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Fundamental Accounting Principles, Volume 1 15th Canadian Edition Solution Manual

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    Last revised : May 24 , 2016 Solutions Manual to accompany Fundamental Accounting Principles, 1 5 th Canadian Edition. 1 - 1 SOLUTIONS MANUAL to accompany Fundamental Accounting Principles 1 5 th Canadian Edition by Larson/Jensen /Dieckmann Revised for the 15 th Edition by: Praise Ma, Kwantlen Polytechnic University Technical checks by: Rhonda Heninger, Southern Alberta Institute of Technnology Michelle Young, CPA

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    Last revised : May 24 , 2016 Solutions Manual to accompany Fundamental Accounting Principles, 1 5 th Canadian Edition. 1 - 2 Chapter 1 Accounting in Business Chapter Opening Vignette Critical Thinking Challenge Questions * 1. What questions might Zane need the answers to in order to get a loan from a bank? The key question the bank wants answered is whether Zane can repay the loan. In order to assess this, they would ask questions such as: • Financial Results: How much is the business earning per year? How profitable has the food truck been for the past year? How much are revenues and expenses? How are the results compared to the past year or couple of years? Where do you expect results to be in the next few years? • Cash: How much cash does Zane currently have? How much does he want for the loan? What is his credit score? • Debt: Are there any outstanding loans? If so, what is the balance outstanding, the term, the payments, and the interest rate? • Assets: What personal or business assets does Zane have? The bank may want to take some of Zane’s assets as collateral. • Customers: How many customers on average are served per day? How many customers are new or repeat customers? • Employees: How many employees does he need to hire to serve his customers? Does Zane pay his employees a salary or a wage? How much does he pay them? Does he have the cash in the bank to pay his employees? • Food Truck: Does Zane own his food trucks? If the trucks are purchased, did he pay cash or does he owe money on it? If he owes money, does he pay interest? Does he lease them? Does he have insurance? • Toronto Pearson Airport Location: How much is the rent? • Food (Inventory): How much food is purchased in advance? How does Zane manage his food to prevent spoilage? Does Zane need to pay his suppliers right away or can he pay on credit? • Advertising: Does Zane advertise? If so, how much does he pay? • Taxes: What is the amount of income tax he has to pay? • There are many other questions that could be asked. 2. Who else might require accounting information from Zane ’s business? Other stakeholders that might require accounting information from Zane ’s business include Canada Revenue Agency (CRA), employees, and potential investors.

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    Last revised : May 24 , 2016 Solutions Manual to accompany Fundamental Accounting Principles, 1 5 th Canadian Edition. 1 - 3 *The Chapter 1 Critical Thinking Challenge questions are asked at the beginning of this chapter . Students are reminded at the conclusion of the chapter to refer to the Critical Thinking Challenge questions at the beginning of the chapter. The solutions to the Critical Thinking Challenge questions are available here in the Solutions Manual and accessible to students at Connect .

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    Last revised : May 24 , 2016 Solutions Manual to accompany Fundamental Accounting Principles, 1 5 th Canadian Edition. 1 - 4 Concept Review Questions 1. Accounting will provide Zane useful information to make good decisions. For instance, it is important for Zane to track his revenues and expenses to determine whether his business is profitable (his revenues are exceeding his expenses). Based on the accounting information, Zane can make decisions on how to price his food and where he can decrease expenses to improve his profits. Accounting will provide Zane important information on his business’ performance to make informed decisions on his expansion strategy. 2. Businesses offering products include Danier Leather . , Lululemon , NIKE, and Reebok which produce apparel; Dell, Hewlett - Packard, and Apple which produce computer equipment; and Abercrombie and Fitch GAP , and Zara which produce clothing . Service business examples include: WestJet Airlines which provides airline services; Bell Canada , Rogers Communications , and Telus provide information communication services; and Google, Twitter, Skype, Facebook and Instagram which provide internet services . 3. “Accounting is relevant to all students even if they do not plan on becoming an accountant. If you are pursuing a career in marketing, you will need to understand information such as sales volume, advertising costs, promotion costs, salaries of sales pe rsonnel, and sales commissions. If you are studying human resources, you will need to understand the financial position of your company to determine whether you have the resources to hire new employees or provide existing employees a pay increase. Even if you do not pursue a career in business, understanding the basics of accounting can help you better understand your own personal finances and the world around us. I am convinced that this course will be a good investment of our time.” 4. Answers will vary on what students would sell. Business organizations can be organized in one of three forms: sole proprietorship, partnership, or corporation. These forms have implications for legal liability, taxation, continuity, number of owners, and legal status as follows: Sole Proprietorship Partnership Corporation Legal entity no no yes Limited liability no no yes Unlimited life no no yes Business income taxed no no yes One owner allowed yes no yes Answers and reasons will vary for the best form of business. Possible answers include: A sole proprietorship would be easiest to form for a student. A partnership would be helpful in bringing people with multiple skills and/or resources together. A corporation would be the easiest to obtain financing and to limit liability. 5 . The equity section of the balance sheet reports a Hailey Walker , Capital account. The presence of the owner’s capital account indicates that Organico has been organized as a sole proprietorship. 6 . The two organizations for which accounting information is available in Appendix III at the end of the book are WestJet Airlines and Danier Leather . 7 . Hospitals, colleges, prisons, and bus lines are examples of organizations that can be formed as profit - oriented businesses, government units, or nonprofit establishments.

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    Last revised : May 24 , 2016 Solutions Manual to accompany Fundamental Accounting Principles, 1 5 th Canadian Edition. 1 - 5 8 . External users and their uses of accounting information include: ( 1 ) lenders for measuring the return of loans; ( 2 ) shareholders for assessing the acquisition of shares; ( 3 ) members of the board of directors for overseeing management; and ( 4 ) potential employees for judging employment opportunities. Other users are auditors, consultants, regulators, unions, suppliers, and appraisers. Internal users and their uses of accounting information include: ( 1 ) management for overseeing performance, financial position, and cash flow ; ( 2 ) current employees for generating special purpose reports to assist management ; (3) internal auditors for identifying high risk areas to audit; and (4) Sales staff to determine how to increase sales. 9 . The internal role of accounting is to serve the organization’s internal operating functions by providing useful information in completing their tasks more effectively and efficiently. By providing this information, accounting helps the organization reach its overall goals. 1 0 . “Tyler, there are a number of areas you could pursue within accounting. There are also a number of opportunities within those accounting areas. I have put together some information to help with your decision .” Accounting professionals practice in four broad fields including: Accounting - related opportunities within each field are numerous and include: Financial accounting - Statement preparation - Statement analysis - Auditing - Regulatory - Consulting - Planning - Criminal investigation Managerial accounting - General accounting - Cost accounting - Budgeting - Internal auditing - Management advisory services Taxation - Preparation - Planning - Regulatory - Investigations - Consulting Accounting - related - Lenders - Consultants - Analysts - Traders - Managers - Directors - Underwriters - Planners - Appraisers 11 . The independent auditor for WestJet is KPMG LLP.

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    Last revised : May 24 , 2016 Solutions Manual to accompany Fundamental Accounting Principles, 1 5 th Canadian Edition. 1 - 6 1 2 . The purpose of accounting is to provide decision makers with information helping them make better decisions. Examples include information for people making investments, loans and similar decisions. 1 3 . Accounting professionals deal with a variety of information about their employers and clients that is not generally available to the public. Ethical issues arise concerning the possibility that accounting professionals might personally benefit by using confidential information. There is also the possibility that their employers and clients might be harmed if certain information is not kept confidential. 1 4 . An income statement user must know what time period is covered to judge whether the company’s performance is satisfactory. For example, a statement user would not be able to assess whether the amounts of revenue and profit are satisfactory without knowing whether they were earned over a week, a month, or a year. 1 5 . The revenue recognition principle provides guidance that managers and auditors need for knowing when to recognize revenue. For example, if revenue is recognized too early, the income statement reports income earlier than it should and the business looks more profitable than it really is. On the other hand, if the revenue is not recognized on time, the income statement shows lower amounts of revenue and profit than it should and the business looks less profitable than it really is. Basically, this principle requires revenue to be recognized when it is earned and can be measured reliably. The amount of revenue should equal the value of the assets received from the customers. 1 6 . The four financial statements are: the income statement, the balance sheet, the statement of changes in equity, and the statement of cash flows. 17 . An income statement reports on the business’s performance during the period. It shows whether the business earned a profit (or loss). The statement does not simply report the amount of profit or loss but lists the types and amounts of the revenues and expenses. The balance sheet reports on the financial position of a business at a specific point in time. It is often called the statement of financial position. It provides information that helps users understand a company’s financial status. The balance sheet lists the types and dollar amounts of assets, liabilities, and equity of the business. 18 . Cash has purchasing power and can be used to acquire other assets. A business that sells products to a customer and does not collect cash immediately has c reated an Accounts Receivable. This account represents a future collection of cash. Supplies are resources that will help a business carry on it s operations. 19 . I disagree with Rachel. While an accounts receivable and an accounts payable both show up on the balance sheet and in the accounting equation, an accounts receivable is an asset and an accounts payable is a liability. These two accounts also represent two different perspectives. When a company sells products or services on credit, an accounts receivable is created. When a company buys products on credit, an accounts payable is created. 20 . A revenue is an inflow of assets received in exchange for goods or services provided to customers as part of the major or central operations of the business. A revenue also may occur as a decrease in liabilities as when a service or product is delivered having been paid for in advance. The accountant has recorded revenue incorrectly. The accountant should record $5,000 in revenue from the sale of frozen yogurt and $10,000 as an owner’s investment in the owner’s equity account.

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    Last revised : May 24 , 2016 Solutions Manual to accompany Fundamental Accounting Principles, 1 5 th Canadian Edition. 1 - 7 21. A business’s equity is increased by investments into the business made by the owner and by profit . It is decreased by withdrawals made by the owner and by a loss, which is the excess of expenses over revenues. 2 2 . (a) Assets are probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events. (b) Liabilities are probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events. (c) Equity is the residual interest in the assets of an entity that remains after deducting its liabilities. (d) The term “net assets” means the same thing as equity, which is also determined as assets less liabilities. Assets = Liabilities + Equity (Net assets). A celebrity’s assets may include land, real estate , cars and companies. A celebrity’s liabilities may include a mortgage, bank debt and credit card debt. A celebrity’s equity represents their net worth, which is their assets less liabilities. 23 . Financial statements need to be prepared in a specific order because they are integrated. Some of the numbers on one financial statement are inputs for other financial statements. Financial statements should be prepared in the following order: 1) Income S tatement 2) Statement of Changes in Equity 3) Balance Sheet and 4) Statement of Cash Flow. The profit on the income statement is an input in the statement of changes in equity. The ending equity balance on the statement of changes in equity is an input for the balance sheet. The cash balance on the balance sheet corresponds to the ending cash balance on the statement of cash flows.

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    Last revised : May 24 , 2016 Solutions Manual to accompany Fundamental Accounting Principles, 1 5 th Canadian Edition. 1 - 8 QUICK STUDY Quick Study 1 - 1 There are a variety of questions and this list is certainly not exhaustive: 1. How much was spent on advertising last year? And/or how much is projected to be spent this year? 2. What is the effect of advertising on sales? And/or what is the project ed effect of advertising on this year’s sales? 3. How much was spent on delivering flowers last year? And/or how much is projected to be spent this year? 4. How much will it cost to create a webpage and sell flowers online? 5. Can sales be increased by selling online? And/or what is the experience of our competitors in this regard? 6. When pricing flowers, how much is being charged for delivery? 7. Are there enough sales staff to answer phones/emails and/or are sales being lost because of insufficient staffing and/or staffing issues? Quick Study 1 - 2 a. Do not record Meeting with the mechanical staff to determine new machine requirements for next year. b. Record Receiving the company’s utility bill detailing the usage for the past month . c. Do not record Analyzing last year’s sales report to determine if the discount policy is effective in getting customers to buy in mu l tiple quantities d. Record Downloading the online bank statements and identifying customer payments. e. Do not record After an employee is interviewed, hiring them for the accounting position. Quick Study 1 - 3 a. Highlands United Church Non - business d. University of Toronto Business b. Royal Alexandra Hospital Non - business e. Loblaw Business c. Toronto - Dominion Bank Business f. World Vision Non - business Quick Study 1 - 4 1. SP 2. C 3. P 4. SP 5. C 6. C 7. P

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    Last revised : May 24 , 2016 Solutions Manual to accompany Fundamental Accounting Principles, 1 5 th Canadian Edition. 1 - 9 Quick Study 1 - 5 1. A 2. C 3. B 4. A 5. A 6. B 7. B 8. C Quick Study 1 - 6 1. Relevant facts : You have failed your midterms and are at high risk of failing the course. Your university policy will punish all academic acts of dishonesty. You have faced a difficult personal situation during the semester. 2. Ethical issues involve d: Whether it is ethical for you to look at accounting notes during the final exam. 3. Fundamental principles and rules applicable to th e matter in question: Your university policy will punish all academic acts of dishonesty. You believe in the principle of honesty. It is not honest to misrepresent the amount of accounting knowledge you know. 4. Established internal procedures : The university’s policy will punishes all acts of academic dishonesty. 5. Alternative courses of action : Continue engaging in acts of academic dishonesty until you are caught. The consequence will be that you may be caught in the future and be punished for it. Resolve to not engage in any acts of academic dishonesty in the future. The consequence will be that you avoid the chance of being punished for unethical behavior in the future. Conclusion The behaviour in the situation described appears to be unethical based on the application of the Chartered Professional Accountants of Ontario’s Rules of Professional Conduct - Approach to Ethical Conflict Resolution. You are acting against your University’s policy and against your own personal value of being honest. Quick Study 1 - 7 a. Business entity principle b. Revenue recognition principle c. Historical cost principle (see page 18) Quick Study 1 - 8

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    Last revised : May 24 , 2016 Solutions Manual to accompany Fundamental Accounting Principles, 1 5 th Canadian Edition. 1 - 10 1. Revenue Recognition 2. Historical Cost 3. Business Entity 4. Going Concern 5. Currency Quick Study 1 - 9 Currency a. Delco performed work for a client located in China and collected 8,450,000 RMB (Chinese currency), the equivalent of about $1,320,000 Canadian. Delco recorded it as 8,450,000. Revenue Recognition b. Delco collected $180,000 from a customer on December 20, 201 7 for w ork to be done in February 201 8 . The $180,000 was record ed as revenue during 201 7 . Delco’s year end is December 31. Going Concern c. Delco’s December 31, 201 7 balance sheet showed total assets of $840,000 and liabilities of $1,120,000. The income statement for the past 6 years has shown a trend of increasing losses. Historical Cost d. Included in Delco’s assets was land and building purchased for $310,000 and reported on the balance sheet at $470,000. Business Entity e. Delco’s owner, Tom Del, consistently buys personal supplies and charges them to the company. Qu ick Study 1 - 1 0 a. Equity = $ 75,000 – $ 40,500 = $ 34,500 b. Liabilities = $300,000 – $ 85,500 = $214,500 c. Assets = $187,500 + $ 95,400 = $282,900 Quick Study 1 - 1 1 a. Equity = $374,700 – $252,450 = $122,250 b. Liabilities = $150,900 – $126,000 = $ 24,900 c. Assets = $ 37,650 + $112,500 = $150,150

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    Last revised : May 24 , 2016 Solutions Manual to accompany Fundamental Accounting Principles, 1 5 th Canadian Edition. 1 - 11 Quick Study 1 - 1 2 a. Allin Servicing Income Statement For Month Ended April 30, 201 7 Revenues $300 Expenses 125 Profit (loss) 175 Allin Servicing Statement of Changes in Equity For Month E nded April 30, 201 7 Tim Allin, capital, April 1 $ 50 Add: Investments by owner $ 30 Profit 175 205 Total $255 Less: Withdrawals by owner 15 Tim Allin, capital, April 30 $240 Allin Servicing Balance Sheet April 30, 201 7 Assets Liabilities Cash $ 60 Accounts payable $ 25 Equipment 205 Equity Tim Allin, capital 240 Total liabilities and Total assets $265 equity $265 b. Allin Servicing Income Statement For Month Ended May 31, 201 7 Revenues $135 Expenses 85 Profit (loss) $ 50 Allin Servicing Statement of Changes in Equity For Month Ended May 31, 201 7 Tim Allin, capital, May 1 $240 Add: Investments by owner $ 60 Profit 50 $110 Total 350 Less: Withdrawals by owner 75 Tim Allin, capital, May 3 1 $ 275 Allin Servicing Balance Sheet May 31, 201 7 Assets Liabilities Cash $120 Accounts payable $ 45 Equipment 200 Equity Tim Allin, capital 275 Total liabilities and Total assets $320 equity $ 320

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    Last revised : May 24 , 2016 Solutions Manual to accompany Fundamental Accounting Principles, 1 5 th Canadian Edition. 1 - 12 Quick Study 1 - 1 3 1. $20,000 - $15,000 = $5,000 beginning capital on Jan uary 1, 201 7 2. $5,000 + $3,000 + $8,000 - $4,000 = $12,000 end ing capital on December 31, 201 7 Quick Study 1 - 1 4 Assets = Liabilities + Equity a. Increase/Decrease b. Increase Increase c. Decrease Decrease d. Increase Decrease e. Decrease Decrease Quick Study 1 - 1 5 c 1. Supplies ................................ ................... $10 a 2. Supplies expense ................................ .... 22 c 3. Accounts receivable ................................ 25 c 4. Accounts payable ................................ .... 12 c 5. Equipment ................................ ................ 40 b 6. Tim Roadster’s withdrawals in April ...... 35 c 7. Notes payable ................................ .......... 30 a 8. Utilities expense ................................ ....... 10 c 9. Furniture ................................ ................... 20 a 10. Revenue ................................ .................... 70 a 11. Rent revenue ................................ ............. 35 a 12. Salaries expense ................................ ...... 45 b 13. Tim Roadster’s investments in April ....... 60 a+b 14. Profit * ................................ ........................ 28 * Calculated as : 70 + 35 – 22 – 10 – 45 = 28

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    Last revised : May 24 , 2016 Solutions Manual to accompany Fundamental Accounting Principles, 1 5 th Canadian Edition. 1 - 13 Quick Study 1 - 1 6 1. Total revenues ................................ ............. 70 + 35 = 105 2. Total operating expenses ............................ 22 + 10 + 45 = 77 3. Profit ................................ ............................. 105 – 77 = 28 4. Total assets ................................ .................. 10 + 25 + 40 + 20 = 95 5. Total liabilities ................................ .............. 12 + 30 = 42 6. Tim R oadster, capital (April 30, 201 7 ) ........ 60 – 35 + 28 = 53 7. Total liabilities and equity ........................... 42 + 53 = 95 Q uick Study 1 - 1 7 d 1. Loss ................................ ........................ 2 Income statement & Statement of changes in equity d 2. Rent expense ................................ .......... 22 Income statement b 3. Rent payable ................................ .......... 6 a 4. Accounts receivable .............................. 14 d 5. Joan Bennish ’s investments in May ..... 30 Statement of changes in equity d 6. Interest income ................................ ...... 2 Income statement d 7. Joan Bennish’s , capital, May 1, 201 7 .... 0 Statement of changes in equity a 8. Repair supplies ................................ ....... 5 b 9. Notes payable ................................ .......... 25 d 10. Joan Bennish ’s withdrawals in May ...... 5 Statement of changes in equity a 11. Truck ................................ ........................ 15 d 12. Consulting revenue ................................ . 18 Income statement c 13. Joan Bennish , capital, May 31, 201 7 ...... 23 * a 14. Cash ................................ ......................... 20 * See QS1 - 1 8 for details on how this amount was calculated ; this calculation was not a requirement of QS1 - 1 7 .

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    Last revised : May 24 , 2016 Solutions Manual to accompany Fundamental Accounting Principles, 1 5 th Canadian Edition. 1 - 14 Quick Study 1 - 1 8 CORNERSTONE CONSULTING Income Statem ent For Month Ended May 31, 201 7 Revenues: Consulting revenue ................................ ........... $18 Interest income ................................ .................. 2 Total revenues ................................ ........................... $20 Operating expenses: Rent expense ................................ ..................... 22 Loss ................................ ................................ .... $ 2 CORNERSTONE CONSULTING Statement of Changes in Equ ity For Month Ended May 31, 201 7 Joan Bennish , capital, May 1 .............................. $ 0 Add: Investments by owner ............................ 30 Total ................................ ............................... $30 Less: Withdrawals by owner .............................. $ 5 Loss ................................ ............................ 2 7 Joan Bennish , capital, May 31 ............................ $23 CORNERSTONE CONSU LTING Balance Sheet May 31, 201 7 Assets Liabilities Cash ................................ ................ $20 Rent payable ............................. $ 6 Accounts receivable ...................... 14 Notes payable ........................... 25 Repair supplies .............................. 5 Total liabilities .......................... $31 Truck ................................ ............... 15 Equity Joan Bennish , capital ............... 23 Total liabilities and Total assets ................................ .... $54 equity ................................ ..... $54

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    Last revised : May 24 , 2016 Solutions Manual to accompany Fundamental Accounting Principles, 1 5 th Canadian Edition. 1 - 15 EXERCISES Exercise 1 - 1 (10 minutes) a. Corporation b. Sole proprietorship c. Corporation d. Partnership e. Sole proprietorship f. Sole proprietorship g. Corporation Exercise 1 - 2 ( 10 minutes) External Users Decisions Investor Whether to invest in the company. Whether to buy or sell their stocks in the company. Supplier Whether to sell to Starbucks? Will Starbucks be able to pay for products? Does Starbucks represent ethical/socially responsible practices that suppliers want to align their image with? Canada Revenue Agency Has Starbucks filed their tax return? Have they appropriately reported their financial information and paid their taxes? Should we audit Starbucks? Customer Will the company be here to serve me in the long - run? Will Starbucks continue to honour their loyalty program? Does Starbucks represent ethical/socially responsible practices that suppliers want to align their image with? External Auditors Has Starbucks reported all of their financial information appropriately in accordance with the appropriate accounting standards? Have they recorded all of their transactions and are they recorded at the correct amounts? Has Starbucks disclosed all the necessary information to provide useful information to it’s investors and other financial statement users? Lenders Should we provide a loan to Starbucks? Will Starbucks be able to repay the loan? Should we take any assets as collateral?

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    Last revised : May 24 , 2016 Solutions Manual to accompany Fundamental Accounting Principles, 1 5 th Canadian Edition. 1 - 16 Exercise 1 - 2 ( Continued ) Internal Users Decisions Marketing Do we have enough money to launch a new marketing campaign? What products or promotion should we promote? How should we price our products? Human Resources How many employees can we afford to hire this year? How much should we pay employees? How much money should we invest into training? Can we provide employees with benefits? Finance / Management How is Starbucks’ performance? What changes should we make in the coming year? Do we have enough money to operate in the short and long term? Employees Will Starbucks be able to pay my wages? Should I participate in the stock option plan? If I have stock options, when should I exercise them? There are a number of users and decisions that can be identified. Exercise 1 - 3 ( 20 minutes) Accounting Role Typical Day (1) External Auditor An external auditor is hired by a company’s board of directors to express an opinion on whether their financial statements are prepared appropriately in accordance with the accounting standards (CAS 200). A typical day for an external auditor could involve: • Working at the client’s site with a team of auditors. • Each team member will be assigned sections of the financial statements to audit. • Interviewing the Chief Financial Officer, Controller, internal accountants and employees from various departments to gain a strong understanding of the company • Understanding the company’s processes for how they sell product/services, how they purchase product or supplies, how they pay their employees. • Reviewing the client’s financial statements • Performing testing over the financial statements by selecting a sample of items or transactions from the general ledger • Reviewing supporting documents such as bank statements, invoices, contracts • Submitting completed sections to the senior auditor or manager for review. • Having a coffee break and lunch with the auditing team Exercise 1 - 3 ( continued )

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    Last revised : May 24 , 2016 Solutions Manual to accompany Fundamental Accounting Principles, 1 5 th Canadian Edition. 1 - 17 (2) C ontroller A controller is often responsible for preparing the financial statements with the assistance of one or more staff accountants. A controller will r eport to more senior Finance staff such as the Chief Financial Officer. A typical day for an external auditor could involve: • Meeting with the management team to discuss the company’s performance. • Preparing monthly, quarterly or annual financial statements • Providing analysis and comments on the financial information for management and the Board of Directors • Preparing reports with financial information that will help management make strategic and operational decisions • Preparing budgets and cash flow projections • Ensuring employees are following company policies and procedures • Managing and supervising a team of accounting staff (3) Tax Specialist • Meet with client to understand their tax planning needs • Researching the tax standards • Writing a tax memo analyzing and concluding on appropriate tax treatment. • Working on corporate or personal tax returns. • Looking through the documents the client has given you had using tax software to prepare the tax return. • Discuss ideas with other tax specialists or the Tax Manager / Partner.

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    Last revised : May 24 , 2016 Solutions Manual to accompany Fundamental Accounting Principles, 1 5 th Canadian Edition. 1 - 18 Exercise 1 - 4 (20 minutes) (Answers will vary.) a. 1. Relevant facts: Your colleague mentioned that he makes personal calls and gets them reimburse d by your company. Your employer allows you to submit business calls for reimbursement. 2. Ethical issues involved: Whether it is ethical to submit personal calls for reimbursement. 3. Fundamental principles and rules applicable to the matter in question: Your employer’s rule is that you can submit business calls for reimbursement. It is not honest to misrepresent personal calls for business calls. 4. Established internal procedures: Your employer reimburses business calls. 5. Alternative courses of action: Bring the situation up with your colleague. Your colleague may become upset and this could affect your working relationship. Stay silent, which will likely result in your colleague continuing to submit personal calls for reimbursement. Let your employer know. This action could result in your colleague being disciplined by your employer. Conclusion The behaviour in the situation described appears to be unethical based on the application of the Chartered Professional Accountants of Ontario’s Rules of Professional Conduct - Approach to Ethical Conflict Resolution. Your colleague is acting against your employer’s policy and a personal value of being honest. b. 1. Relevant facts: It appears that the three people ahead of you entered without tickets. 2. Ethical issues involved: Whether it is ethical watch a movie without purchasing a ticket. Whether it is ethical for the ticket - taker to let non - paying patrons into the movie theatre. 3. Fundamental principles and rules applicable to the matter in question: The movie theater’s rule is that people must pay for a ticket to watch a movie. To watch a movie without paying is like stealing. Stealing a movie viewing is not honest. The three people have misrepresented themselves as paying patrons. 4. Established internal procedures: Patrons of the theatre must pay for the movie they will watch. The ticket - taker needs to see a ticket before admitting people into the theatre. 5. Alternative courses of action: Bring the situation up to the manager at the movie theatre. The consequence will be that the ticket - taker will likely lose his/her job. Do not take action as this situation does not involve you. This will likely lead to more people entering the movie theatre without paying. This may lead to ticket prices being increased to cover the cost of this kind of lost sale.

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    Last revised : May 24 , 2016 Solutions Manual to accompany Fundamental Accounting Principles, 1 5 th Canadian Edition. 1 - 19 Exercise 1 - 4 ( Continued ) Conclusion The behaviour in the situation described appears to be unethical based on the application of the Chartered Professional Accountants of Ontario’s Rules of Professional Conduct - Approach to Ethical Conflict Resolution. The three people and the ticket - taker have violated the movie’s theater’s policy. c. 1. Relevant facts: The cashier only provides a cash register receipt if the customer asks. The cash register records will be inaccurate if not all sales are recorded. 2. Ethical issues involved: Whether it is ethical to only provide a cash register receipt if a customer asks. 3. Fundamental principles and rules applicable to the matter in question: The fitness centre would require the cashier to perform all of their duties. It is not honest for the cashier to intentionally or unintentionally not perform all of their duties. 4. Established internal procedures: The fitness centre requires that all sales are recorded in the cash register and the customer receives a receipt. 5. Alternative courses of action: The cashier could continue providing cash receipts only if they are asked. Eventually, the supe rvisor and/or owner of the facility will recognize that drop - in revenues are lower than the actual number of drop - in customers attending the facility and the cashier will lose his/her job an d perhaps face criminal charges. Also, the prices may increase if the owner believes revenues are decreasing. The cashier could follow procedure and provide all customers with a receipt whether or not they ask for one. This cashier will be able to work at the fitness center and earn wages for a longer period of time. Conclusion The behaviour in the situation described appears to be unethical based on the application of the Chartered Professional Accountants of Ontario’s Rules of Professional Conduct - Approach to Ethical Conflict Resolution. Exercise 1 - 5 (10 minutes) Description B 1. Requires every business to be accounted for separately from its owner or owners. A 2. Requires financial statement information to be based on costs incurred in transactions. D 3. Requires financial statements to reflect the assumption that the business will continue operating instead of being closed or sold. C 4. Requires revenue to be recorded only when t he earnings process is complete

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    Last revised : May 24 , 2016 Solutions Manual to accompany Fundamental Accounting Principles, 1 5 th Canadian Edition. 1 - 20 Exercise 1 - 6 ( 15 minutes) Balance Sheet Income Statement Statement of Changes in Equity Assets Liabilities Owner’s Equity Revenue Expenses Cash Accounts Payable Owner’s Capital, Ending balance Interest Income Advertising Expense Owner’s Capital, Beginning balance Accounts Receivable Interest Payable Service Revenue Fuel Expense Investment by Owner Interest Receivable Salaries Payable Rent Revenue Insurance Expense Profit / Loss Merchandise Inventory Unearned Revenue Interest Expense Withdrawals Supplies Notes Payable Maintenance Expense Owner’s Capital, Ending balance Prepaid Expenses Other Expenses Prepaid Rent Rent Expense Land Salaries Expense Building Supplies Expense Vehicles Telephone Expense Equipment Utilities Expense Furniture Vehicle Expenses Wages Expense

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    Last revised : May 24 , 2016 Solutions Manual to accompany Fundamental Accounting Principles, 1 5 th Canadian Edition. 1 - 21 Exercise 1 - 7 (10 minutes) a) $516,000 – $492 ,000 = $24 ,000 profit b) $165,000 – $240 ,000 = $75 ,000 loss c) $32 ,000 + 0 – 0 + x = $86,000 x = $86,000 – $32 ,000 x = $54 ,000 profit d) $48 ,000 + $40,000 – 0 + x = $52,000 x = $ 52,000 – $ 48 ,000 – $ 40,000 x = – $36 ,000 or a $36 ,000 loss Exercise 1 - 8 (15 minutes) (a) (b) (c) (d) (e) Answers $ (19 ,750 ) $ 4 6,000 $7 ,000 $10 , 25 0 $10 2,000 Proofs: Equity, January 1 ................................ $ 0 $ 0 $ 0 $ 0 $10 2,000 Owner’s investments during the year ................................ 60,000 4 6,000 31,500 37,500 14 0,000 Profit (loss) for the year ......................... 15,750 3 0,500 (4,500 ) 10 , 25 0 (8,000 ) Owner’s withdrawals during the year ................................ (19 ,750 ) (27,000 ) (20 ,000 ) (15,750 ) (63,000 ) Equity, December 31 .............................. $56 ,000 $49,500 $7 ,000 $32,00 0 $171,000 Exercise 1 - 9 (15 minutes) EXTRAORDINARY STUDIOS Income Statement F or Month Ended November 30, 201 7 Revenues: Wedding c onsulting revenue ............................ $22 ,000 Operating expenses: Salaries expense ................................ ............... $6,000 Rent expense ................................ ..................... 2,550 Telephone expense ................................ ........... 1,680 Utilities expenses ................................ .............. 660 Total operating expenses .............................. 10,890 Profit ................................ ................................ .... $ 11 ,110

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    Last revised : May 24 , 2016 Solutions Manual to accompany Fundamental Accounting Principles, 1 5 th Canadian Edition. 1 - 22 Exercise 1 - 10 (15 minutes) EXTRAORDINARY STUDIOS Statement of Changes in Equity F or Month Ended November 30, 201 7 Jean Higgins , capital, November 1 ..................... $ 0 Add: Investments by owner ............................ 84,000 Profit ................................ ......................... 11 ,110 95 ,110 Total ................................ ............................... $95 ,110 Less: Withdrawals by owner .............................. 3,360 Jean Higgins , capital, November 30 ................... $91 ,750 Analysis component: The owner, Jean Higgins , invested $84,000 of assets during the month, which caused equity to increase. Also, profit earned during the month was $11 ,110 also causing equity to increase during November. The total increases in equity during the month were a total of $95 ,110 ($84,000 + $11 ,110). NOTE: Students might point out that equity decreased by a total of $3,360 in withdrawals which in combinatio n with the total increase of $95 ,110 caused a net increase in equity of $91 ,750. Exercise 1 - 1 1 (15 minutes) EXTRAORDINARY STUDIOS Balance Sheet November 30, 201 7 Assets Liabilities Cash ................................ ................ $16 ,000 Accounts payable ..................... $ 7,500 Accounts receivable ...................... 17,000 Office supplies ............................... 5,00 0 Equity Automobiles ................................ ... 36,000 Jean Higgins , capital ................ 91 ,750 Office equipment ............................ 25,25 0 Total liabilities and Total assets ................................ .... $99 ,250 equity ................................ ..... $99 ,250 Analysis component: $91,750 (or 92.44 % calculated as $91,750/$99 ,250 × 100 ) of the total $99,250 assets are financ ed by Jean Higgins , the owner of Extaordinary Studios . Exercise 1 - 1 2 (15 minutes)

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    Last revised : May 24 , 2016 Solutions Manual to accompany Fundamental Accounting Principles, 1 5 th Canadian Edition. 1 - 23 WINDSOR LEARNING SERVICES Income Stateme nt For Month Ended July 31, 201 7 Revenues: Tutoring revenue ................................ ............... $4,200 Textbook rental revenue ................................ ... 300 Total revenues ................................ ................ $ 4,500 Operating expenses: Office rent expense ................................ ........... $2,500 Tutors wages expense ................................ ...... 1,540 Utilities expense ................................ ................ 6 80 Total operating expenses .............................. 4,7 20 Loss ................................ ................................ .... $ 2 20 Exercise 1 - 1 3 (15 minutes) WINDSOR LEARNING SERVICES St atement of Changes in Equi ty For Month Ended July 31, 201 7 Milton Windsor , capital, July 1 ........................... $ 7,400 Add: Investments by owner ............................ 1,200 Total ................................ ............................... $ 8,600 Less: Withdrawals by owner .............................. $ 1,000 Loss ................................ ............................ 2 20 1, 2 20 Milton Windsor , capital, July 31 ......................... $ 7,3 80 Analysis component: Withdrawals of $1,000 by the owner, Milton Windsor , caused equi ty to decrease during July, 201 7 . Also, the loss of $2 20 caused equity to decrease in July. The total decrease in equity during the month of Ju ly was $1,220 (calculated as $1,000 + $2 20). NOTE: Students might point out that equity increased by $1,200 of owner investments which, in combination with the total decrease of $1,220, caused a net decrease in equity of $2 0. Exercise 1 - 1 4 (15 minutes)

  25. Page 25
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    Last revised : May 24 , 2016 Solutions Manual to accompany Fundamental Accounting Principles, 1 5 th Canadian Edition. 1 - 24 WINDSOR LEARNING SERV ICES Balance Sheet July 31, 201 7 Assets Liabilities Cash ................................ ................ $ 1,600 Accounts payable ..................... $ 1,5 00 Accounts receivable ...................... 2,00 0 Supplies ................................ .......... 1,28 0 Equity Furniture ................................ ......... 1,800 Milton Windsor , capital ............ 7,3 80 Computer equipment ..................... 2,200 Total liabilities and Total assets ................................ .... $8,880 equity ................................ ..... $8,880 Analysis component: $1,500 or 16.89 % (calculated as $1,5 00/$8,880 × 100) of the total $8,880 assets held by Windsor Learning Services are financed by debt. Exercise 1 - 1 5 (20 minutes) Assets – Liabilities = Equity Beginning of the year ......................... $ 75,000 – $30,000 = $ 45 ,000 End of the year ................................ ... $120,000 – $46,000 = 74 ,000 (a) (b) (c) (d) Answers $ 29 ,000 $ 86 ,000 $( 51 , 0 00 ) $ ( 4 ,000 ) Proofs: Equity, January 1 ................................ $ 45 ,000 $ 45 ,000 $ 45 ,000 $ 45 ,000 Owner’s investments during the year ................................ 0 0 80 , 0 00 7 5 ,000 Profit (loss) for the year ......................... 29 ,000 86 ,000 ( 51 , 0 00 ) (4 ,000 ) Owner’s withdrawals during the year ................................ (0 ) ( 57 ,000 ) (0 ) ( 42 ,000 ) Equity, December 31 .............................. $74 ,000 $74 ,000 $74 ,000 $74 ,000 a. An alternative calculation: $45,000 + 0 + x – 0 = $74,000; x = $29,000 b . An alternative calculation: $45,000 + 0 + x - $ 57 ,000 = $ 74 ,000; x = $ 86 ,000 c . An alternative calculation: $45,000 + $ 80 , 0 00 + x - 0 = $74,000; x = ($ 51 , 0 00) where the negative represents a loss. Exercise 1 - 15 ( Continued )

  26. Page 26
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    Last revised : May 24 , 2016 Solutions Manual to accompany Fundamental Accounting Principles, 1 5 th Canadian Edition. 1 - 25 d . An alternative calculation: $45 ,00 0 + $ 7 5,000 + x - $ 42 ,000 = $ 74 ,000; x = ( $ 4 ,000 ) where the negative represents a loss. Exercise 1 - 1 6 (10 minutes) a. If assets decreased by $ 1 5,000 during August, then $25 ,000 + $ 1 5,000 = $40 ,000 Assets at August 1, 201 7 . The refore, Equity at August 1, 201 7 = $40 ,000 - $1 0 ,000 = $30 ,000 b. If liabilities increased by $9 ,000 during August, then $1 0,000 + $9 ,000 = $19 ,000 Liabilities at August 31, 201 7 . Therefore, Equity at August 31, 201 7 = $25,000 - $19 ,000 = $ 6,000 Exercise 1 - 1 7 (15 minutes) Assets Liabilities + Equity Cash + Accounts Receivable + Office Supplies = Accounts Payable + Marnie Wesson , Capital a) + $25 ,0 00 + $25 ,0 00 b) + $ 6 00 + $6 00 c) + 7,0 00 + 7,0 00 d)* e) – 4 ,500 – 4 ,500 f) + $1,250 + 1,250 Totals $27,5 00 + $1,250 + $6 00 = $6 00 + $2 8,75 0 $29,3 50 = $29,3 50 *Note: For (d), since no exchange has occurred, no entry is required. Exercise 1 - 1 8 (20 minutes)

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    Last revised : May 24 , 2016 Solutions Manual to accompany Fundamental Accounting Principles, 1 5 th Canadian Edition. 1 - 26 Assets Liabilities + Equity Cash + Accounts Receivable + Parts Supplies + Equipment = Accounts Payable + Stacey Crowe, Capital a) + $14 ,000 + $ 14 ,000 b) - 2,500 - 2,500 c) + $8 00 + $8 00 d) + $3,400 + $ 3,400 e) – $ 1, 950 + $ 1, 950 f)* g) – $8 00 – $8 00 h) + $3 ,400 + $ 3 ,400 i) – $2,700 – $ 2,700 Totals $9,4 50 + $3,400 + $8 00 + $ 1, 950 = $ 0 + $15 ,600 $15 ,600 = $15 ,600 *Note: For (f), since no exchange has occurred, no entry is required. Exercise 1 - 1 9 : (15 minutes) b. Office Supplies were purchased paying cash of $500. c. Office Furniture was purchased paying cash of $8,000. d. Completed work for a client on credit; $1,000. e. Purchased office supplies on credit; $400. f. Paid $250 to a creditor. g. Collected $750 cash from a credit customer.

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    Last revised : May 24 , 2016 Solutions Manual to accompany Fundamental Accounting Principles, 1 5 th Canadian Edition. 1 - 27 Exercise 1 - 20 (20 minutes) Assets = Liabilities + Equity Explanation of Equity Transaction Cash + Accounts Receivable + Supplie s + Equipment = Accounts Payable + Mailin Moon , Capital a) + $3,000 + $2,500 +$5 ,500 Owner Investment b) + $6,5 00 +$6,5 00 Revenue c) + $60 0 + $60 0 d) – $ 1, 450 – $ 1, 450 Sal. Expense e)* f) – $ 1,400 – $ 1,400 Rent Expense g) + $4,5 00 +$4,5 00 Revenue Totals $6,6 50 + $4,5 00 + $60 0 + $2,500 = $60 0 + $13 ,650 $14,25 0 = $14,25 0 *Note: For (e), since no exchange has occurred, no entry is required.

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    Last revised : May 24 , 2016 Solutions Manual to accompany Fundamental Accounting Principles, 1 5 th Canadian Edition. 1 - 28 Exercise 1 - 21 (25 minutes) Mailin Moon – Freelance Writing Income Statement For Month Ended March 31, 201 7 Revenues: Freelance writing revenue $11 ,000 Operating expenses: Salaries expense $ 1, 450 Rent expense 1,400 Total operating expenses 2 ,850 Profit $8 ,150 Mailin Moon – Freelance Writing Statement of Changes in Equity For Month Ended March 31, 201 7 Mailin Moon , capital, March 1 $ 0 Add: Investment by owner $5 ,500 Profit 8 ,150 13 ,650 Mailin Moon , capital, March 31 $ 13 ,650 Mailin Moon – Freelance Writing Balance Sheet March 31, 201 7 Assets Liabilities Cash $6,6 50 Accounts payable $ 60 0 Accounts receivable 4,5 00 Supplies 60 0 Equipment 2,500 Equity Mailin Moon , capital 13 ,650 Total assets $14,25 0 Total liabilities and equity $14 , 25 0 Analysis component: a. Supplies of $600 were financed by accounts payable, a liability. b. Equipment of $2,500 was financed by owner investment, an equity transaction. c. Cash of $6,650 and Accounts receivable of $4,5 00 w ere financed by an investment by owner of $3,000 and profit of $8 ,150. Profit includes the equity transactions of revenues and expenses (revenues of $11,000 less expenses of $2 ,850).

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    Last revised : May 24 , 2016 Solutions Manual to accompany Fundamental Accounting Principles, 1 5 th Canadian Edition. 1 - 29 Exercise 1 - 2 2 (20 minutes) Assets = Liabilities + Equity Explanation of Equity Transaction Cash + Accounts Receivable + Supplie s + Equipment = Accounts Payable + Omar Ali a) + $4,3 00 +$15,000 +$19,3 00 Owner Investment b) +$1,6 00 +$1,6 00 c) +$95 0 +$95 0 d)* e) +$550 +$550 Revenue f) +$600 +$600 Revenue g) - $200 - $200 h) - $250 - $250 Adv. Expense i) +$600 - $600 Totals $ 4,4 50 + $5 50 + $ 2,55 0 + $15,000 = $2,35 0 + $20,2 00 $22,55 0 = $22,55 0 *Note: For (d), since no exchange has occurred, no entry is required.

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    Last revised : May 24 , 2016 Solutions Manual to accompany Fundamental Accounting Principles, 1 5 th Canadian Edition. 1 - 30 Exercise 1 - 2 3 (25 minutes) Omar ’s Yard Care Income Statement For Month Ended March 31, 201 7 Revenues: Yard care revenue $1,150 Operating expenses: Advertising expense 250 Profit $ 900 Omar ’s Yard Care Statement of Changes in Equity For Month Ended March 31, 201 7 Omar Ali , capital, March 1 $ 0 Add: Investment by owner $19,3 00 Profit 900 20,2 00 Omar Ali , capital, March 31 $20,2 00 Omar ’s Yard Care Balance Sheet March 31, 201 7 Assets Liabilities Cash $ 4,4 50 Accounts payable $ 2,35 0 Accounts receivable 5 50 Supplies 2,55 0 Equipment 15,000 Equity Omar Ali , capital 20,2 00 Total assets $22,55 0 Total liabilities and equity $22,55 0 Analysis component: The $900 of profit does not represent cash because all of the revenues ($550 + $600 = $1,150) were on account. The $250 of advertising expense was paid in cash. The profit (loss) on an income statement represents the profit (loss) that was actually earned which is not necessarily going to agree to the profit (loss) actually received in cash. This is in accordance with the revenue recognition principle which says that revenue s (and also expenses) are recorded at the time earned (or expensed in the case of expenses) regardless of whether cash has been exchanged .

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