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

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Last revised:May 24, 2016Solutions Manual to accompanyFundamental Accounting Principles,15th Canadian Edition.1-1SOLUTIONS MANUALto accompanyFundamental Accounting Principles15thCanadian Editionby Larson/Jensen/DieckmannRevised for the 15thEdition by:Praise Ma, Kwantlen Polytechnic UniversityTechnical checks by:Rhonda Heninger, Southern Alberta Institute of TechnnologyMichelle Young, CPA

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Last revised:May 24, 2016Solutions Manual to accompanyFundamental Accounting Principles,15th Canadian Edition.1-2Chapter 1Accountingin BusinessChapter Opening VignetteCritical Thinking ChallengeQuestions*1.What questions mightZaneneed the answers to in order to get a loan from abank?The key question the bank wants answered is whether Zane can repay the loan. Inorder to assess this, they would ask questions such as:•Financial Results:How much is the business earning per year? How profitablehas the food truck been for the past year? How much are revenues andexpenses? 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 forthe 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 maywant to take some of Zane’s assets as collateral.•Customers:How many customers on average are served per day? How manycustomers are new or repeat customers?•Employees:How many employees does he need to hire to serve hiscustomers? DoesZanepay his employees a salary or a wage?How much doeshe 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, didhe pay cash or does he owe money on it? If he owes money, does he payinterest? 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 Zanemanage his food to prevent spoilage? Does Zane need to pay his suppliersright 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 fromZane’sbusiness?Other stakeholders that might require accounting information fromZane’sbusiness include Canada Revenue Agency (CRA), employees, and potentialinvestors.

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Last revised:May 24, 2016Solutions Manual to accompanyFundamental Accounting Principles,15th Canadian Edition.1-3*The Chapter 1 Critical Thinking Challenge questions areaskedat the beginning of thischapter.Students are reminded at the conclusion ofthe chapterto refer to the CriticalThinking Challenge questions at the beginning of the chapter.The solutionsto theCritical Thinking Challenge questionsare availablehere in the Solutions Manualandaccessible to studentsat Connect.

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Last revised:May 24, 2016Solutions Manual to accompanyFundamental Accounting Principles,15th Canadian Edition.1-4Concept ReviewQuestions1.AccountingwillprovideZaneusefulinformationtomakegooddecisions.Forinstance, it is important for Zane to track his revenues and expenses to determinewhetherhisbusinessisprofitable(hisrevenuesareexceedinghisexpenses).Based on the accounting information, Zane can make decisions on how to price hisfood and where he can decrease expenses to improve his profits. Accounting willprovide Zane important information on his business’ performance to make informeddecisions on his expansion strategy.2.Businesses offering products include Danier Leather.,Lululemon, NIKE,andReebokwhich produce apparel;Dell, Hewlett-Packard,andApplewhich produce computerequipment;andAbercrombie and FitchGAP, and Zarawhich produce clothing.Servicebusinessexamplesinclude:WestJetAirlineswhichprovidesairlineservices;BellCanada,RogersCommunications,andTelusprovideinformationcommunicationservices;andGoogle,Twitter,Skype,FacebookandInstagramwhich provideinternetservices.3.“Accounting is relevant to all students even if they do not plan on becoming anaccountant. If you are pursuing a career in marketing, you will need to understandinformation such assales volume, advertising costs, promotion costs, salaries ofsales personnel, and sales commissions. If you are studying human resources, youwill need to understand the financial position of your company to determine whetheryou have the resources to hire new employees or provide existing employees a payincrease. Even if you do not pursue a career in business, understanding the basicsof accounting can help you better understand your own personal finances and theworld around us. I am convinced that this course will be a good investment of ourtime.”4.Answers will vary on what students would sell.Business organizations can beorganized in one of three forms: sole proprietorship, partnership, or corporation.These forms have implications for legal liability, taxation, continuity, number ofowners, and legal status as follows:SoleProprietorshipPartnershipCorporationLegal entitynonoyesLimited liabilitynonoyesUnlimited lifenonoyesBusiness income taxednonoyesOne owner allowedyesnoyesAnswers and reasons will vary for the best form of business. Possible answersinclude: A sole proprietorship would be easiest to form for a student. A partnershipwould be helpful in bringing people with multiple skills and/or resources together. Acorporation would be the easiest to obtain financing and to limit liability.5.The equity section of the balance sheet reports aHailey Walker, Capital account. Thepresence of the owner’s capital account indicates thatOrganicohas been organizedas a sole proprietorship.6.The two organizations for which accounting information is available in AppendixIIIat the end of the book are WestJet Airlinesand Danier Leather.7.Hospitals, colleges, prisons, and bus lines are examples of organizations that can beformedasprofit-orientedbusinesses,governmentunits,ornonprofitestablishments.

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Last revised:May 24, 2016Solutions Manual to accompanyFundamental Accounting Principles,15th Canadian Edition.1-58.External users and their uses of accounting information include: (1) lenders formeasuring the return of loans; (2) shareholders for assessing the acquisition ofshares; (3)members of the board ofdirectors for overseeing management; and (4)potentialemployeesforjudgingemploymentopportunities.Otherusersareauditors, consultants, regulators, unions, suppliers, and appraisers.Internal usersand their uses of accounting information include:(1)management for overseeingperformance, financial position, and cash flow; (2) current employees for generatingspecial purpose reports to assist management; (3) internal auditors for identifyinghigh 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 operatingfunctions by providing useful information in completing their tasks more effectivelyand efficiently. By providing this information, accounting helps the organizationreach its overall goals.10.“Tyler, there are a number of areas you could pursue within accounting.There arealso a number of opportunities within those accounting areas.I have put togethersome informationto help with your decision.”Accounting professionals practice in fourbroad fields including:Accounting-related opportunities withineach field are numerous and include:Financial accounting-Statement preparation-Statement analysis-Auditing-Regulatory-Consulting-Planning-Criminal investigationManagerial accounting-General accounting-Cost accounting-Budgeting-Internal auditing-Management advisory servicesTaxation-Preparation-Planning-Regulatory-Investigations-ConsultingAccounting-related-Lenders-Consultants-Analysts-Traders-Managers-Directors-Underwriters-Planners-Appraisers11.The independent auditor forWestJetisKPMGLLP.

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Last revised:May 24, 2016Solutions Manual to accompanyFundamental Accounting Principles,15th Canadian Edition.1-612.The purpose of accounting is to provide decision makers with information helpingthemmakebetterdecisions.Examplesincludeinformationforpeoplemakinginvestments, loans and similar decisions.13. Accounting professionals deal with a variety of information about their employersandclientsthatisnotgenerallyavailabletothepublic.Ethicalissuesariseconcerning the possibility that accounting professionals might personally benefit byusing confidential information. There is also the possibility that their employers andclients might be harmed if certain information is not kept confidential.14.An income statement user must know what time period is covered to judge whetherthe company’s performance is satisfactory. For example, a statement user would notbe able to assess whether the amounts of revenue andprofitare satisfactory withoutknowing whether they were earned over a week, a month, or a year.15.The revenue recognition principle provides guidance that managers and auditorsneed for knowing when to recognize revenue. For example, if revenue is recognizedtooearly, the income statement reports incomeearlier than it shouldand thebusiness looks more profitable than it really is. On the other hand, if the revenue isnot recognized on time, the income statement shows lower amounts of revenue andprofitthan 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 bemeasured reliably. The amount of revenue should equal the value of the assetsreceived from the customers.16.The four financial statements are: the income statement, the balance sheet, thestatement of changes in equity, and the statement of cash flows.17.An income statement reports on the business’s performance during the period.Itshows whether the business earned aprofit(or loss). The statement does not simplyreport the amount ofprofitor loss but lists the types and amounts of the revenuesand expenses.The balance sheet reports on the financial position of a business at a specific pointin time.It is often called the statement of financial position. It provides informationthat helps users understand a company’s financial status. The balance sheet liststhe 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 businessthat sells products to a customer and does not collect cash immediately has createdanAccountsReceivable.Thisaccountrepresentsafuturecollectionofcash.Supplies are resources that will help a business carry on its operations.19. I disagree with Rachel. While an accounts receivable and an accounts payable bothshowuponthebalancesheetandintheaccountingequation,anaccountsreceivable is an asset and an accounts payable is a liability. These two accountsalsorepresenttwodifferentperspectives.Whenacompanysellsproductsorservices on credit, an accounts receivable is created.When a company buysproducts on credit, an accounts payable is created.20.A revenue is an inflow of assets received in exchange for goods or services providedto customers as part of the major or central operations of the business. A revenuealso may occur as a decrease in liabilities as when a service or product is deliveredhaving 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, 2016Solutions Manual to accompanyFundamental Accounting Principles,15th Canadian Edition.1-721.A business’s equity is increased by investments into the business made by theowner and byprofit. It is decreased by withdrawals made by the owner and by aloss, which is the excess of expenses over revenues.22.(a)Assetsareprobablefutureeconomicbenefitsobtainedorcontrolledbyaparticular entity as a result of past transactions or events. (b) Liabilities are probablefuturesacrificesofeconomicbenefitsarisingfrompresentobligationsofaparticular entity to transfer assets or provide services to other entities in the futureas a result of past transactions or events. (c) Equity is the residual interest in theassets of an entity that remains after deducting its liabilities. (d) The term “netassets” means the same thing as equity, which is also determined as assets lessliabilities.Assets = Liabilities + Equity (Net assets).A celebrity’s assets may include land,real estate, cars and companies. A celebrity’sliabilities may include a mortgage, bank debt and credit card debt.A celebrity’sequity represents their net worth, which is their assets less liabilities.23. Financial statements need to be prepared in a specific order because they areintegrated. Some of the numbers on one financial statement are inputsfor otherfinancialstatements.Financialstatementsshouldbepreparedinthefollowingorder: 1) Income Statement 2) Statement of Changes in Equity 3) Balance Sheet and4) Statement of Cash Flow. The profit on the income statement is an input in thestatement of changes in equity.The ending equity balance on the statement ofchanges in equity is an input for the balance sheet. The cash balance on the balancesheet corresponds to the ending cash balance on the statement of cash flows.

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Last revised:May 24, 2016Solutions Manual to accompanyFundamental Accounting Principles,15th Canadian Edition.1-8QUICK STUDYQuick Study 1-1There 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 bespent this year?2.What is the effect of advertising on sales? And/or what is the projectedeffect ofadvertising on this year’s sales?3.How much was spent on delivering flowers last year? And/or how much is projectedto 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 ourcompetitors 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 lostbecause of insufficient staffing and/or staffing issues?Quick Study 1-2a.Do not recordMeeting with the mechanical staff to determine new machinerequirements for next year.b.RecordReceiving the company’s utility bill detailing the usage for the pastmonth.c.Do not recordAnalyzing last year’s sales report to determine if the discount policyis effective in getting customers to buy in multiple quantitiesd.RecordDownloading the online bank statements and identifying customerpayments.e.Do not recordAfter an employee is interviewed,hiringthemforthe accountingposition.Quick Study 1-3a.Highlands United ChurchNon-businessd.University ofTorontoBusinessb.Royal Alexandra HospitalNon-businesse.LoblawBusinessc.Toronto-Dominion BankBusinessf.World VisionNon-businessQuick Study 1-41.SP2.C3.P4.SP5.C6.C7.P

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Last revised:May 24, 2016Solutions Manual to accompanyFundamental Accounting Principles,15th Canadian Edition.1-9Quick Study 1-51.A2.C3.B4.A5.A6.B7.B8.CQuick Study 1-61.Relevant facts:You have failed your midterms and are at high risk of failing thecourse.Your university policy will punish all academic acts of dishonesty.Youhave faced a difficult personal situation during the semester.2.Ethical issues involved:Whether it is ethical for you to look at accounting notesduring the final exam.3.Fundamental principles and rules applicable to the matter in question:Youruniversity policy will punish all academic acts of dishonesty.You believe in theprinciple of honesty. It is not honest to misrepresent the amount of accountingknowledge you know.4.Established internal procedures:The university’s policy will punishes all acts ofacademic dishonesty.5.Alternative courses of action:Continue engaging in acts of academic dishonestyuntil you are caught. The consequence will be that you may be caught in thefuture and be punished for it.Resolve to not engage in any acts of academicdishonesty in the future. The consequence will be that you avoid the chance ofbeing punished for unethical behavior in the future.ConclusionThe behaviour in the situation described appears to be unethical based on theapplication of the Chartered Professional Accountants of Ontario’s Rules of ProfessionalConduct-Approach to Ethical Conflict Resolution. You are acting against yourUniversity’s policy and against your own personal value of being honest.Quick Study 1-7a.Business entity principleb.Revenue recognition principlec.Historical costprinciple (see page 18)Quick Study 1-8

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Last revised:May 24, 2016Solutions Manual to accompanyFundamental Accounting Principles,15th Canadian Edition.1-101.Revenue Recognition2.Historical Cost3.Business Entity4.Going Concern5.CurrencyQuick Study 1-9Currencya.Delco performed work for a client located in China and collected8,450,000 RMB (Chinese currency), the equivalent of about $1,320,000Canadian. Delco recorded it as 8,450,000.RevenueRecognitionb.Delco collected $180,000 froma customer on December 20, 2017forwork to be done in February 2018. The $180,000 was recorded asrevenue during 2017. Delco’s year end is December 31.GoingConcernc.Delco’s December 31, 2017balance sheet showed total assets of$840,000 and liabilities of $1,120,000. The income statement for thepast 6 years has shown a trend of increasing losses.HistoricalCostd.Included in Delco’s assets was land and building purchased for$310,000 and reported on the balance sheet at $470,000.BusinessEntitye.Delco’s owner, Tom Del, consistently buys personal supplies andcharges them to the company.Quick Study 1-10a.Equity=$ 75,000–$ 40,500=$ 34,500b.Liabilities=$300,000–$ 85,500=$214,500c.Assets=$187,500+$ 95,400=$282,900Quick Study 1-11a.Equity=$374,700–$252,450=$122,250b.Liabilities=$150,900–$126,000=$ 24,900c.Assets=$ 37,650+$112,500=$150,150

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Last revised:May 24, 2016Solutions Manual to accompanyFundamental Accounting Principles,15th Canadian Edition.1-11Quick Study 1-12a.Allin ServicingIncome StatementFor Month Ended April 30, 2017Revenues$300Expenses125Profit(loss)175Allin ServicingStatement of Changes in EquityFor Month Ended April 30, 2017Tim Allin, capital, April 1$ 50Add: Investments byowner$ 30Profit175205Total$255Less: Withdrawals by owner15Tim Allin, capital, April 30$240Allin ServicingBalance SheetApril 30, 2017AssetsLiabilitiesCash$ 60Accounts payable$ 25Equipment205EquityTim Allin, capital240Total liabilities andTotal assets$265equity$265b.Allin ServicingIncome StatementFor Month Ended May 31, 2017Revenues$135Expenses85Profit(loss)$50Allin ServicingStatement of Changes in EquityFor Month Ended May 31, 2017Tim Allin, capital, May 1$240Add: Investments byowner$ 60Profit50$110Total350Less: Withdrawals by owner75Tim Allin, capital, May31$275Allin ServicingBalance SheetMay 31, 2017AssetsLiabilitiesCash$120Accounts payable$ 45Equipment200EquityTim Allin, capital275Total liabilities andTotal assets$320equity$320

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Last revised:May 24, 2016Solutions Manual to accompanyFundamental Accounting Principles,15th Canadian Edition.1-12Quick Study 1-131.$20,000-$15,000 =$5,000beginning capital on January 1, 20172.$5,000 + $3,000 + $8,000-$4,000 =$12,000ending capital on December 31, 2017Quick Study 1-14Assets=Liabilities+Equitya.Increase/Decreaseb.IncreaseIncreasec.DecreaseDecreased.IncreaseDecreasee.DecreaseDecreaseQuick Study 1-15c1.Supplies...................................................$10a2.Supplies expense....................................22c3.Accounts receivable................................25c4.Accounts payable....................................12c5.Equipment................................................40b6.Tim Roadster’s withdrawals in April......35c7.Notes payable..........................................30a8.Utilities expense.......................................10c9.Furniture...................................................20a10.Revenue....................................................70a11.Rent revenue.............................................35a12.Salaries expense......................................45b13.Tim Roadster’s investments in April.......60a+b14.Profit*........................................................28*Calculated as: 70 + 35–22–10–45 = 28

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Last revised:May 24, 2016Solutions Manual to accompanyFundamental Accounting Principles,15th Canadian Edition.1-13Quick Study 1-161.Total revenues.............................................70 + 35 = 1052.Total operating expenses............................22 + 10 + 45 = 773.Profit.............................................................105–77 = 284.Total assets..................................................10 + 25 + 40 + 20 = 955.Total liabilities..............................................12 + 30 = 426.Tim Roadster, capital (April 30, 2017)........60–35 + 28 = 537.Total liabilities and equity...........................42 + 53 = 95Quick Study 1-17d1.Loss........................................................2Income statement &Statement of changes in equityd2.Rent expense..........................................22Income statementb3.Rent payable..........................................6a4.Accounts receivable..............................14d5.Joan Bennish’s investments in May.....30Statement of changes in equityd6.Interestincome......................................2Income statementd7.Joan Bennish’s, capital, May 1, 2017....0Statement of changes in equitya8.Repair supplies.......................................5b9.Notes payable..........................................25d10.Joan Bennish’s withdrawals in May......5Statement of changes in equitya11.Truck........................................................15d12.Consultingrevenue.................................18Income statementc13.Joan Bennish, capital, May 31, 2017......23*a14.Cash.........................................................20*See QS1-18fordetails on how this amount was calculated; this calculation was not arequirement of QS1-17.

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Last revised:May 24, 2016Solutions Manual to accompanyFundamental Accounting Principles,15th Canadian Edition.1-14Quick Study 1-18CORNERSTONECONSULTINGIncome StatementFor Month Ended May 31, 2017Revenues:Consultingrevenue...........................................$18Interestincome..................................................2Total revenues...........................................................$20Operating expenses:Rent expense.....................................................22Loss....................................................................$2CORNERSTONECONSULTINGStatement of Changes in EquityFor Month Ended May 31, 2017Joan Bennish, capital, May 1..............................$ 0Add:Investments by owner............................30Total...............................................................$30Less: Withdrawals by owner..............................$ 5Loss............................................................27Joan Bennish, capital, May 31............................$23CORNERSTONECONSULTINGBalance SheetMay 31, 2017AssetsLiabilitiesCash................................................$20Rent payable.............................$ 6Accounts receivable......................14Notes payable...........................25Repair supplies..............................5Total liabilities..........................$31Truck...............................................15EquityJoan Bennish, capital...............23Total liabilities andTotal assets....................................$54equity.....................................$54

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Last revised:May 24, 2016Solutions Manual to accompanyFundamental Accounting Principles,15th Canadian Edition.1-15EXERCISESExercise 1-1 (10 minutes)a.Corporationb.Sole proprietorshipc.Corporationd.Partnershipe.Sole proprietorshipf.Sole proprietorshipg.CorporationExercise 1-2 (10minutes)External UsersDecisionsInvestorWhether to invest in the company. Whether to buy or selltheir stocks in the company.SupplierWhether to sell to Starbucks? Will Starbucks be able to payfor products? Does Starbucks represent ethical/sociallyresponsible practices that suppliers want to align their imagewith?Canada Revenue AgencyHas Starbucks filed their tax return? Have they appropriatelyreported their financial information and paid their taxes?Should we audit Starbucks?CustomerWill the company be here to serve me in the long-run? WillStarbucks continue to honour their loyalty program? DoesStarbucks represent ethical/socially responsible practicesthat suppliers want to align their image with?External AuditorsHas Starbucks reported all of their financial informationappropriately in accordance with the appropriate accountingstandards? Have they recorded all of their transactions andare they recorded at the correct amounts? Has Starbucksdisclosed all the necessary information to provide usefulinformation to it’s investors and other financial statementusers?LendersShould we provide a loan to Starbucks? Will Starbucks beable to repay the loan? Should we take any assets ascollateral?

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Last revised:May 24, 2016Solutions Manual to accompanyFundamental Accounting Principles,15th Canadian Edition.1-16Exercise 1-2 (Continued)Internal UsersDecisionsMarketingDo we have enough money to launch a new marketingcampaign? What products or promotion should we promote?How should we price our products?Human ResourcesHow many employees can we afford to hire this year? Howmuch should we pay employees? How much money shouldwe invest into training? Can we provide employees withbenefits?Finance / ManagementHow is Starbucks’ performance? What changes should wemake in the coming year? Do we have enough money tooperate in the short and long term?EmployeesWill Starbucks be able to pay my wages? Should I participatein the stock option plan? If I have stock options, when shouldI exercise them?There are a number of users and decisions that can be identified.Exercise 1-3(20minutes)Accounting RoleTypical Day(1)ExternalAuditorAn external auditor is hired by a company’s board of directors to express anopinion on whether their financial statements are prepared appropriately inaccordance 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 financialstatements to audit.•Interviewing the Chief Financial Officer, Controller, internalaccountants and employees from various departments to gain astrong understanding of the company•Understanding the company’s processes for how they sellproduct/services, how they purchase product or supplies, how theypay their employees.•Reviewing the client’s financial statements•Performing testing over the financial statements by selecting asample 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 forreview.•Having a coffee break and lunch with the auditing teamExercise 1-3(continued)

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Last revised:May 24, 2016Solutions Manual to accompanyFundamental Accounting Principles,15th Canadian Edition.1-17(2)ControllerA controller is often responsible for preparing the financial statements withthe assistance of one or more staff accountants. A controller will report tomore 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’sperformance.•Preparing monthly, quarterly or annual financial statements•Providing analysis and comments on the financial information formanagement and the Board of Directors•Preparing reports with financial information that will helpmanagement 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)TaxSpecialist•Meet with client to understand their tax planning needs•Researching the tax standards•Writing a tax memo analyzing and concluding on appropriate taxtreatment.•Working on corporate or personal tax returns.•Looking through the documents the client has given you had usingtax 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, 2016Solutions Manual to accompanyFundamental Accounting Principles,15th Canadian Edition.1-18Exercise 1-4(20 minutes) (Answers will vary.)a.1.Relevant facts:Your colleague mentioned that he makes personal calls and getsthem reimbursedby your company. Your employer allows you to submitbusiness calls for reimbursement.2.Ethical issues involved:Whether it is ethical to submit personal calls forreimbursement.3.Fundamental principles and rules applicable to the matter in question:Youremployer’s rule is that you can submit business calls for reimbursement. It is nothonest 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. Yourcolleague may become upset and this could affect your working relationship.Stay silent, which will likely result in your colleague continuing to submit personalcalls for reimbursement. Let your employer know. This action could result inyour colleague being disciplined by your employer.ConclusionThe behaviour in the situation described appears to be unethical based on theapplication of the Chartered Professional Accountants of Ontario’s Rules of ProfessionalConduct-Approach to Ethical Conflict Resolution. Your colleague is acting against youremployer’s policy and a personal value of being honest.b.1.Relevant facts:It appears that the three people ahead of you entered withouttickets.2.Ethical issues involved:Whether it is ethical watch a movie without purchasing aticket. Whether it is ethical for the ticket-taker to let non-paying patrons into themovie theatre.3.Fundamental principles and rules applicable to the matter in question:The movietheater’s rule is that people must pay for a ticket to watch a movie. To watch amovie without paying is like stealing. Stealing a movie viewing is not honest. Thethree people have misrepresented themselves as paying patrons.4.Established internal procedures:Patrons of the theatre must pay for the moviethey will watch. The ticket-taker needs to see a ticket before admitting people intothe theatre.5.Alternative courses of action:Bring the situation up to the manager at the movietheatre. The consequence will be that the ticket-taker will likely losehis/herjob.Do not take action as this situation does not involve you. This will likely lead tomore people entering the movie theatre without paying. This may lead to ticketprices being increased to cover the cost of this kind of lost sale.

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Last revised:May 24, 2016Solutions Manual to accompanyFundamental Accounting Principles,15th Canadian Edition.1-19Exercise 1-4(Continued)ConclusionThe behaviour in the situation described appears to be unethical based on theapplication of the Chartered Professional Accountants of Ontario’s Rules of ProfessionalConduct-Approach to Ethical Conflict Resolution. The three people and the ticket-takerhave violated the movie’s theater’s policy.c.1.Relevant facts:The cashier only provides a cash register receipt if the customerasks. 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 registerreceipt if a customer asks.3.Fundamental principles and rules applicable to the matter in question:The fitnesscentre would require the cashier to perform all of their duties. It is not honest forthe cashier to intentionally or unintentionally not perform all of their duties.4.Established internal procedures:The fitness centre requires that all sales arerecorded in the cash register and the customer receives a receipt.5.Alternative courses of action:The cashier could continue providing cash receiptsonly if they are asked. Eventually, thesupervisor and/or owner of the facility willrecognize that drop-in revenues are lower than the actual number of drop-incustomers attending the facility and the cashier will lose his/her job and perhapsface criminal charges. Also, the prices may increase if the owner believesrevenues are decreasing. The cashier could follow procedure and provide allcustomers with a receipt whether or not they ask for one. This cashier will be ableto work at the fitness center and earn wages for a longer period of time.ConclusionThe behaviour in the situation described appears to be unethical based on theapplication of the Chartered Professional Accountants of Ontario’s Rules of ProfessionalConduct-Approach to Ethical Conflict Resolution.Exercise 1-5(10 minutes)DescriptionB1.Requireseverybusinesstobeaccountedforseparatelyfrom itsownerorowners.A2.Requiresfinancialstatementinformationtobebasedoncostsincurredintransactions.D3.Requires financial statements to reflect the assumption that the business willcontinue operating instead of being closed or sold.C4.Requires revenue to be recorded only when the earnings process is complete

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Last revised:May 24, 2016Solutions Manual to accompanyFundamental Accounting Principles,15th Canadian Edition.1-20Exercise 1-6(15minutes)Balance SheetIncome StatementStatement of Changes inEquityAssetsLiabilitiesOwner’s EquityRevenueExpensesCashAccountsPayableOwner’s Capital,Ending balanceInterestIncomeAdvertisingExpenseOwner’s Capital,Beginning balanceAccountsReceivableInterestPayableServiceRevenueFuel ExpenseInvestment by OwnerInterestReceivableSalariesPayableRent RevenueInsuranceExpenseProfit / LossMerchandiseInventoryUnearnedRevenueInterestExpenseWithdrawalsSuppliesNotes PayableMaintenanceExpenseOwner’s Capital, EndingbalancePrepaidExpensesOther ExpensesPrepaid RentRent ExpenseLandSalariesExpenseBuildingSuppliesExpenseVehiclesTelephoneExpenseEquipmentUtilitiesExpenseFurnitureVehicleExpensesWages Expense

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Last revised:May 24, 2016Solutions Manual to accompanyFundamental Accounting Principles,15th Canadian Edition.1-21Exercise 1-7(10 minutes)a)$516,000–$492,000 =$24,000profitb)$165,000–$240,000 =$75,000lossc)$32,000 + 0–0 + x = $86,000x = $86,000–$32,000x =$54,000profitd)$48,000 + $40,000–0 + x = $52,000x =$52,000–$48,000–$40,000x =–$36,000 or a$36,000lossExercise 1-8(15 minutes)(a)(b)(c)(d)(e)Answers$ (19,750)$46,000$7,000$10,250$102,000Proofs:Equity, January 1................................$0$0$0$0$102,000Owner’s investmentsduring the year................................60,00046,00031,50037,500140,000Profit(loss) for the year.........................15,75030,500(4,500)10,250(8,000)Owner’s withdrawalsduring the year................................(19,750)(27,000)(20,000)(15,750)(63,000)Equity, December 31..............................$56,000$49,500$7,000$32,000$171,000Exercise 1-9(15 minutes)EXTRAORDINARY STUDIOSIncome StatementFor Month Ended November 30, 2017Revenues:Wedding consultingrevenue............................$22,000Operating expenses:Salaries expense...............................................$6,000Rent expense.....................................................2,550Telephone expense...........................................1,680Utilities expenses..............................................660Total operating expenses..............................10,890Profit....................................................................$ 11,110

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Last revised:May 24, 2016Solutions Manual to accompanyFundamental Accounting Principles,15th Canadian Edition.1-22Exercise 1-10(15 minutes)EXTRAORDINARY STUDIOSStatement of Changes in EquityFor Month Ended November 30, 2017JeanHiggins, capital, November 1.....................$0Add:Investments by owner............................84,000Profit.........................................................11,11095,110Total...............................................................$95,110Less: Withdrawals by owner..............................3,360JeanHiggins, capital, November 30...................$91,750Analysis component:The owner, JeanHiggins, invested $84,000 of assets during the month, which causedequity to increase. Also,profitearned during the month was $11,110 also causing equityto increase during November. The total increases in equity during the month were a totalof$95,110($84,000 + $11,110).NOTE: Students might point out that equity decreased by a total of $3,360 in withdrawalswhich in combination with the total increase of $95,110 causeda net increase in equity of$91,750.Exercise 1-11(15 minutes)EXTRAORDINARY STUDIOSBalance SheetNovember 30, 2017AssetsLiabilitiesCash................................................$16,000Accounts payable.....................$ 7,500Accounts receivable......................17,000Office supplies...............................5,000EquityAutomobiles...................................36,000JeanHiggins, capital................91,750Office equipment............................25,250Total liabilities andTotal assets....................................$99,250equity.....................................$99,250Analysis component:$91,750 (or 92.44%calculated as $91,750/$99,250 × 100) of the total $99,250 assets arefinanced by JeanHiggins, the owner ofExtaordinary Studios.Exercise 1-12(15 minutes)

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Last revised:May 24, 2016Solutions Manual to accompanyFundamental Accounting Principles,15th Canadian Edition.1-23WINDSORLEARNING SERVICESIncome StatementFor Month Ended July 31, 2017Revenues:Tutoringrevenue...............................................$4,200Textbook rental revenue...................................300Total revenues................................................$ 4,500Operating expenses:Office rent expense...........................................$2,500Tutors wages expense......................................1,540Utilities expense................................................680Total operating expenses..............................4,720Loss....................................................................$220Exercise 1-13(15 minutes)WINDSORLEARNING SERVICESStatement of Changes in EquityFor Month Ended July 31, 2017Milton Windsor, capital, July 1...........................$ 7,400Add:Investments by owner............................1,200Total...............................................................$ 8,600Less: Withdrawals by owner..............................$ 1,000Loss............................................................2201,220Milton Windsor, capital, July 31.........................$ 7,380Analysis component:Withdrawals of $1,000 by the owner,Milton Windsor, caused equity to decrease duringJuly, 2017. Also, thelossof $220 caused equity to decrease in July. The total decreasein equity during the month of July was $1,220 (calculated as $1,000 + $220).NOTE: Students might point out that equity increased by $1,200 of owner investmentswhich, in combinationwith the total decrease of $1,220, caused a net decrease in equityof $20.Exercise 1-14(15 minutes)

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Last revised:May 24, 2016Solutions Manual to accompanyFundamental Accounting Principles,15th Canadian Edition.1-24WINDSORLEARNING SERVICESBalance SheetJuly 31, 2017AssetsLiabilitiesCash................................................$ 1,600Accounts payable.....................$1,500Accounts receivable......................2,000Supplies..........................................1,280EquityFurniture.........................................1,800Milton Windsor, capital............7,380Computer equipment.....................2,200Total liabilities andTotal assets....................................$8,880equity.....................................$8,880Analysis component:$1,500 or 16.89% (calculated as$1,500/$8,880 × 100) of the total $8,880 assets held byWindsorLearning Services are financed by debt.Exercise 1-15(20 minutes)Assets–Liabilities=EquityBeginning of the year.........................$ 75,000–$30,000=$ 45,000End of the year...................................$120,000–$46,000=74,000(a)(b)(c)(d)Answers$ 29,000$86,000$(51,000)$(4,000)Proofs:Equity, January 1................................$45,000$45,000$45,000$ 45,000Owner’s investmentsduring the year................................0080,00075,000Profit(loss) for the year.........................29,00086,000(51,000)(4,000)Owner’s withdrawalsduring the year................................(0)(57,000)(0)(42,000)Equity, December 31..............................$74,000$74,000$74,000$74,000a.An alternative calculation:$45,000 +0 +x–0 = $74,000; x = $29,000b.An alternative calculation:$45,000 +0 +x-$57,000 = $74,000; x = $86,000c.An alternative calculation:$45,000 + $80,000 + x-0= $74,000; x = ($51,000) where the negative represents aloss.Exercise 1-15 (Continued)

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Last revised:May 24, 2016Solutions Manual to accompanyFundamental Accounting Principles,15th Canadian Edition.1-25d.An alternative calculation:$45,000+$75,000+x-$42,000=$74,000;x=($4,000)wherethenegativerepresents a loss.Exercise 1-16(10 minutes)a.If assets decreased by $15,000 during August, then$25,000 + $15,000 =$40,000Assets at August 1, 2017.Therefore, Equity at August 1, 2017= $40,000-$10,000 =$30,000b.Ifliabilities increased by $9,000 during August, then$10,000 + $9,000 =$19,000Liabilities at August 31, 2017.Therefore,Equity at August 31, 2017= $25,000-$19,000 =$6,000Exercise 1-17(15 minutes)AssetsLiabilities+EquityCash+AccountsReceivable+OfficeSupplies=AccountsPayable+Marnie Wesson,Capitala)+ $25,000+ $25,000b)+ $600+ $600c)+7,000+7,000d)*e)–4,500–4,500f)+ $1,250+ 1,250Totals$27,500+$1,250+$600=$600+$28,750$29,350=$29,350*Note: For (d), since no exchange has occurred, no entry is required.Exercise 1-18(20 minutes)

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Last revised:May 24, 2016Solutions Manual to accompanyFundamental Accounting Principles,15th Canadian Edition.1-26AssetsLiabilities+EquityCash+AccountsReceivable+PartsSupplies+Equipment=AccountsPayable+Stacey Crowe,Capitala)+$14,000+$14,000b)-2,500-2,500c)+ $800+ $800d)+ $3,400+ $ 3,400e)–$1,950+ $1,950f)*g)–$800–$800h)+ $3,400+ $ 3,400i)–$2,700–$ 2,700Totals$9,450+$3,400+$800+$1,950=$0+$15,600$15,600=$15,600*Note: For (f), since no exchange has occurred, no entry is required.Exercise 1-19: (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, 2016Solutions Manual to accompanyFundamental Accounting Principles,15th Canadian Edition.1-27Exercise 1-20(20 minutes)Assets=Liabilities+EquityExplanationof EquityTransactionCash+AccountsReceivable+Supplies+Equipment=AccountsPayable+MailinMoon,Capitala)+ $3,000+ $2,500+$5,500OwnerInvestmentb)+ $6,500+$6,500Revenuec)+ $600+ $600d)–$1,450–$1,450Sal. Expensee)*f)–$ 1,400–$ 1,400Rent Expenseg)+ $4,500+$4,500RevenueTotals$6,650+$4,500+$600+$2,500=$600+$13,650$14,250=$14,250*Note: For (e), since no exchange has occurred, no entry is required.

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Last revised:May 24, 2016Solutions Manual to accompanyFundamental Accounting Principles,15th Canadian Edition.1-28Exercise 1-21(25 minutes)Mailin Moon–Freelance WritingIncome StatementFor Month Ended March 31, 2017Revenues:Freelance writing revenue$11,000Operating expenses:Salaries expense$1,450Rent expense1,400Total operating expenses2,850Profit$8,150Mailin Moon–Freelance WritingStatement of Changes in EquityFor Month Ended March 31, 2017Mailin Moon, capital, March 1$0Add:Investment by owner$5,500Profit8,15013,650Mailin Moon, capital, March 31$13,650Mailin Moon–Freelance WritingBalance SheetMarch 31, 2017AssetsLiabilitiesCash$6,650Accounts payable$600Accounts receivable4,500Supplies600Equipment2,500EquityMailin Moon, capital13,650Total assets$14,250Total liabilities and equity$14,250Analysis component:a.Supplies of $600were 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 $4,500 were financed by an investmentby owner of $3,000 andprofitof $8,150.Profitincludes the equity transactions ofrevenues and expenses (revenuesof $11,000 less expenses of $2,850).

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Last revised:May 24, 2016Solutions Manual to accompanyFundamental Accounting Principles,15th Canadian Edition.1-29Exercise 1-22(20 minutes)Assets=Liabilities+EquityExplanationof EquityTransactionCash+AccountsReceivable+Supplies+Equipment=AccountsPayable+OmarAlia)+$4,300+$15,000+$19,300OwnerInvestmentb)+$1,600+$1,600c)+$950+$950d)*e)+$550+$550Revenuef)+$600+$600Revenueg)-$200-$200h)-$250-$250Adv.Expensei)+$600-$600Totals$4,450+$550+$2,550+$15,000=$2,350+$20,200$22,550=$22,550*Note: For (d), since no exchange has occurred, no entry is required.

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Last revised:May 24, 2016Solutions Manual to accompanyFundamental Accounting Principles,15th Canadian Edition.1-30Exercise 1-23(25 minutes)Omar’sYard CareIncome StatementFor Month Ended March 31, 2017Revenues:Yard care revenue$1,150Operating expenses:Advertising expense250Profit$ 900Omar’sYard CareStatement of Changes in EquityFor Month Ended March 31, 2017OmarAli, capital, March 1$0Add:Investment by owner$19,300Profit90020,200OmarAli, capital, March 31$20,200Omar’sYard CareBalance SheetMarch 31, 2017AssetsLiabilitiesCash$4,450Accounts payable$2,350Accounts receivable550Supplies2,550Equipment15,000EquityOmarAli, capital20,200Total assets$22,550Total liabilities and equity$22,550Analysis component:The $900 ofprofitdoes not represent cash because all of the revenues ($550 + $600 =$1,150) were on account. The $250 of advertising expense was paid in cash. Theprofit(loss)on an income statement represents theprofit(loss) that was actually earned whichis not necessarily going to agree totheprofit(loss) actually received in cash. This is inaccordancewiththe revenue recognition principle which says that revenues(and alsoexpenses) are recorded at the time earned (or expensed in the case of expenses)regardless ofwhether cash has been exchanged.

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