Skip to content
Textbook Guides

Financial Accounting, Sixth Canadian Edition Solution Manual

Financial Accounting, Sixth Canadian Edition Solution Manual offers a comprehensive guide to solving every question in your textbook, helping you master the material.

Preview 16 of 944 pages

See the first 16 pages exactly as they appear in the document.

  1. Page 1
    Read page 1 as text

    SOLUTION MANUAL Chris Deresh Douglas College Financial Accounting Sixth Canadian Edition Walter T. Harrison, Jr. Baylor University Charles T. Horngren Stanford University C. William (Bill) Thomas Baylor University Wendy M. Tietz Kent State University Greg Berberich University of Waterloo Catherine Seguin University of Toronto

  2. Page 2
  3. Page 3
    Read page 3 as text

    Resource Manual for Harrison et al., Financial Accounting , 6ce 1-1 CHAPTER OVERVIEW CHAPTER 1 The Financial Statements The chapter begins with an introduction to Canadian Tire Corporation, a Canadian-based retail company. The topic of financial statements is presented identifying that many decisions come from analyzing these reports. Following this discussion, the text defines accounting as the language of business and identifies the users of accounting information. The chapter next discusses the differences between Financial and Managerial accounting disciplines and describes the different forms of business: proprietorship, partnership, and corporation. The chapter then explores financial standards and the multiple sets of Generally Accepted Accounting Principles (GAAP) for Canada. The section references International Financial Reporting Standards (IFRS) for publicly accountable entities (PAEs) and Accounting Standards for Private Enterprises (ASPE) for Canadian privately held companies. Next the chapter discusses the qualitative characteristics of the accounting conceptual framework: relevance, faithful representation, comparability, verifiability, timeliness, and understandability and the underlying assumptions of the framework including: the going-concern assumption, the separate-entity assumption, the historical-cost assumption, and the stable-monetary-unit assumption. Next the chapter focuses on each of the financial statements: Income Statement, Statement of Retained Earnings, Balance Sheet, and Statement of Cash Flows. The respective elements of each statement are discussed including what each reports and/or measures. The various components of owners’ (shareholders’) equity—revenue, expense, net income, net loss, retained earnings, and dividends—are also defined. The relationship between assets, liabilities and equity known as the accounting equation is introduced in the discussion of the balance sheet. In addition, the classifications such as current assets and current liabilities are introduced. The operating, investing and financing activities within the cash flow statement are introduced and discussed relative to cash receipts and payments. The notes to Financial Statements are also mentioned in this section. Decision Guidelines help explain how people use the financial statements in decision making. The chapter concludes with a section on fraud as it relates to the financial statements, and possible reasons for its occurrence. Examples are given, which leads into an introduction to the topic of ethics in Accounting and ethical behaviour of accountants, and decision guidelines for making ethical judgments. At the end of the chapter a summary problem reviews the income statement, statement of retained earnings, balance sheet, and statement of cash flows and requires the student to assess the company’s performance and financial position.

  4. Page 4
    Read page 4 as text

    Resource Manual for Harrison et al., Financial Accounting , 6ce 1-2 LEARNING OBJECTIVES After studying Chapter 1, students should be able to: 1. Explain why accounting is the language of business 2. Describe the purpose of each financial statement and explain the elements of each one 3. Explain accounting’s conceptual framework and underlying assumptions 4. Explain the relationships among the financial statements 5. Make ethical business decisions SUGGESTED PRIORITY OF CHAPTER TOPICS MUST COVER Multiple sets of GAAP (generally accepted accounting principles) Relevance, faithful representation, comparability, verifiability, timeliness, understandability characteristics; cost constraint, separate entity assumption, historical-cost assumption, going- concern assumption, and stable-monetary-unit assumption Financial Statements: Income statement, Statement of retained earnings, and Balance sheet Accounting equation Ethical considerations in accounting and business RECOMMENDED Types of business organizations Statement of Cash flow and types of cash flows IF TIME PERMITS Using Canadian Tire Corporation ’s financial statements

  5. Page 5
    Read page 5 as text

    Resource Manual for Harrison et al., Financial Accounting , 6ce 1-3 CHAPTER OUTLINE OBJECTIVE 1: Explain why accounting is the language of business A. Accounting is an information system that measures business activities, processes data into reports, and reports results to decision makers. Exhibit 1-1 illustrates the flow of information in an accounting system. Financial statements report this information to users. B. Accounting information is used by 1. Managers to set goals, evaluate those goals, and take corrective action. 2. Investors to decide whether to invest in a business or evaluate an investment. 3. Creditors to evaluate a borrower’s ability to make required payments. 4. Government and regulatory bodies such as Canada Revenue Agency (CRA) to ensure organizations pay the correct amount of taxes. 5. Individuals to make investment decisions and/or manage a bank account. 6. Not-for-profit organizations, which use accounting information in virtually the same way as profit organizations. C. Accounting information can be classified into two categories: 1. Financial accounting provides information for managers inside the business and for decision makers outside the organization, such as investor and creditors. 2. Management accounting generates inside information for internal use by management. D. Types of business organizations (summarized in Exhibit 1-2): 1. Proprietorship —an unincorporated business with a single owner. The owner has unlimited liability, which means that the owner assumes personal responsibility for the debts of the business. 2. Partnership —an unincorporated business with two or more owners. Each partner has unlimited liability. 3. Corporation —an incorporated business owned by shareholders whose ownership is evidenced by the number of shares held. Shareholders elect the members of the board of directors, which sets policy for the corporation and appoints officers. A shareholder has limited liability. A corporation is distinct from its owners and has many of the rights entitled to a person. OBJECTIVE 2: Describe the purpose of each financial statement and explain the elements of each one A. Generally Accepted Accounting principles (or GAAP) are the professional guidelines that govern how accountants record, measure, and report financial information. 1. The Chartered Professional Accountants (CPA) establishes GAAP. 2. There are multiple sets of GAAP and each is applicable according to the type of entity or organization. a. Publicly accountable enterprises (PAEs) must apply International Financial Reporting Standards (IFRS) , which are standards set by the International Accounting Standards Board (IASB) to enhance the comparability of financial information reported by public enterprises around the world. IFRS was effective January 1, 2011, for Canadian public companies. b. Private enterprises apply the Accounting Standards for Private Enterprises (ASPE) . However, private enterprises have the option of using IFRS or ASPE.

  6. Page 6
    Read page 6 as text

    Resource Manual for Harrison et al., Financial Accounting , 6ce 1-4 c. Other sets of GAAP are applicable to not-for-profit organizations, pension plans, and government entities. 3. A summary of IFRS-ASPE differences is presented at the end of the chapter. 4. The financial statements provide a company’s financial results for users to make decisions. The income statement for Canadian Tire Corporation is presented. B. The financial statements provide answers to four basic questions . The financial statements that would be used to answer these questions are summarized in Exhibit 1-3. 1. How well did the company perform during the year? (The answer is found on the income statement) 2. Why did the company’s retained earnings change during the year? (The answer is found on the statement of retained earnings.) 3. What is the company’s financial position at the end of the year? (The answer is found on the balance sheet.) 4. How much cash did the company generate and spend during the year? (The answer is found on the statement of cash flows.) C. The Income Statement (or statement of profit or loss) reports the revenues, expenses, and net income or net loss of a company for a specified period of time. (The Consolidated Statements of Income for Canadian Tire Corporation is illustrated in Exhibit 1-4.) 1. Canadian Tire Corporation has chosen a fiscal year ending at the same time as the calendar year. However, a company can choose a fiscal year that is not the same as a calendar year. Most of Canada’s big banks have a fiscal year-end of October 31. 2. Canadian Tire Corporation reports operating results for two fiscal years for comparability purposes enabling users to detect any trends. 3. The income statement has two main elements: income and expenses. a. Income includes revenue earned through the sale of goods and services and gains. b. Gains reflect an increase in the economic benefits to a company usually due to a transaction outside of the company’s ordinary business activities. For example, the sale of a long-lived asset that exceeds the carrying amount on a company’s books. c. Expenses consist of costs incurred to purchase goods and services to run a business and losses. d. Losses are the opposite of gains and reflect a decrease in the economic benefits to a company usually due to a transaction outside of the company’s ordinary business activities. For example, the sale of a long-lived asset that does not exceed the carrying amount on a company’s books. 4. The major expense for Canadian Tire Corporation is called Cost of Goods Sold, which represents the cost of the goods Canadian Tire Corporation sold to its customers. 5. The Income Statement reports net income or net loss that is equal to Total Revenues and Gains less Total Expenses and Losses or the amount of income or loss that is left after total expenses have been deducted from total income. 6. Net income is sometimes known as net earnings or net profit. D. The Statement of Retained Earnings reports the changes in a company’s retained earnings during a specified period and reflects the accumulated net income of the company since it started business. (The Consolidated Statements of Retained Earnings for Canadian Tire Corporation is illustrated in Exhibit 1-5.) 1. The Net Income reported on the income statement is added to the opening balance of retained earnings.

  7. Page 7
    Read page 7 as text

    Resource Manual for Harrison et al., Financial Accounting , 6ce 1-5 2. After a company earns net income, the board of directors must decide whether to retain the income for use in the business or to pay dividends. Dividends reduce retained earnings. Canadian Tire Corporation declared dividends of $154 million in 2014. E. The Balance Sheet (or statement of financial position under IFRS) reports a company’s financial position at a moment in time. (The Consolidated Balance Sheets of Canadian Tire Corporation is illustrated in Exhibit 1-6.) 1. The balance sheet is dated as of the last day of the period. The amount of assets reported is the amount of assets Canadian Tire Corporation owned as of the last day of the accounting period. The other financial statements cover a period of time. 2. The balance sheet reports three main categories: Assets, Liabilities, and Shareholders’ Equity ( Canadian Tire Corporation’s term for owners’ equity). The relationship between these categories is known as the accounting equation , where assets always equal the sum of liabilities and owners’ equity: A = L + OE. Exhibit 1-7 illustrates the accounting equation using the 2014 figures from the Balance Sheet of Canadian Tire Corporation . Teaching Tip Beginning assets and shareholders’ equity are $120,000 and $30,000, respectively. Liabilities increased $15,000 during the year, and the ending assets are $145,000. What was the ending shareholders’ equity? Assets = Liabilities + Shareholders’ Equity Beginning of year $120,000 = X + $30,000 X = $90,000 End of year $145,000 = (90,000 + 15,000) + X X = $40,000 3. Assets are economic resources owned by a business that are expected to be of benefit in the future. Assets are divided into two categories: current and non-current (long-term) assets. a. Current assets are those assets that the company expects to convert to cash, sell, or consume during the next 12 months or within the business’s normal operating cycle if longer than a year. i. The operating cycle is the time span during which (a) cash is used to acquire goods and services, and (b) these goods and services are sold to customers, from whom the business collects cash. ii. Examples of current assets are:  Cash .  Receivables —the amount that a company expects to collect from its customers who bought merchandise on credit.  Inventory —the merchandise Canadian Tire Corporation sells to its customers.  Prepaid expenses —the amount of advertising, rent, insurance, and/or supplies that Canadian Tire Corporation has already paid for but has not yet used. b. Non-current assets (or long-term assets) consist mainly of property, plant, and equipment. These assets are partially used, or amortized. Canadian Tire Corporation also reports Goodwill and Intangible Assets. Intangible Assets are assets with no physical form such as patents and trademarks. Other Assets is a category for assets not reported elsewhere on the balance sheet.

  8. Page 8
    Read page 8 as text

    Resource Manual for Harrison et al., Financial Accounting , 6ce 1-6 Teaching Tip Ask students how a business comes up with the funds to acquire additional assets. Lead students to see that a company can borrow (liabilities), or use invested funds (owners’ equity), or hopefully, earn it (also owners’ equity). Later, you can associate the terms “contributed capital” and “retained earnings” with the latter two. Students may say that a company buys assets with cash; however, remind them that this would not change total assets. 4. Liabilities are debts the entity owes as a result of a past event, and which it expects to pay off in the future using some of its assets. Liabilities are also divided into current and non- current/long-term categories. a. Current liabilities are debts that are payable within one year or within the entity’s normal operating cycle if longer than a year. i. Examples of current liabilities are:  Accounts payable represents amounts owed for goods and services that have been purchased but not yet paid for. The word payable indicates a liability.  Notes payable —amounts borrowed with a promise to pay back within the year  Income taxes payable is the amount owed to the government for income taxes. b. Non-current liabilities (or long-term liabilities) are due in periods beyond the next twelve months. 5. Owners’ Equity is the owners’ remaining interest in the assets of the company after deducting all its liabilities. a. Owners’ equity or shareholders’ equity in the case of a corporation like Canadian Tire Corporation has four common components : i. Share capital refers to the amounts contributed by shareholders in exchange for shares. ii. Retained earnings, which comes from the statement of retained earnings, represents the amount of net income that has been reinvested in the business.  Revenues are amounts earned by delivering goods or services. Revenues increase net income and therefore also increase retained earnings.  Expenses are the costs of operating a business. Expenses decrease net income and therefore also decrease retained earnings.  If expenses exceed revenues, the result is a net loss .  Dividends are distributions of assets (usually cash) to the shareholders. The amount of dividends declared is determined after net income is computed. Dividends decrease retained earnings because they represent the amount of the net income that is not reinvested in the business. b. The owners’ equity of proprietorships and of partnerships makes no distinction between what is invested and what is earned. The equity of each owner is accounted for under the single heading, Capital . F. The Statement of Cash Flows reports the sources and uses of cash from the three major activities of a business--operating, investing, and financing. (The Consolidated Statements of Cash Flows for Canadian Tire Corporation is illustrated in Exhibit 1-8.) 1. The three major activities include:

  9. Page 9
    Read page 9 as text

    Resource Manual for Harrison et al., Financial Accounting , 6ce 1-7 a. Operating Activities relate to the transactions and other events that determine net income/ (loss). i. Cash receipts from a company’s sales of its primary goods and services. ii. Cash payments to suppliers and employees for the goods and services they provide to generate sales. b. Investing Activities relate to the purchase and sale of long-term assets that a company uses to conduct is operations. Canadian Tire Corporation pays cash to purchase assets and receives cash when assets are sold. c. Financing Activities relate to the way a company acquires the funds used for investing and operating activities. A business can finance its activities by borrowing from a bank or other lender, issuing shares to its owners, and paying dividends. Teaching Tip Ask students where their money comes from and what they use it for. Categorize their suggestions as operating, investing, or financing activities. 1. Operating—salaries/wages from jobs; rent payments, food, etc. 2. Investing—purchasing or selling investments; buying a house 3. Financing—borrowing or repaying money Or, Set up three unlabelled columns on the board (or screen, etc.). Ask students to call out any kind of activity associated with a business. You can drop each item into the appropriate column and then ask students to come up with names for the columns. Teaching Tip Ask students which of the three activities is most important and why. Operating activities are the most important because without them there is no need for the other two. Investing activities are of secondary importance because a company’s current and future operating effectiveness is determined by wise investment decisions. G. Notes to the financial statements are provided as an integral part of the financial statements and should be read carefully as part of a review of the financial statements. H. Two parties have critical financial reporting responsibilities : a company’s management and its independent outside (or external) auditor. Company management has the primary financial reporting duties because they are responsible for designing, maintaining, and monitoring the company’s financial reporting process and for preparing the financial statements based on the information generated by this process. The auditor’s responsibility is to gather evidence regarding the financial information reported by management, and then decide whether the information reported in the financial statements complies with the applicable GAAP.

  10. Page 10
    Read page 10 as text

    Resource Manual for Harrison et al., Financial Accounting , 6ce 1-8 OBJECTIVE 3: Explain the relationships among the financial statements A. Exhibit 1-9 summarizes the relationships among the financial statements 1. The income statement is the only financial statement that lists revenues and expenses. a. Net income (or net loss), the difference between revenues and expenses, is reported on the income statement. b. This amount is then used on the statement of retained earnings. 2. The statement of retained earnings reports the following: a. The beginning balance of retained earnings; b. The addition of net income or the subtraction of net loss to that beginning balance; c. The subtraction of dividends; and d. The ending balance of retained earnings. e. The ending balance is used on the balance sheet. 3. The balance sheet is the only financial statement that reports all assets, liabilities, and owners’ equity. The balance sheet must show that the assets equal the sum of liabilities and owners’ equity. 4. The statement of cash flow reports cash flows from three types of business activities— operating, investing, and financing. a. A net cash flow is reported for each activity. b. The ending cash balance is reported. This amount should also be reported on balance sheet. Teaching Tip Ask students which of the financial statements is prepared first and why? Income statement to determine profit/(loss) to prepare the next financial statement (Statement of retained earnings or statement of changes in owners’ equity). Ask students which of the financial statements is prepared second and why? Statement of retained earnings (statement of changes in owners’ equity) to determine the ending capital balance to prepare the next financial statement (Balance Sheet). B. The Decision Guidelines summarize how people use financial statements in their decision making process. OBJECTIVE 4: Explain accounting’s conceptual framework and underlying assumptions A. The overall objective of financial reporting is to provide useful information to users to make investing and lending decisions. The characteristics of useful information include: relevance, faithful representation, comparability, verifiability, timeliness and understandability. (Exhibit 1-10 provides an overview of accounting’s conceptual framework.) 1. The relevance characteristic must be considered to ensure the financial statements provide information to the user that is useful. To be relevant, financial information must provide predictive and/or confirmatory value and must be material in nature or magnitude that omitting or misstating it could affect the decisions of an informed user. 2. The faithful representation (or reliability) characteristic states that accounting records should be based on accurate data. The actual cost of assets or services is usually more reliable than market value. NOTE: Consider the conflict between information that is timely (based on estimates) and reliable that may require additional time to ensure accuracy that may render the statements irrelevant.

  11. Page 11
    Read page 11 as text

    Resource Manual for Harrison et al., Financial Accounting , 6ce 1-9 B. There are four accounting assumptions underlying the conceptual framework. 1. The going-concern assumption assumes that the entity will remain in operation for the foreseeable future. The market values of assets may vary from year to year, and for this reason cost is deemed to be preferable to market value for measurement purposes. 2. The separate-entity assumption states that each entity is an economic unit and is kept separate from other entities including the activities of its owners. Teaching Tip Assume that you own three businesses and maintain one chequebook for all three. How can this situation prevent you from maximizing your profits? (If one or two of the businesses are unprofitable, then you would make more money without them. However, you would have no way of knowing.) The entity concept would require a separate set of records for each business. 3. The historical-cost assumption states that assets should be recorded at actual cost. Teaching Tip You purchased some land on January 1 of the current year. You had to borrow $100,000 for 2 years at 10% interest at the local bank that appraised the land for $105,000. You will eventually pay $100,000 plus $20,000 for the interest. On December 31 of the current year, you receive an offer for the land for $110,000, but you do not want to sell the land. At what value should the land be reported on the balance sheet? The original cost (excluding interest) of $100,000. 4. The stable-monetary-unit assumption allows accountants to ignore the effect of inflation in the accounting records thus reporting under the assumption that the value of the currency is stable. OBJECTIVE 5: Make ethical business decisions A. The facts and circumstances surrounding accounting decisions may not always make them clear cut, and yet the decision may determine whether the company shows a profit or a loss in a particular period. Three factors influence business and accounting decisions: economic, legal, and ethical factors. 1. Economic factor states that the decision being made should maximize the economic benefits to the decision maker. 2. Legal factor is based on the proposition that free societies are governed by laws that are written to provide, clarify, and to prevent abuse of the rights of individuals or society. 3. Ethical factor recognizes that while certain actions might be both economically profitable and legal, they may still not be right. Ethical standards are established to enforce a higher level of conduct than that imposed by law. They are shaped by our cultural, socioeconomic, and religious backgrounds and are needed to guide judgment when making business decisions. CPA has adopted a code of professional conduct that emphasizes the importance of ethical behaviour of accountants in the decision-making process of investors and creditors. B. Fraud is the intentional misrepresentation of facts done to persuade another party to act in a way that causes financial damage to that party. Two types are given focus: misappropriation of assets and fraudulent financial reporting. Misappropriation is committed by stealing assets from a company and then covering up the theft by adjusting the accounting records. Fraudulent financial reporting is committed by company managers who make false and misleading entries in the accounting records, usually to present a more favourable financial picture than would be presented if the actual results were disclosed. Teaching Tip

  12. Page 12
    Read page 12 as text

    Resource Manual for Harrison et al., Financial Accounting , 6ce 1-10 Use the fraud examples to lead into a discussion on Ethics . Ethics play an important role in accounting. Accounting information is used in making decisions that involve huge economic consequences. There always exists a temptation to report information in your favour when you can. We saw the effects of doing so in many of the scandals that were reported prominently in the news in 2002. One well-known company was Enron Corporation, which understated its liabilities and overstated its profit. C. The Decision Guidelines summarize four questions that help in making ethical business decisions. D. A summary of IFRS and ASPE differences is presented.

  13. Page 13
    Read page 13 as text

    Resource Manual for Harrison et al., Financial Accounting , 6ce 1-11 ASSIGNMENT GRID Assignment, Topic(s), Learning Objective(s), Estimated Time in Minutes, Level of Difficulty Q1 Understanding financial statements 1 1-2 Easy Q2 Understanding financial statements 1 1-2 Easy Q3 Understanding financial statements 2 1-2 Easy Q4 Understanding financial statements 3 1-2 Easy Q5 Understanding financial statements 3 1-2 Easy Q6 Understanding financial statements 3 1-2 Easy Q7 Understanding financial statements 3 1-2 Easy Q8 Understanding financial statements 3 1-2 Easy Q9 Understanding financial statements 3 1-2 Easy Q10 Understanding financial statements 3 1-2 Easy Q11 Understanding financial statements 3 1-2 Easy Q12 Understanding financial statements 3 1-2 Easy Q13 Understanding financial statements 3 1-2 Easy Q14 Understanding financial statements 3 1-2 Easy Q15 Understanding financial statements 3 1-2 Easy S1-1 Distinguish between assets, liabilities, and equity 2 5 Easy S1-2 Applying the accounting equation 2 5 Easy S1-3 Using the accounting equation 2 5 Easy S1-4 Classifying assets, liabilities, and owners’ equity 2 5-10 Easy S1-5 Using the income statement 2 5 Easy S1-6 Preparing an Income Statement 2 5-10 Easy S1-7 Preparing a statement of Retained earnings 2 5 Easy S1-8 Preparing a balance sheet 2 10-15 Easy S1-9 Preparing a statement of cash flows 2 10-15 Easy S1-10 Applying accounting assumptions 4 5 Easy S1-11 Making ethical judgments 5 5 Easy S1-12 Classifying items on the financial statement 2 10 Easy E1-13 Organizing a business 1 10 Medium E1-14 Describe the purpose of the financial statements 2 10 Easy E1-15 Applying accounting assumptions 4 5-10 Medium E1-16 Using the accounting equation 2 5-15 Medium E1-17 Using the accounting equation; evaluating business 2 10-15 Medium E1-18 Applying the accounting equation 2 10-20 Medium E1-19 Applying the accounting equation 2 10-15 Medium E1-20 Identifying financial statement information 2 10-15 Medium E1-21 Applying the accounting equation, understanding the balance sheet 2 10-20 Medium E1-22 Understanding the income statement 2 15-25 Medium E1-23 Using the financial statements 2 15-20 Medium E1-24 Preparing an income statement and a statement of retained earnings 2 15-20 Medium E1-25 Preparing a balance sheet 2 15-20 Medium E1-26 Preparing a statement of cash flows 2 15-20 Medium E1-27 Using financial statements for decision making 2 10-15 Medium E1-28 Relationships among financial statements 3 15-20 Medium P1-29A Using financial statements and applying assumptions and characteristics to the income statement, 4 15-20 Difficult P1-30A Applying the accounting equation; understanding financial statements 2, 3 30-40 Medium

  14. Page 14
    Read page 14 as text

    Resource Manual for Harrison et al., Financial Accounting , 6ce 1-12 P1-31A Understanding the balance sheet 2 20-25 Medium P1-32A Understanding the balance sheet, entity assumption 2, 4 20-25 Medium P1-33A Preparing and using the income statement, statement of retained earnings, and balance sheet 3 30-45 Medium P1-34A Preparing a statement of cash flows 2 20 Medium P1-35A Analyzing a company’s financial statements; relationships among the financial statements 2, 3 40-50 Medium P1-36A Understanding the balance sheet 2, 3 10-15 Medium P1-37B Applying assumptions and characteristics to the income statement 2, 3, 4 15-20 Difficult P1-38B Applying the accounting equation; understanding the financial statements, 2, 3, 4 30-45 Medium P1-39B Understanding the balance sheet 2, 3 30-40 Medium P1-40B Understanding the balance sheet, entity assumption 2 20-25 Medium P1-41B Understanding the income statement, statement of retained earnings, balance sheet; relationships among the financial statements 2, 4 20-25 Medium P1-42B Preparing a statement of cash flows 2, 3 30-45 Medium P1-43B Analyzing a company’s financial statements; relationships among the financial statements 2 20 Medium P1-44B Analyzing a company’s financial statements; relationships among the financial statements 2, 3 40-50 Medium Decision Case 1 Evaluating business operations; using financial statements 2 20-30 Medium Decision Case 2 Analyzing a company’s financial statement 2 15-20 Medium Ethical Issue—Making ethical business decisions 5 20-30 Medium Focus on Financials—Evaluating business operations 2 20-30 Medium Focus on Analysis—Evaluating a company by using financial statements 2 20-30 Medium Group Project ANSWER KEY TO CHAPTER 1 QUIZ 1. D 2. B 3. A 4. C 5. D 6. C 7. A 8. C 9. A 10. C

  15. Page 15
    Read page 15 as text

    Resource Manual for Harrison et al., Financial Accounting , 6ce 1-13 Name:_ Date: Section: CHAPTER 1 TEN-MINUTE QUIZ Circle the letter of the best response. 1. Which of the following statements is false? A. Accounting is the information system that measures business activities, processes that information into reports, and communicates the results to decision makers. B. Financial statements report financial information about a business entity to decision makers. C. Owners of a corporation are not personally liable for the debts of the corporation. D. The purpose of financial accounting is to provide information to people inside the entity, such as the owners and managers. 2. Mary owns and operates a fabric shop. Mary needs to borrow money to expand; therefore, she prepared financial statements to present to her banker. Mary recorded the assets of her store at the cost she paid for them 2 years ago rather than when she transferred them to her business this year. Mary has violated which of the following principles or concepts? A. Reliability principle B. Separate Entity Assumption C. Going-concern principle D. Stable-monetary-unit concept 3. Which of the following is false? A. Owners’ Equity – Assets = Liabilities B. Assets = Owners’ Equity + Liabilities C. Owners’ Equity = Assets – Liabilities D. Liabilities = Assets – Owners’ Equity 4. SMT Inc. experienced an increase in total assets of $2,000 during the current year. During the same year, total liabilities decreased $6,000. If dividends for the year were $10,000 and the owners made no additional investment, how much was net income? A. $14,000 B. $6,000 C. $18,000 D. $2,000 5. Which of the following statements is true? A. The cash flow statement reports all changes in assets, liabilities, and shareholders’ equity of the business during the period. B. Revenues and expenses are reported only on the balance sheet. C. The income statement reports cash flows from three types of business activities--cash receipts, cash payments, and investing. D. On the statement of retained earnings, any dividends for the period are subtracted from the beginning balance of retained earnings.

  16. Page 16
    Read page 16 as text

    Resource Manual for Harrison et al., Financial Accounting , 6ce 1-14 Table 1-1 The following information is taken from the accounting records after current period operations and presented in random order. Accounts payable $ 9 Service revenue 38 Cash 25 Equipment 110 Common shares 200 Retained earnings (ending balance) ?? Dividends 15 Accounts receivable 4 Land 100 Office supplies 5 Utilities expense 2 Salary expense 18 Cash receipts: Cash payments: Collections from customers 30 Acquisition of land 50 Sale of equipment 15 Issuance of shares to owners 90 Dividends 15 To suppliers 5 6. Total assets are: A. $150. B. $181. C. $244. D. $158. 7. Net income is: A. $20. B. $13. C. $120. D. $38. 8. Cash flow from financing activities is: A. $(85). B. $(55). C. $75. D. $(15). 9. The ending balance in Retained Earnings is: A. $35. B. $55. C. $75. D. $15. 10. On which financial statement can the Beginning balance in retained earnings be found? A. Balance sheet B. Income statement C. Statement of retained earnings D. Both A and C

928 more pages in the full document

Unlock it once and it stays in your library, ready to chat with or turn into flashcards.

Unlock the full document

More Accounting study materials

See all

Study this document with CramX

Once it is in your library, every tool can work from it.