate class of assets in the financial statements.
Explain what biological assets are. How is the way in which they are accounted for different from that of property, plant, and equipment?
Explain, in your own words, how a company’s long-term assets could be impacted by climate change.
High Liner Foods Incorporated, which is headquartered in Lunenburg, Nova Scotia, operates in the North American packaged foods industry. The company’s brands include High Liner, Fisher Boy, FPI,
Hughes Tools Company started business on October 1, 2023. Its fiscal year runs through to September 30 the following year. The following transactions occurred in the fiscal year that started on
According to the company’s 2020 annual information forms, Finning International Inc. is “the largest dealer of Caterpillar products in the world.” The company is headquartered in Vancouver but
Singh Company started business on January 1, 2024. The following transactions occurred in 2024: 1. On January 1, the company issued 10,000 common shares for $250,000. 2. On January 2, the
The comparative statement of financial position and statement of income for Next Wave Company follow.Additional information: 1. Some of the long-term investments were sold at their carrying
Chantelle Laneuville is preparing a bank reconciliation for her company, Laneuville Ltd.RequiredIndicate whether each of the following items would be added to the bank balance, deducted from the bank
Waterloo Brewing Ltd. is a Canadian-owned brewery with its head office in Kitchener, Ontario. The company brews, sells, and markets its products under the Waterloo, Laker, and Red Cap brand names.
As part of a peer-review project, you are reviewing one of your classmates’ responses to the following question:“Explain what it means if a company has some of its inventory out on consignment.
Paratha Company started business on January 1, 2024. Some of the events that occurred in its first year of operations follow:Transactions 1. Equipment that cost $200,000 was purchased on
Sweet Dreams Chocolatiers Ltd. began operations on January 1, 2024. During its first year, the following transactions occurred: 1. Issued common shares for $200,000 cash. 2. Purchased
Exhibits 5.21B and contain the consolidated statements of cash flows and related note disclosure for Aritzia Inc.Required a. In total, how much did Aritzia’s cash and cash equivalents change
Atlantic Service Company was established in Moncton, New Brunswick, five years ago to provide services to the home construction industry. It has been very successful, with assets, sales, and profits
Jim Shea is an accountant at King and Associates, an accounting firm based in Halifax. The firm specializes in dealing with small business clients who generally are very successful business people
Exhibits 5.22B and show the consolidated statement of cash flows of Dollarama Inc. for the years ended January 31, 2021, and February 2, 2020, along with related note disclosure.Required a. How
The consolidated statements of cash flows and related note disclosure for Canada Goose Holdings Inc. are in Exhibits 5.23B and. Canada Goose designs, manufactures, and sells luxury apparel, including
Pro-Medic Ltd. (PML) is a medical equipment supply company that sells, installs, and services a variety of mobility aid equipment. PML was founded in 2021 and has seen significant growth since then.
Indicate the effect (increase, decrease, or no effect) each of the following transactions would have on a company’s cash flow and net income: Transaction 1. Purchased supplies on account 2. Issued
The consolidated statements of cash flows for Cargojet Inc. are in Exhibit 5.24. The company provides domestic air cargo services between 14 major Canadian cities and also operates international
Indicate the effect (increase, decrease, or no effect) each of the following transactions would have on a company’s cash flow and net income: Transaction 1. Purchased inventory on account 2. Sold
The following is financial information for three companies:RequiredFor each of the above companies, calculate the cash flow from operations using the indirect method. Sales revenue Cost of goods
Whiskey Industries Ltd., a Nanaimo, British Columbia–based company, has a December 31 year end. The company’s comparative statement of financial position and its statement of income for the most
Explain why a company’s net income is not normally equal to its cash flows from operating activities.
The following is financial information for three companies.RequiredFor each of the above companies, calculate the cash flow from operations using the indirect method. Sales revenue Cost of goods
Nomad Adventures Ltd. (NAL) is a Canadian manufacturer of Class B motorhomes. The company has been experiencing exponential growth and is preparing to raise additional capital to fund its growth. As
If a company has a net loss of $5 million for the year, does its cash go down by $5 million as a result? Explain.
The following information is for Chamomile Ltd. for the year ended June 30, 2024.Additional information: 1. Land was sold at cost and none was purchased during the year. 2. In January,
A co-worker states that “if the company is profitable, that guarantees that it will have positive cash flow. Making profit means making money. As a result, the company should experience increased
Can build Materials Ltd. is a family-run do-it-yourself building materials company located on Pelee Island, Ontario. The company produces high-quality building materials for do-it-yourselfers. The
Marchant Ltd. reported the following abbreviated statement of financial position and statement of income for 2024.Required a. Prepare a statement of cash flows for Marchant Ltd. for the year ended
The operating activities section of Johann Manufacturing Ltd.’s statement of cash flows is shown below. In answering the questions after the statement, assume that the net cash flows from
The 2024 financial statements of Green Company include the following statement of cash flows:Required a. Did Green Company increase or decrease its current assets, other than cash, during 2024?
Financial statement data for Kanga Holdings Ltd. for 2024 follow.Additional information: 1. Equipment that cost $105,000 was sold for $95,000. 2. Dividends were declared and paid during the
For a company of your own choosing, answer the following questions based on its statement of cash flows:a. Summarize the results for cash from operating, investing, and financing activities over the
Graphene Plastics Company imports graphite from Australia for conversion to graphene to make hockey sticks in Canada. As CEO, you are busy preparing a loan application, which asks for a cash flow
Digiread Technologies Ltd. (DTL) is a privately held distributor of e-readers and tablets. The Calgary-based company is well established and is currently managed by its founder, Erin Jacobs. The
While you are studying with a friend, she states:“An increase in inventory or the payment of dividends has a negative effect on cash flows from operations, while an increase in accounts receivable
Explain whether or not a financial statement user can conclude that a company is doing well if its cash and cash equivalents balance increased during the year.

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