Questions and Answers of Understanding Financial Accounting

Explain how lease accounting differs if the low-value lease exemption is used.
Gildan Activewear Inc. is mainly in the business of manufacturing and selling active wear, socks, and underwear. Exhibits 9.14A and 9.14B contain the statements of financial position and statements
Ten Peaks Coff ee Company Inc. is a Burnaby, British Columbia–based specialty coffee company. The company provides green coffee decaffeination services as well as green coffee handling and storage
Big Rock Brewery Inc. is a regional producer of craft beers and ciders that are sold across Canada. Exhibit 9.12 contains Note 3.11 detailing Big Rock’s policy regarding keg deposits from the
Gamehost Inc., a Calgary-based company, operates a number of hotels and casinos in Alberta. Exhibit 9.11 contains Note 5(a) from the company’s financial statements for the year ended December 31,
The Second Cup Ltd. is one of Canada’s best-known specialty coffee café franchisors. Exhibits 9.10A to 9.10C contain Second Cup’s statements of financial position, Note 11 detailing accounts
Canadian Tire Corporation, Limited is composed of two main business operations that off er a range of retail goods and services, including general merchandise, apparel, sporting goods, petroleum, and
Reitmans (Canada) Limited is a Canadian retailer that specializes in the sale of women’s wear. Exhibits 9.8A to 9.8C contain information from the company’s 2017 annual report. All figures are
Note 6 (Exhibit 9.7) of Le Château’s 2017 financial statements discusses the company’s line of credit.EXHIBIT 9.7 Excerpt from Le Château Inc.’s 2017 Financial Statements6. Credit
Exhibit 9.6 is an extract from the University of Saskatchewan’s 2015/16 annual report. (Most post secondary institutions in Canada have a fiscal year that ends on March 31, so it includes
You are studying with some classmates, and one of them states the following:“Expenses related to assurance-type warranties are accrued at the time the related product is sold, but recognized as
You are studying with some classmates, and you are reviewing each other’s responses to the following question:“How do companies offering loyalty programs account for the fact that not all loyalty
While preparing for an upcoming exam, you are studying with some classmates when one of them asks the following:“Am I correct that breakage represents the value of the gift cards that we don’t
You are studying with some classmates, and you are reviewing each other’s responses to the following question:“If a company failed to reclassify the current portion of its long-term debt, what
Suppose you are the general manager of a company with approximately 100 employees, and the government has just announced its new rates for contributions to the Canada Pension Plan and Employment
Ephemeral Faces Ltd., which has a May 31 year end, had the following transactions in May 2020 and June 2020:2020May 1 The company borrowed $40,000 from a bank on a four-year loan payable. The terms
Gargoyle Ltd., which has a December 31 year end, had the following transactions in December 2020 and January 2021:2020Dec. 1 Paid the first instalment on a five-year $5,000 bank loan. The terms of
Answer each of the following questions related to various short-term liabilities:a. Fuhgettaboudit Ltd. operates an Italian restaurant and sells gift cards. At October 31, 2020, Fuhgettaboudit had
Vpem Pipeline Inc. operates on a calendar-year basis. At the end of December 2020, the company had the following current liabilities on its books:Accounts payable
Chuck’s Landscaping Ltd. (CLL) had the following transactions involving current liabilities in its first year of operations:1. CLL signs contracts with customers and requests 50% of the contract
Foymount Industries Inc. borrowed $800,000 from Development Bank to finance the purchase of equipment costing $650,000 and to provide $150,000 in cash. The legal documentation states that the loan
Union Restaurants Ltd. had the following transactions: May 31 Wages earned by the employees during the month, which amounted to $75,000 were paid. The source deductions on these wages were CPP
Fish Packers Inc. (FPI) had the following transactions:Dec. 31 Fish Packers Inc. announced a bonus earned by the employees during the year, which amounted to $100,000. The source deductions on the
During February, the last month of the fiscal year, Be My Valentine Ltd. sells $20,000 of gift cards. From experience, management estimates that 8% of the gift cards sold will not be redeemed by
Women’s Summer Hockey Ltd. (WSHL) organizes and operates a women’s hockey league between April and September. Teams may register starting in January and by the end of March must prepay the
Appliance Resellers Ltd. (ARL) sells gently used and refurbished appliances. The company provides a three-month warranty that is included in the cost of the appliance. Claims under the warranties
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
On April 1, 2020, Düsseldorf Ltd. borrowed $500,000 for 20 years. Principal repayments of $25,000 and interest at 7% are due annually on March 31.Requireda. Prepare all of the journal entries
On June 30, 2020, Kovacs Company borrowed $400,000 at a bank by signing a five-year, 10% loan. The terms of the loan require equal semi-annual principal payments plus interest beginning December 31,
Dominique, the CFO for Trattoria Inc., asked you to classify the following liabilities for the December 31, 2020, statement of financial position:1. Trattoria declared a dividend in 2020 of $25,000,
The following selected information has been compiled for Sherwood Park Inc. Sherwood Park owns a series of discount clothing stores in Western Canada.You are the new accountant hired by Sherwood
Gaggle Ltd., which has a December 31 year end, had the following transactions in December 2020 and January 2021:2020Dec. 1 The company borrowed $700,000 from a bank on a seven-year loan payable. The
Lyrtricks Ltd., which has a December 31 year end, had the following transactions in December 2020 and January 2021:2020Dec. 1 The company borrowed $100,000 from a bank on a five-year loan payable.
Answer each of the following questions related to various short-term liabilities:a. On September 1, 2020, a company borrowed $100,000 from its bank and signed a nine-month note with 8% interest. The
Shamsud Ltd. operates on a calendar-year basis. At the beginning of December 2020, the company had the following current liabilities on its books:Accounts payable ....................................
Joan’s Golf Shop Ltd. had the following transactions involving current liabilities in its fi rst year of operations:1. The company ordered golf equipment from suppliers for $546,000, on credit. It
Dividend Aristocrat Inc. (DA) borrowed $200,000 from Grow Business Bank to finance the purchase of equipment costing $150,000 and to provide $50,000 in cash. The legal documentation states that the
Slackur Company is a very profi table small business. However, it has not given much consideration to internal controls. For example, in an attempt to keep its clerical and office expenses to a
Software Ventures Ltd. had the following transactions:Mar. 31 Paid wages earned by the employees during the month, which amounted to $45,000. The source deductions on these wages were CPP of $2,230,
Hilton Ventures Ltd. had the following transactions:Oct. 31 Recorded wages earned by the employees during the month, which amounted to $30,000. The source deductions on these wages were CPP of
During the month of December, Emile’s Electronics sells $7,500 of gift cards. From experience, Emile’s management expects that 95% of the gift cards sold will be redeemed. In January, $5,000 of
University Survival Magazine Ltd. is a small company run by two enterprising university students. They publish an issue of the magazine once a month from September through April. The magazine reports
Computers Galore Ltd. sells computers, computer accessories, and software. On its computer sales, the company provides a one-month warranty that is included in the cost of the computer. Claims under
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.
On July 1, 2020, 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
On May 1, 2020, Christina Fashions borrowed $100,000 at a bank by signing a four-year, 6% loan. The terms of the loan require equal principal payments of $25,000 and accrued interest at 6% due
Laura, the accountant for Ocsoc Ltd., is currently preparing the December 31, 2020, statement of financial position, and she asked you to help her classify the following liabilities:a. In the month
Explain whether suppliers would prefer to do business with companies that have a higher accounts payable turnover ratio or ones with a lower accounts payable turnover ratio.
What is meant by the terms gross pay and net pay in regard to employees’ earnings?
What is meant by the term source deductions?
What do you know about a company if it reports unearned warranty revenue?
Explain the difference between an assurance-type warranty and a service-type warranty.
Explain how loyalty points that can be redeemed to purchase goods or services are accounted for.
What is meant by the term breakage?
What is meant by the term provisions?
Conservative Company purchased a warehouse on January 1, 2015, for $400,000. At the time of purchase, Conservative anticipated that the warehouse would be used to facilitate the expansion of its
Preakness Consulting and Bellevue Services are two petroleum engineering firms located in Calgary. Both companies are very successful and are looking to attract additional investors to provide them
Spin Master Corp. is a Toronto-based company that designs, markets, and sells entertainment products for children. Exhibit 8.27 is an extract from Spin Master’s consolidated financial statements
Maple Leaf Foods Inc. is a producer of food products under leading brands including Maple Leaf, Maple Leaf Prime, Schneiders, and Country Natural. Exhibit 8.26 is an extract from Maple Leaf’s
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 the Metro, MetroPlus, Super C, Food
Reitmans (Canada) Limited is a leading Canadian retailer that operates more than 675 stores under the Reitmans, RW & Co., Thyme Maternity, Penningtons, and Addition Elle banners. The following
You are reading a magazine related to your company’s business and come across an article on depreciation and amortization. In the article, the author made the following
Sheek Décor Ltd. (SDL) has been profitably operating upscale furniture showrooms in Montreal, as well as a lucrative export business where customers place orders online for home delivery by SDL. In
The following are the comparative statements of cash flows for Yellow Spruce Incorporated.Requireda. Discuss the company’s ability to meet its non-operating needs for cash over these three years,
Southbend Company had sales of $734,000 for the year. The company reported accounts receivable of $54,000 at the end of last year and $60,000 at the end of this year. Southbend’s cost of goods
Tangent Controls Ltd. is a manufacturer of crash-protected event recorders that are used in railway systems around the world to record event data. These data can be retrieved and analyzed to monitor
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
The comparative statement of financial position and statement of income for NextWave Company follow.Additional information:1. Some of the long-term investments were sold at their carrying value. As a
Financial statement data for Gibbons Electronics Company for 2020 follow.Additional information:1. Equipment that cost $100,000 and had a net carrying amount of $40,000 was sold for $50,000.2.
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
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 2020 financial statements of Green Company include the following statement of cash flows:Requireda. Did Green Company increase or decrease its current assets, other than cash, during 2020? Is
Garcinia Health Foods Inc. (GHF) is a nutritional company that produces weight management food supplements as well as healthy meals. The health supplement industry is characterized by lengthy credit
The following are the comparative statements of cash flows for Italian Fine Leather Goods Incorporated (IFLG).Requireda. Discuss the company’s ability to meet its non-operating needs for cash over
Autonomous Control Ltd. (ACL) is a leading automotive parts manufacturer supplying the large original equipment manufacturers (OEMs). ACL manufactures sensors, electronics, and control technologies
Medicinal Plant Ltd. (MPL) is a privately held distributor of medicinal marijuana tablets. The Vancouver Island-based company is well established and is currently managed by its founder, Dylan
A comparative statement of financial position and a statement of earnings for Standard Card Company follow.Additional information:The loss on the sale of equipment occurred when a relatively new
Marchant Ltd. reported the following abbreviated statement of financial position and statement of income for 2020.Requireda. Prepare a statement of cash flows for Marchant Ltd. for the year ended
Canbuild 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 the do-it-yourselfers. The
Financial statement data for Metro Moving Company for 2020 follow.Additional information:1. Vehicles that cost $65,000 and had a net carrying amount of $10,000 were sold for $14,000.2. A cash payment
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
The following is financial information for three companies.RequiredFor each of the above companies, calculate the cash flow from operations using the indirect method. Movilla Ltd. Kotei & Sons Ltd.
You are analyzing the financial statements of two companies with a few of your classmates for a group assignment. One of your group members makes the following statement:“Companies that use the
During a study session, one of your classmates states the following:“Companies depreciate their capital assets over time because they understand that capital assets immediately begin to lose value
You are studying with some classmates, and you are reviewing each other’s responses to the following questions:“Why do companies depreciate their equipment? What does it mean if the straight-line
You are studying with some classmates, and you are reviewing each other’s responses to the following questions:“Why do companies depreciate their equipment? What does it mean if the straight-line
When a company’s goodwill is impaired, management often discuss the writedown as a non-cash accounting charge and emphasize that it does not represent a loss of cash. Is this a fair way to present
You are analyzing the financial statements of Canada’s two major airlines, Air Canada and WestJet. You note both companies use the straight-line method of depreciation. You also see that Air
You are in a board meeting when one of your fellow board members stated: “I would prefer to see the statement of income prepared without any depreciation expense. When I review this statement, I
Webber Ltd. purchased the net assets of Sitter Inc. in January 2020 for $8,546,000. Appraisals indicated that the fair values of the assets purchased and liabilities assumed were as follows:The
In 2020, Madden Inc. purchased a number of intangible assets from a competitor who was in bankruptcy.Madden acquired the following assets:Asset
Laurin Limited purchased equipment on October 8, 2017, 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 January 29, 2020, 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
Kulle Optical Ltd. purchased optical lens coating equipment for $94,000 on January 1, 2020. At that time, management determined that the equipment would have a useful life of five years and a
On June 6, 2020, Lindhardt Chocolates Ltd. purchased assembly line equipment for $426,000. Lindhardt’s management estimated that the equipment had a useful life of four years and an estimated
Vogel Manufacturing has a December 31 year end and uses the straight-line method for depreciating its equipment and the double-diminishing-balance method for its trucks. Vogel began 2021 with a
Prepare all necessary journal entries for 2020, 2021, and 2022 related to each of the following scenarios:a. Astrom Ltd. purchased a piece of equipment on January 1, 2020, for $48,800. At the time,
Lundstrom Ltd. (LL) has a December 31 year end. The company purchased a piece of equipment on June 22, 2020, at a cost of $448,000. LL’s management estimated that this piece of equipment would have
Indicate how each of the following transactions would affect Dyche Ltd.’s statement of income, statement of financial position, and statement of cash flows. If there would be no effect, then state
Far North Airways Ltd. purchased a used Cessna 280 Caravan for its flight operations in September 2020. Far North paid $2,465,000 for the plane. Based on past experience, management has determined

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