Questions and Answers of Understanding Financial Accounting

Comparing statement of income and statement of financial position accountsRequired a. On what financial statement would you expect to find wages payable, and what does it represent? b. On
Classifying items on statement of cash flowsRequiredUse the same abbreviations as in AP1-3A to classify each of the following transactions according to whether they are operating, financing, or
While studying with a classmate, you are discussing a question about which of the financial statements you would look to in order to determine the amount of dividends that a company declared during
Identifying financing, investing, and operating transactionsRequiredFor a company like Telus Corporation, provide two examples of transactions that you would classify as financing, investing, and
Indicate whether each of the following items will be reported on the statement of financial position (SFP), statement of income (SI), both the statement of financial position and statement of income
Indicate whether each of the following items will be reported on the statement of financial position (SFP), statement of income (SI), both the statement of financial position and statement of income
Determining missing statement of changes in equity amounts of retained earnings the change in retained earnings from the beginning of the year to the end of the year is the result of net earnings
Saskatoon- based Nutrien Ltd. is the world’s largest provider of crop inputs and services. Excerpts from its 2020 financial statements are in Exhibits 2.20ARequiredUse the financial statements to
Excerpts from the 2020 statement of income, statement of operations, and notes to the financial statements of High Liner Foods Inc. are in Exhibits 2.21A. Although it is a Canadian company, based in
Determining missing financial statement informationRequiredDetermine the four missing amounts using financial statement relationships. Revenues Expenses Net income Dividends declared during the
Determining missing financial statement informationRequiredDetermine the four missing amounts using financial statement relationships. Revenues Expenses Net income Dividends declared during the
Mega Manufacturing has calculated the following financial ratios, based on the company’s comparative financial statements for 2024 and 2023:RequiredBriefly explain what each ratio indicates, and
Sleep Country Canada Holdings Inc. is a retailer operating three retail banners, Sleep Country, Dormez-vous?, and Endy. Excerpts from its 2020 financial statements are in Exhibits
Maple Leaf Foods Inc. is a major Canadian producer of food products. Excerpts from the company’s financial statements for the year ended December 31, 2020, are in Exhibits 2.22BRequired a. How
Preparing simple statement of income) Friedrich Burgel runs a ski school and excursion company called Easy Peasy Ltd. His busiest months are December through February, although, if the weather holds,
Nearly Meat Ltd. (NML) is a commercial distributor of plant-based meat substitutes to grocery stores and chains in Western Canada. NML and the company’s management team have successfully grown the
Based on the following transactions, calculate the revenues, expenses, net income that would be reported(a) On the cash basis and (b) On the accrual basisi. Purchased inventory with a cost of
Find the annual report of a Canadian company in the retailing business and answer the following questions:a. How important is inventory relative to the other assets on the company’s statement of
At a meeting, one of your colleagues states, “I cannot understand why we don’t use the cash flow inflows from sales revenue less the cash outflows related to our expenses to determine our net
The Wizard’s Corner, a company that sells video games and related items, had the following account balances at the end of June 2024:Required a. Prepare a statement of income for the year ended
Insomniacs Coffee Ltd., a mobile coffee company, had the following account balances at the end of December 2024:Requireda. Prepare a statement of income for the year ended December 31, 2024. b.
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 company
Explain, in your own words, the going concern assumption and what the implications are in terms of a company’s financial statements if the assumption is not valid.
Determination of statement of income and statement of financial position amounts Trepanier Ltd. had the following transactions in its first month of operations: 1. Issued 20,000 common shares in
Hughes Tools Company started business on October 1, 2023. Its fiscal year runs through to September 30 of the following year. The following transactions occurred in the fiscal year that started on
Moksh Ltd. started business on January 1, 2024. The following transactions occurred in 2024: 1. On January 1, the company received $700,000 when it issued 10,000 common shares. 2. On
A. J. Smith Company started business on January 1, 2024, and the following transactions occurred in its first year: 1. On January 1, the company issued 12,000 common shares at $25 per
Describe the financial statement impacts of declaring and paying a cash dividend, including information about the declaration date, date of record, and payment date.
Explain the difference between perpetuals, floating rate, and rate reset preferred shares.
Explain why preferred shares are referred to as hybrid securities.
Explain why a company might choose to issue preferred shares.
Explain why it is important that companies distinguish treasury shares from other issued shares.
Explain why a company’s market capitalization will differ from the shareholders’ equity amount reported in its financial statements.
Identify four types of transactions that would affect a company’s shareholders’ equity.
The shareholders’ equity of Henry Byce Ltd. at the end of 2020 and 2019 appeared as follows:Byce began operations in 2018. The 50,000 preferred shares issued have been outstanding since 2018.
The articles of incorporation of Curtis Airlines Co. authorized 5 million common shares. The company originally issued 3.75 million common shares. However, over the years the company had repurchased
Currie & Associates Inc. was a mid-size company that was started five years ago by Arthur Currie with the support of four private investors. They initially invested $375,000 each for a total of
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 issuance of
Major Communications Ltd., a publicly traded company that specializes in data capture, has been in operation for several years. On October 1, 2019, it had 10 million common shares authorized and 1.5
The following information is available for Smokey Smith Inc. for the preparation of its December 31, 2020, financial statements:Number of common shares outstanding
Ostuni Limited is a Niagara-on-the-Lake, Ontario–based winery producing blended, premium, and ultrapremium wines, which are sold globally. The company has a strong distribution network in Canada
On January 15, 2020, the board of directors of Miz Corporation voted to consolidate its outstanding common shares on the basis of one post-consolidation common share for every 20 pre-consolidation
The Equitee Corporation was incorporated on January 2, 2019, with two classes of share capital: an unlimited number of common shares and $3 cumulative non-voting preferred shares with an authorized
The shareholders’ equity section of the statement of financial position of Del Rosso Winery Inc. at December 31, 2020, is given below:Shareholders’ equity:Preferred shares, $7 cumulative,
Southwestern Exposure Ltd. began operations on January 2, 2020. During the year, the following transactions affected shareholders’ equity:1. Southwestern Exposure’s articles of incorporation
The following selected financial information was extracted from the December 31, 2020, financial records of Fidani Corporation:The company’s board of directors is considering declaring a dividend.
Sauro Brothers Inc. is currently considering declaring a dividend to its common shareholders, according to one of the following plans:1. Declare a cash dividend of $10 per share.2. Declare a 20%
Flatfish Limited reported the following items in shareholders’ equity on December 31, 2020:Share capital: Preferred shares, $5 cumulative dividend,150,000 shares issued and outstanding
On December 31, 2020, 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
The shareholders’ equity of Deer Ltd. at the end of 2020 and 2019 appeared as follows:During 2020, Deer paid a total of $125,000 in cash dividends.Requireda. Assume the preferred shares were not in
Holt Company paid out cash dividends at the end of each year as follows:Year Dividends2018
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
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
Prince Observation incorporated on May 1, 2020, and was authorized to issue 500,000 common shares and 100,000, 5% non-participating, convertible preferred shares. During the remainder of 2020, the
Pharma Shop Ltd. is a mid-sized public company that had been in operation for many years. On December 31, 2019, it had an unlimited number of common shares authorized and 5.2 million shares issued at
The following information is available for Beauvalon Inc. for the preparation of its September 30, 2020, financial statements:Income before taxes
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
Christine Wilde is considering opening a frozen yogourt store. One option is to purchase an existing independent store that is available for sale. The seller, Mark Preradovic, has operated the store
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, 2020, and 2019, are
Cineplex Inc. is the largest movie exhibition company in Canada. It operates theatres in 10 provinces across Canada. The company’s financial statements are presented in Exhibits 12.13A to
Big Rock Brewery Inc. is Calgary-based public company. The company is a producer of all-natural craft beers and cider. Its products are sold in nine provinces and three territories in Canada. The
The statement of financial position and statement of income for High Liner Foods Incorporated are in Exhibits 12.11A and 12.11B. The statement of financial position and statement of earnings and
The financial statements for Dollarama Inc. are in Appendix A.RequiredUse the financial statements to answer the following questions:a. Calculate the following ratios for 2017 and 2016. For the
You are studying with some classmates and are reviewing your class notes. One of your classmates makes the following comment:“I’m trying to understand what the trend in return on assets means. If
You are in a meeting and one of your colleagues makes the following statement:“Liquidity is excellent and our current ratio has increased from last year. Our current ratio is at 2.6, which is well
You are part of an investment club with some of your friends. The club has decided to invest in the pharmaceutical industry. One of your friends prepared an analysis of two companies in the industry
You are in a meeting discussing the coming year-end financial statements and one of your colleagues makes the following statement:“Our current ratio will likely be just below the 2.0 required for
A friend of yours has received a scholarship and wants to invest the funds for a year, because she earned enough money in her summer job to pay for her current academic year. She explains to you that
There is judgement involved in preparing financial statements. For example, management must often estimate warranty expense and bad debts expense. Management may also need to select an accounting
Understanding the nature of the business is important for analysts. It helps them interpret the results and focus their analysis on the ratios that are key for the industry or strategy being
Lenders typically place restrictions on a borrower’s activities in an attempt to ensure that it can repay both the interest and the principal on the debt. These restrictions are frequently stated
Selected financial data for two intense competitors in a recent year follow (amounts in millions):Requireda. For each company, calculate the following ratios:i. Average collection period for
You have obtained the financial statements of Day Manufacturing and Night Production, two companies in the manufacturing industry. You have acquired the following information for an analysis of the
Two lists follow: one for ratios (including the ratio prior to the transactions) and another for transactions.Ratios:1. Current ratio, 1.9:12. Quick ratio, 0.8:13. Accounts receivable turnover, 10.6
The following information comes from the accounting records of Tableak Ltd.:Requireda. Based on above information, analyze and comment on the changes in the company’s profitability and liquidity,
The Pine Boutique Ltd. operates several stores selling pine furniture. Selected financial ratios are as follows:In 2018, Pine Boutique decided to change its strategy from selling high-end furniture
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
You are considering investing in the grocery sector and have identified two companies for further analysis. Financial information for the two companies is as follows:Requireda. Calculate and compare
Two companies in the travel and tourism industry had the following information:Requireda. Calculate the P/E ratios for both companies and comment on which is more affordable from that perspective.b.
The following financial information relates to Gloucester Estates Wines Ltd. (amounts in thousands):RequiredFor each year:a. Calculate the return on equity. Comment on the trend in this ratio.b.
The following financial information relates to Platinum City Ltd. (amounts in thousands):Requireda. Calculate the debt to equity, debt as a percentage of total capitalization, and interest coverage
The following financial information is for Atomister Industries Inc.:Atomister is a distributor of new and used machinery parts operating in Saskatchewan. It offers 30-day terms and all sales are on
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 up to 35% of its inventory balance and 55% of
The financial data for M&G Restaurants Incorporated and Continental Buffet Ltd. for the current year are as follows:Requireda. Calculate the inventory turnover for each company.b. Calculate the
Information on the activities of Strategy Furniture Ltd. is as follows:Requireda. Do a trend analysis of the inventory turnover for each year. Also calculate the days to sell inventory ratio for the
Your investment club has accumulated money and a friend suggests that you consider buying shares in GardenWare Products, which manufactures gardening tools and products. Because you may need to sell
The financial data for Vintage Furniture Inc. and Victoria Foodland Ltd. for the current year are as follows (amounts in thousands):Requireda. Calculate the accounts receivable turnover for each
The financial data for Cumberland Drilling Ltd. are as follows (amounts in thousands):Requireda. Calculate the current and quick ratios for 2017 through 2020.b. Comment on the short-term liquidity
Comparative financial statement data for Cool Brewery Ltd. and Northern Beer Ltd., two competitors, follow (amounts in thousands):Requireda. Prepare a common-size analysis for 2020 for Cool Brewery
You have obtained the financial statements of A-Tec and Bi-Sci, two new companies in the high-tech industry. Both companies have just completed their second full year of operations. You have
Two lists follow: one for ratios (including the ratio prior to the transactions) and another for transactions.Ratios:1. Current ratio, 1.2:12. Quick ratio, 0.6:13. Accounts receivable turnover, 12
The following information comes from the accounting records of Hercep Ltd. for the first three years of its existence:Requireda. Based on above information, analyze and comment on the changes in the
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 2018, HomeStar was affected by a decline in the demand
Cathy’s Cuisine Ltd. is a small restaurant and catering business started three years ago by Cathy Crosby. Initially the company’s operations consisted of a small diner. In 2019, the company added
You are considering investing in the retail sector and have identified two companies for further analysis. Financial information for the two companies is as follows:Requireda. Calculate and compare
Two companies in the transportation industry had the following information:Requireda. Calculate the P/E ratios for both companies and comment on which is more affordable from that perspective.b.
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 ratio.b. Calculate
The following financial information relates to Artscan Enterprises Inc. (amounts in thousands):Requireda. Calculate the debt to equity, net debt as a percentage of total capitalization, and interest
The following financial information is for Ambroise Industries Inc.:Ambroise is a distributor of auto parts operating in eastern Ontario that offers 30-day terms and has all sales on credit. The
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

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