Questions and Answers of Understanding Financial Accounting

Johnstone Inc. had a net loss of $89,200 prior to the following transactions:The company wrote off accounts of customers owing $36,100.The company recovered $8,900 in receivables from customers whose
Indicate how each of the following transactions would affect Entwistle Holdings Ltd.’s statement of income, statement of financial position, and statement of cash flows. If there would be no
Clean Sweep Ltd. manufactures several different brands of vacuum cleaners, from hand-held models to built-in central vacuums. It sells its products to distributors on credit, giving customers 30 days
The following information relates to Bedford Company’s accounts receivable:Accounts receivable balance on December 31, 2019 ....................................... $ 900,000Allowance
On December 31, 2019, Ajacks Company reported the following information in its financial statements:Accounts receivable ..................................... $1,193,400Allowance for doubtful
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
M&D Inc. began operations in January 2019. All of the company’s sales are made on account. At the end of its first year of operations, the company’s trial balance at December 31, 2019, showed
On December 31, 2019, Mills Manufacturing Ltd. had a $190,000 balance in its Accounts Receivable and a $9,400 balance in its Allowance for Doubtful Accounts. During 2020, the company made total
Sandra Spark is the owner of Spark Images Ltd. (SIL), a graphic design company. She is trying to prepare a bank reconciliation for SIL’s bank account as at February 29, 2020. A review of SIL’s
On May 31, JB Games Ltd. received its bank statement from the East Coast Savings Bank showing that JB had a balance of $12,200. The company’s general ledger showed a cash balance of $8,600 at that
When calculating the accounts receivable turnover ratio, is a higher number generally better than a lower number? Explain your rationale.
Explain how a company with a high current ratio may not be as liquid as the ratio seems to indicate.
Which internal control principle is especially diffi cult for small organizations to implement? Why?
Identify the control principles evidenced in the following statement:The IT department is responsible for ordering all computers purchased by the company. When the computers are delivered, a
Identify and explain three of the limitations that can affect the effectiveness of a company’s internal control.
Identify the control principles evidenced in the following statement:The company uses prenumbered cheques for all payments processed by its accounts payable clerks. Each clerk stamps “paid” on
Using a grocery store as an example, identify three of the five principles of internal control. For each internal control principle you identify, give one example of a control that a grocery store
Identify three of the common principles of internal control discussed in the chapter. Using a coffee shop, give one example of how it applies each of the three principles you have identified.
Explain why it is so important for a company’s board to establish a strong tone at the top in relation to internal controls. Identify two ways this might be done.
As discussed in the chapter, there are two methods for presenting the information in the operating activities section of the statement of cash flows: the direct method and the indirect method.
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
Kayla Martchenko has just received a small inheritance from her grandparents’ estate. She would like to invest the money and is currently reviewing several opportunities. A friend has given her the
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
The consolidated statements of cash flows and related note disclosure for Le Château Inc. are in Exhibits 5.23A and 5.23B.EXHIBIT 5.23A Le Château Inc.’s 2017 Consolidated Statements of Cash
The consolidated statements of cash flows and related note disclosure for Big Rock Brewery Inc. are in Exhibits 5.22A and 5.22B.EXHIBIT 5.22A Big Rock Brewery Inc.’s 2016 Consolidated Statements of
The consolidated statements of cash flows and related note disclosure for Sirius XM Canada Holdings Inc. are in Exhibits 5.21A and 5.21B. Sirius broadcasts satellite radio channels to
Exhibits 5.20A and 5.20B show the consolidated statement of cash flows of Dollarama Inc. for the years ended January 29, 2017, and January 31, 2016, along with related note disclosure.EXHIBIT 5.20A
Exhibits 5.19A and 5.19B contain the consolidated statements of cash flows and related note disclosure for The Second Cup Ltd.EXHIBIT 5.19A The Second Cup Ltd.’s 2016 Statements of Cash
You are part of the management team of Diggit Heavy Equipment Ltd., which sells excavators, dump trucks, and other heavy equipment across Eastern Canada. At a management meeting to discuss how to
You are part of a group of students analyzing the financial statements of a public company as part of a class project. At a team meeting, one of your group members makes the following
You are studying with some classmates, when one of them makes the following statement:“If a company reports a net loss on its statement of income, then we know the following:Expenses exceeded
While preparing for an upcoming exam, you are studying with some classmates when one of them states the following:“I always get confused when I am preparing the financing activities section of the
You are part of a group of students analyzing a company’s financial statements for a class project. At a team meeting, one of your group members makes the following statement:“After reviewing
A. J. Smith Company started business on January 1, 2020, and the following transactions occurred in its first year:1. On January 1, the company issued 12,000 common shares at $25 per share.2. On
Explain why dividends do not appear on the statement of income.
Explain why prepaid insurance is considered to be an asset. What happens to this asset over time?
Explain why no interest expense is recorded at the time a company takes out a new loan. Also explain when interest expense should be recorded.
Explain why revenues are recorded as increases to retained earnings in the template system.
Explain two ways that management could manipulate net income if a company used the cash basis of accounting. Also explain how these are prevented under the accrual basis of accounting.
You are considering accepting a job off er as a marketing manager for a national retail chain that is publicly traded. Before accepting, you decide to review the most recent financial statements. A
Explain how the cost constraint is applied by companies when determining what financial information should be reported.
You are a member of an investment club. To date, all of the club’s investments have been in Canadian public companies trading on the TSX. At a recent meeting, the members were discussing the
Identify and explain the advantages of using IFRS for dual listed public companies.
Explain the purpose of the notes to the financial statements.
Explain whether or not shareholders’ equity represents the interests of owners after external claims have been satisfied.
Explain whether the costs related to hiring and training a company’s employees are considered to be an operating or investing activity.
The change in retained earnings from the beginning of the year to the end of the year is the result of net earnings minus dividends for the year. These changes are part of the information presented
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
Describe the circumstances in which it may make sense for an entrepreneur to operate their business as a proprietorship rather than as a corporation.
Cineplex Inc. is currently Canada’s largest film exhibition organization, with theatres in six provinces. Excerpts from its 2016 financial statements are in Exhibits 2.24A to 2.24E.EXHIBIT 2.24A
Base your answers to the following questions on the financial statements of WestJet Airlines Ltd. in Exhibits 2.23A to 2.23C. EXHIBIT 2.23A WestJet Airlines Ltd.’s 2016 Consolidated Statement of
Calgary-based WestJet Airlines Ltd. provides services throughout Canada and to some international destinations. Excerpts from its 2016 financial statements are in Exhibits 2.23A to 2.23C.EXHIBIT
DHX Media Inc. is a Halifax-based developer, producer, and distributor of films and television programs. Excerpts from the company’s financial statements for the year ended June 30, 2016, are in
Excerpts from the 2016 statement of income, statement of operations, and notes to the financial statements of High Liner Foods Inc. are in Exhibits 2.21A to 2.21C. Although it is a Canadian company,
Winnipeg-based New Flyer Industries Inc. is one of North America’s largest manufacturers of heavyduty transit buses. Excerpts from its 2016 financial statements are in Exhibits 2.20A and 2.20B.
You are analyzing the financial statements of a company with a few of your classmates for a group assignment. One of your group members makes the following statements: “The company has a very
During a study session, one of your classmates states the following: “Companies that have a large amount of retained earnings have been profitable. They should distribute the retained earnings as
You are studying with some classmates and are reviewing each other’s responses to the following questions:“What does shareholders’ equity represent?”Your classmate responded as
You are studying with some classmates and are reviewing each other’s responses to the following question: “A company offering legal services requires all of its clients to pay a deposit of
Moksh Ltd. started business on January 1, 2020. The following transactions occurred in 2020:1. On January 1, the company received $700,000 when it issued 10,000 common shares.2. On January 1, the
Matachewan Corp. had the following transactions in its first month of operations:1. On incorporation, the company had issued 1,000 common shares in exchange for $15,000 cash and equipment worth
Insomniacs Coffee Ltd., a mobile coffee company, had the following account balances at the end of December 2020:Cash
The following information for the current year was obtained from the accounting records of Ozaki Ltd.:Retained earnings, beginning ........................................ $145,000Retained
For the two independent cases that follow, determine the missing amount for each letter. Case 1 Case 2 Revenues $123,000 Expenses A 158,000 77,000 Net earnings 45,000 Dividends declared 20,000
Analyze the following transactions and show their effects on the basic accounting equation, by preparing a template as follows:a. Received $250,000 from the issuance of shares.b. Borrowed $100,000
For each of the following transactions, indicate how (i) net earnings and (ii) cash flows are affected. For each, state whether there will be an increase, a decrease, or no effect, and the amount (if
For each transaction below, indicate which accounts are affected and whether they are increased or decreased:a. Issued shares in exchange for cash.b. Purchased land.c. Purchased inventory on
For each of the following transactions, indicate the effect on the basic accounting equation (Assets = Liabilities + Shareholders’ Equity):a. Purchase of equipment for cashb. Receipt of a loan from
Hughes Tools Company started business on October 1, 2019. Its fiscal year runs through to September 30 the following year. The following transactions occurred in the fiscal year that started on
Singh Company started business on January 1, 2020. The following transactions occurred in 2020:1. On January 1, the company issued 10,000 common shares for $250,000.2. On January 2, the company
The Wizard’s Corner, a company that sells video games and related items, had the following account balances at the end of June 2020:Cost of goods sold
Introduced Josephine D’eau and her water park company, Slip and Slide Ltd. At the end of July, the following items were in her records:Cash in bank accounts
Josephine D’eau operates a water park called Slip and Slide Ltd. Her busiest months are April through September, although, if the weather holds, she extends park access into October. For the month
The change in retained earnings from the beginning of the year to the end of the year is the result of net earnings minus dividends for the year. These changes are part of the information presented
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
For a company like BlackBerry Limited, provide two examples of transactions that you would classify as financing, investing, and operating activities.
The following information is for Harley Holdings Ltd. for the year ended January 31, 2020.Additional information:1. Equipment costing $35,000 was sold for $14,000.2. Land was sold at cost and none
Organic Developments Ltd. (ODL) is an importer of organic produce from California. The company has been experiencing significant growth and is preparing to approach the bank for a loan to acquire
The following is financial information for three companies:RequiredFor each of the above companies, calculate the cash flow from operations using the indirect method. NuVu Ltd. ABC Inc. Akhtar Ltd.
Explain why a company’s board of directors may want to determine the CEO’s bonus based on cash flows from operating activities rather than based on net income.
Explain what cash flow pattern would be expected of a successful company that generates sufficient cash flows from its operations to fund expansion and debt repayment.
Explain what cash flow pattern would normally be expected in the first year of a new company.
For a company with a cash flow problem related to the length of its cash-to-cash cycle, list at least three potential reasons for the problem and suggest a possible solution for each.
Does the purchase of equipment lengthen a company’s cash-to-cash cycle?
Explain why management of a company using IFRS might choose to classify the payment of dividends as an operating activity.
Explain why management of a company using IFRS might choose to classify payments of interest as a financing activity.
Explain how the net cash flow from financing activities could be a negative amount.
Explain how cash flows from operating activities differ from net income.
Furniture Land Inc. is a producer and retailer of high-end custom-designed furniture and uses thecontract-based approach to revenue recognition. The company produces only to special order and
High Liner Foods Inc. processes and markets seafood products throughout Canada, the United States, and Mexico under the High Liner and Fisher Boy brands. It also produces private label products and
Maple Leaf Foods Inc. produces value-added meat products for customers across North America, the United Kingdom, and Japan. Exhibit 4.15 presents the company’s consolidated statements of earnings
Gildan Activewear Inc. is a Montreal-based company that manufactures and sells activewear, socks, and underwear. The company’s brands include Gildan, Gold Toe, and Anvil. The company also
Ten Peaks Coffee 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
During a study session, one of your classmates states the following:“Companies that are consignors in a consignment arrangement are essentially in the same position as agents in third-party sale
You are studying with some classmates and are reviewing each other’s responses to the following questions:“Why do companies off er sales discounts to customers? How would a sales discount 1/10;
You are studying with some classmates and are reviewing each other’s responses to the following questions:“Why do companies off er sales discounts to customers? How would a sales discount 1/10;
You are studying with your study group when one of your group members makes the following statement: “Under the contract approach, companies recognize revenue whenever their net position in a
Sound Co. sells memberships to an online music streaming service. Memberships are available for 1-month, 6-month, and 12-month periods. The memberships are non-refundable.RequiredUsing the five-step
Kidlet Toys Ltd. designs and manufactures toys for the early childhood education market. The company sells its products to national toy retailers as well as to independent toy stores across North
Chargeit Inc. imports and distributes cellphone chargers and fully-charged portable backup power stations to gas stations and other small retailers. Chargeit has a standard contract that it enters

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