Questions and Answers of Understanding Financial Accounting

Bron Sodas Ltd. purchased bottling line equipment on January 1, 2020, for $388,000. It is expected to have a useful life of four years and a residual value of $38,000. The machine is expected to
Engvoll Inc. purchased a transport truck for $196,000. The company expected the truck to have a useful life of eight years or 230,000 kilometres, with an estimated residual value of $12,000 at the
On January 1, 2020, Rasmus Mining Ltd. purchased new mining equipment costing $386,000, which will be depreciated on the assumption that the equipment will be useful for four years and have a
On May 19, 2020, Sinnott Corporation purchased two pieces of used equipment for $590,000. Sinnott had been trying to acquire both pieces of equipment for some time. The seller had advertised the
Nordso Ltd. purchased a new warehouse. The warehouse had been listed for sale for $5 million, but Nordso was able to acquire it for $4,800,000. The bank, which was providing Nordso with the financing
Kirson Holdings Ltd. purchased the net assets of Baker Ltd. in January 2020 for $5,658,000. Kirson had appraisals conducted that indicated that the fair values of the assets purchased and liabilities
On July 1, 2016, 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 2019, the company decided
On March 1, 2019, 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
Healthlabs Ltd. purchased lab equipment for $18,000 on January 1, 2020. At that time, management determined that the equipment would have a useful life of three years with no residual value and that
Jijang Excavations Ltd. (JEL) operates specialized equipment for installing natural gas pipelines. JEL, which has a December 31 year end, began 2020 with a single piece of equipment that had been
SP Ltd. has a December 31 year end. On April 2, 2020, 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
Prepare all necessary journal entries for 2020, 2021, and 2022 related to each of the following scenarios:a. On January 1, 2020, Sustco Ltd. purchased a piece of equipment for $21,000. At the time,
Indicate how each of the following transactions would affect Holding Ltd.’s statement of income, statement of financial position, and statement of cash flows. If there would be no effect, then
In August 2020, 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
A machine that produces cellphone components is purchased on January 1, 2020, 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
On January 1, 2020, 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
On March 20, 2020, FineTouch Corporation purchased two machines at auction for a combined total cost of $236,000. The machines were listed in the auction catalogue at $110,000 for machine X and
Goodwill is an example of a financial statement item that results from multiple estimates. Explain why this is the case and identify three estimates that could be included in its determination.
Explain how the carrying amount of a piece of equipment is based on multiple estimates.
Identify which depreciation method, straight-line or diminishing-balance, would result in the greatest reduction in the carrying amount of a piece of equipment in the year of its acquisition.
Explain what management is expecting if they depreciate their production equipment on a diminishing-balance basis at 5% per year.
Wascana Photography Services sells and services a variety of high-end photography equipment for professional photographers. An inventory count is conducted each year end to verify the information
Park Avenue Tire Company has been operating in Winnipeg for more than 30 years and has a very loyal customer base. The company sells and installs tires and the owners pride themselves on the
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,
Indigo Books & Music Inc. is Canada’s largest book, gift, and specialty toy retailer. The company operates more than 200 stores under the Chapters, Indigo, Indigospirit, Coles, SmithBooks, and
Brick Brewing Co. Limited is a Canadian-owned brewery with its head office in Kitchener, Ontario. The company brews, sells, and markets its products under the Waterloo, Laker, Red Baron, Red Cap, and
CAE Inc. designs, manufactures, and sells simulation equipment, sells services and develops training solutions for the civil aviation and defence industries. Its revenues come from the sale of
You are working with some classmates on a group assignment that involves analyzing the financial statements of a public company. One of your group members makes the following statement:“The
You are studying with some classmates and are reviewing each other’s responses to the following question:“Why are cost formulas necessary?”Your classmate responds as follows:“Cost formulas
You are studying with some classmates and are reviewing each other’s responses to the following question:“Why are cost formulas necessary?”Your classmate responds as follows:“Cost formulas
In a seminar, you are reviewing one of your classmates’ responses to the following question:“What are the basic differences between periodic and perpetual inventory systems?”Your classmate
In a seminar, you are reviewing one of your classmates’ responses to the following question:“What are the basic differences between periodic and perpetual inventory systems?”Your classmate
You are an insurance adjuster handling commercial claims. You are working on a claim related to a warehouse fire, which resulted in the destruction of the client’s warehouse and all of its
Slick Snowboards Company reported sales of $700,000 in the first quarter of 2020. The company has never implemented an inventory system so the controller does not know how much inventory is actually
Suppose that you are a commercial lender at a financial institution. One of the accounts that you manage is a local company that processes apples into juices and sauces. You have just received the
You are working in a co-op placement in a retail company. Your boss has asked you to prepare an analysis of two competing retailers.RequiredWhich ratios would you find useful in analyzing inventory?
You are a stock analyst and are reviewing the plans that Western Paper Products Ltd. has for its line of toilet paper. The company announced that it plans to reduce each roll by 25 sheets while
Brandon’s Bentwood Furniture Company designs, makes, and sells custom furniture. The cost of the special resin used to finish the furniture has been increasing over the past 12 to 18 months. For
The following information was taken from the accounting records of Pembroke Ltd. and Deep River Ltd. at October 31, 2020. The two companies are competitors.Requireda. Calculate the gross margin,
The following information pertains to two competitors, Mostly Inc. and Hardly Ltd.Mostly Inc. reported sales revenues of $1,310,000 and Hardly Ltd. reported sales revenues of $2,890,000.Requireda.
On October 13, 2020, a fire destroyed one of Wetland Company’s warehouses, including all of the inventory stored there and in the adjacent lumber yard. The fire did not affect the inventory held at
Seismic Activity Metrics Ltd. lost most of its inventory in an earthquake and subsequent fire that destroyed the company’s warehouse and retail store in 2020. Fortunately, the accounting records
Sampson Ltd. is a wholesaler based in Winnipeg. During the current year, Sampson’s staff made a number of errors related to inventory, which follow.1. Goods out on consignment with another company
Potash Ontario Company (POC) is a Canadian company that manufactures and sells potash globally. At the end of 2020, POC’s chief financial officer noted that global prices for potash had declined
T2T Hockey Inc. has the largest selection of hockey equipment of any retailer in the city in which it operates. T2T reported the following cost and net realizable value information for inventory at
If your instructor has assigned the Appendix to this chapter, redo Problem AP7-8B assuming that the company uses a periodic inventory system. Round weighted-average per unit cost to two decimal
The following information relates to Toolworks Ltd.’s inventory transactions during the month of October.All of the units sold on October 5 were priced at $25 per unit. All of the units sold on
If your instructor has assigned the Appendix to this chapter, redo Problem AP7-6B assuming that the company uses a periodic inventory system. Round weighted-average per unit cost to two decimal
The following information relates to Good Kitchen Ltd.’s inventory transactions during the month of March.All of the units sold were priced at $65 per unit.Required a. Good Kitchen Ltd. uses
If your instructor has assigned the Appendix to this chapter, redo Problem AP7-4B assuming that the company uses a periodic inventory system. Round weighted-average per unit cost to two decimal
At the beginning of its operations in July 2020, Wheaton Pet Shop Ltd. began with 9,500 units of inventory that it purchased at a cost of $15.00 each. The company’s purchases during July were as
If your instructor has assigned the Appendix to this chapter, redo Problem AP7-2B assuming that the company uses the periodic inventory system. Round weighted-average per unit cost to two decimal
Saddlery Company sells leather saddles and equipment for horse enthusiasts. Saddlery uses the perpetual inventory system. The following schedule relates to the company’s inventory for the month of
Lara’s Gentle Clothing (LGC) sells gently used women’s clothing. LGC receives used clothing from individuals to display in the shop. LGC receives 40% of the selling price and pays the remaining
The following information was taken from the accounting records of Chicoutimi Ltée. and Jonquière Ltée. at December 31, 2020. The two companies are competitors.Requireda. Calculate the gross
On April 25, 2020, a flash flood destroyed one of High River Company’s warehouses, including all of the inventory inside. The flood did not affect the inventory held at the company’s other
Headstrong Hardware lost most of its inventory in an electrical fire that destroyed the company’s warehouse and retail store in 2020. Fortunately, the accounting records were backed up on the
Chiang Ltd. is a manufacturing company based in Fredericton, New Brunswick. During the current year, Chiang’s staff made a number of errors related to inventory, which follow.1. Raw materials that
Canadian Paper Company (CPC) produces newsprint in its paper mills. At the end of 2020, CPC’s chief financial officer noted that the international market price of newsprint had dropped
If your instructor has assigned the Appendix to this chapter, redo Problem AP7-8A assuming that the company uses a periodic inventory system. Round weighted-average per unit cost to two decimal
The following information relates to Hogs Back Falls Ltd.’s inventory transactions during the month of February.All of the units sold were priced at $85.00 per unit.Requireda. Hogs Back Falls Ltd.
If your instructor has assigned the Appendix to this chapter, redo Problem AP7-6A assuming that the company uses a periodic inventory system. Round weighted-average per unit cost to two decimal
If your instructor has assigned the Appendix to this chapter, redo Problem AP7-4A assuming that the company uses a periodic inventory system. Round weighted-average per unit cost to two decimal
At the beginning of its operations in March 2020, Mastiff Supplies Ltd. began with 7,500 units of inventory that it purchased at a cost of $7.00 each. The company’s purchases during March were as
First Ownership orders merchandise from several suppliers from around the world. Each of the suppliers has different shipping or transportation terms. At the end of December, First Ownership had the
Explain whether a higher inventory turnover ratio is normally considered to be positive. Identify a potential concern that may arise if this ratio is too high.
Explain two ways that a company can increase its gross margin ratio.
Explain how the current ratio and gross margin ratio would be affected if an error made during the inventory count resulted in inventory being overstated.
Explain whether the choice of inventory cost formula has an impact on: (a) The statement of income, (b) The statement of financial position, (c) The statement of cash flows.
Describe the major classification(s) of inventory held by a retailer.
Sanjay Supplies Limited is concerned about its ability to pay its debts. Selected financial information follows.RequiredAnalyze the information and explain why Sanjay is experiencing problems with
Saputo Inc. is a Montreal-based producer and distributor of dairy products, including cheese and yogurt products. According to the company’s website, it is “one of the top ten dairy processors in
High Liner Foods Incorporated processes and markets prepared frozen seafood throughout Canada, the United States, and Mexico under the High Liner and Fisher Boy brands. It also produces private label
According to the company’s 2016 annual financial statements, Finning International Inc. is “the world’s largest Caterpillar equipment dealer.” The company is headquartered in Vancouver, but
According to its 2016 annual financial statements, Tree Island Steel Ltd. and its subsidiary companies supply a wide range of steel wire and fabricated steel products to customers in Canada, the
Big Rock Brewery Inc., which is based in Calgary, is a publicly listed company. The company’s products are sold across the country and are exported to Korea.One of the reporting requirements for
You are in a meeting and one of your colleagues makes the following statement:“Accounts receivable turnover is 4.2. This is a good turnover ratio and it means that the company receives payments
You are studying in the library and are reviewing one of your classmate’s responses to the following question:“Explain, in your own words, why a company may decide to accept credit cards rather
You are studying with some classmates and are reviewing each other’s responses to the following question:“Briefly explain why accounts receivable is called a control account.”One classmate
Lowrate Communications is in the cellular telephone industry. The following selected information has been compiled for the company (in thousands of dollars):Requireda. In each of the three years
Ontario Company manufactures and sells high-quality racing and mountain bicycles. At the end of 2019, Ontario’s statement of financial position reported total Accounts Receivable of $250,000 and
You are the CEO of a small tech start-up company. You are reviewing the quarterly financial statements with the CFO. She notes that she has used the percentage of credit sales method because this
You are the founder of a company that designs and manufactures snowboards. Your company has been successful in developing sales to ski and snowboard shops across Canada. Over the past year, the
At a management meeting, your CEO asks you the following question:“Am I correct in thinking that by providing our customers with a 60-day term, we are subsidizing the sale price by forgoing
You volunteer as a board member for a local non-profit organization that provides emergency shelter, counselling, and advocacy for women and children. At a recent board meeting, the organization’s
The following amounts were reported by Sindarius Ltd. in its most recent statement of financial position:The company had sales of $1,950,000 in 2020 and $1,990,000 in 2019. All sales were on
The following amounts were reported by Leau Ltd. in its most recent statement of financial position:Requireda. Calculate the current ratio and quick ratio for Leau Ltd.b. Leau Ltd.’s bank loan
Kirson Inc. had net income of $256,500 prior to the following transactions:The company recovered $12,200 in receivables from customers whose accounts had previously been written off.The company wrote
Indicate how each of the following transactions would affect AlarmIT Ltd.’s statement of income, statement of financial position, and statement of cash flows. If there would be no effect, then
Quick Sweep Ltd. manufactures industrial sweepers for cleaning malls and other commercial space. All sales are on account, with terms n/45. During the year ending October 31, 2020, Quick Sweep
The following information relates to EAB Ltd.’s accounts receivable:Accounts receivable balance on December 31, 2019 ...................................... $ 2,800,000Allowance for
Johnson Ltd. reported the following information on financial statements for the year ended December 31, 2019:Accounts receivable .........................................
The following is an aging schedule for a company’s accounts receivable as at December 31, 2019:On December 31, 2019, the unadjusted balance in the Allowance for Doubtful Accounts (prior to the
Potter Ltd. began operations in January 2019. On December 31, 2019, the end of its first year of operations, the balance in the company’s Accounts Receivable account was $136,000. All of the
Majestic Equipment Sales Company, which sells only on account, had a $120,000 balance in its Accounts Receivable and a $4,200 balance in its Allowance for Doubtful Accounts on December 31, 2019.
You are preparing the bank reconciliation for your company, Hanneson Holdings Ltd., as at October 31.RequiredIndicate whether each of the following items would be added to the bank balance, deducted
On October 31, 2020, Montgomery Manufacturing Ltd. (MML) received its bank statement from the Big Bank. It stated that MML had a balance of $8,900 at October 31. The company’s general ledger showed
Catalina Holdings Ltd. (CHL), a Calgary-based property management company, is owned by Leslie Smeal. Leslie received the monthly statement for the company, which showed a balance of $26,936.89 at
The April 30, 2020, bank statement for Comet Company showed a cash balance of $7,582. The Cash account in the company’s general ledger (G/L), according to the company’s records on April 30, had a
The following amounts were reported by Moksh Ltd. in its most recent statement of financial position:The company had sales of $860,000 in 2020 and $740,000 in 2019. All sales were on

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