(Test Bank) Accounting Principles, Canadian Edition, (Volume 1)

Weygandt,Kieso,Kimmel,Trenholm,Warren,Novak, 9

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9th Edition

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Test Bank for Accounting Principles, Canadian Edition, (Volume 1), The downloadable file consists of 1321 pages, and the total size of the file is 6.41 MB. Purchase now only for highly discounted price.

Author(s): Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

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Test Bank for Accounting Principles, 9th Canadian Edition, (Volume 1) By Jerry Weygandt, Donald Kieso, Paul Kimmel, Trenholm, Warren, Novak (All Chapters) CHAPTER 1 ACCOUNTING IN ACTION CHAPTER LEARNING OBJECTIVES 1. Identify the use s and users of accounting and the objective of financial reporting. Accounting is the information system that identifies, records, and communicates the economic events of an organization to a wide variety of interested users. Good accounting is important to people both inside and outside the organization. Internal users, such as management, use accounting information to plan, control, and evaluate business operations. External users include investors and creditors, among others. Accounting data are used by investors (owners or potential owners) to decide whether to buy, hold, or sell their financial interests. Creditors (suppliers and bank ers) evaluate the risks of granting credit or lending money based on the accounting information. The objective of financial reporting is to provide useful information to investors and creditors to make these decisions. Users need information about the busi ness’s ability to earn a profit and generate cash. For our economic system to function smoothly, reliable and ethical accounting and financial reporting are critical. 2. Compare the different forms of business organization. The most common examples of bu siness organization are proprietorships, partnerships, and corporations. Proprietorships and partnerships are not separate legal entities but are separate entities for accounting purposes; income taxes are paid by the owners and owners have unlimited liability. Corporations are separate legal entities as well as separate entities for accounting purposes; income taxes are paid by the corporation and owners of the corporation have limited liability. 3. Explain the building blocks of accounting: ethics and t he concepts included in the conceptual framework. Generally accepted accounting principles are a common set of guidelines that are used to prepare and report accounting information. The conceptual framework outlines some of the body of theory used by accou ntants to fulfill their goal of providing useful accounting information to users. Ethical behaviour is fundamental to fulfilling the objective of financial accounting. The reporting entity concept requires the business activities of each reporting entity t o be kept separate from the activities of its owner and other economic entities. The going concern assumption presumes that a business will continue operations for enough time to use its assets for their intended purpose and to fulfill its commitments. The periodicity concept requires businesses to divide up economic activities into distinct periods of time. Qualitative characteristics include fundamental and enhancing characteristics that help to ensure accounting information is useful. Only events that cause changes in the business’s economic resources or changes in the claims on those resources are recorded. Recognition is the process of recording transactions and measurement is the process of determining the amount that should be recog nized. The historical cost concept states that economic resources should be recorded at their historical (original) cost. Fair value may be a more appropriate measure for certain types of resources . Generally , fair value is the amount the resource could be sold for in the market. The monetary unit concept requires that only transactions that can be expressed as an amount of money be included in the accounting records, and it assumes that the monetary unit is stable. Test Bank for Accounting Principles, 9th Canadian Edition, (Volume 1) By Jerry Weygandt, Donald Kieso, Paul Kimmel, Trenholm, Warren, Novak (All Chapters) The revenue recognition principle require s companies to recognize revenue when a performance obligation(s) is satisfied. The matching concept requires that costs be recognized as expenses in the same period as revenue is recognized when there is a direct association between the cost incurred and revenue recognized. In Canada, there are two sets of standards for profit -oriented businesses. Publicly accountable enterprises must follow International Financial Reporting Standards (IFRS) and private enterprises have the choice of following IFRS or Accounting Standards for Private Enterprises (ASPE). 4. Describe the elements of the financial statements and explain the accounting equation. Assets, liabilities, and owner’s equity are reported on the balance sheet. Assets are present economic resources controlled by the business as a result of past events and have the potential to produce economic benefits. Liabilities are present obligations of a business to transfer an economic resource as a result of past events. Owner’s equity is the owner’s claim on the company’s assets and is equal to total assets minus total liabilities. The balance sheet is based on the accounting equation: Assets = Liabilities + Owner’s equity. The Income statement reports the profit or loss for a specified period of time. Prof it is equal to revenues minus expenses. Revenues are the increases in assets, or decreases in liabilities, that result from business activities that are undertaken to earn profit. Expenses are the cost of assets consumed or services used in a company’s bus iness activities. They are decreases in assets or increases in liabilities, excluding withdrawals made by the owners, and result in a decrease to owner’s equity. The statement of owner’s equity summarizes the changes in owner’s equity during the period. Ow ner’s equity is increased by investments by the owner and profits. It is decreased by drawings and losses. Investments are contributions of cash or other assets by owners. Drawings are withdrawals of cash or other assets from the business for the owner’s p ersonal use. Owner’s equity in a partnership is referred to as partners’ equity and in a corporation as shareholders’ equity. A cash flow statement summarizes information about the cash inflows (receipts) and outflows (payments) for a specific period of ti me. 5. Analyze the effects of business transactions on the accounting equation. Each business transaction must have a dual effect on the accounting equation. For example, if an individual asset is increased, there must be a corresponding (1) decrease in another asset, (2) increase in a liability, and/or (3) increase in owner’s equity. 6. Prepare financial statements. The income statement is prepared first. Expenses are deducted from revenues to calculate the profit or loss for a specific period of time. Then the statement of owner’s equity is prepared using the profit or loss reported in the income statement. The profit is added to (losses are deducted from) the owner’s equity at the beginning of the period. Drawings are then deducted to calculate owner’s equity at the end of the period. A balance sheet reports the assets, liabilities, and owner’s equity of a business as at the e nd of the accounting period. The owner’s equity at the end of the period, as calculated in the statement of owner’s equity, is reported on the balance sheet in the owner’s equity section. Test Bank for Accounting Principles, 9th Canadian Edition, (Volume 1) By Jerry Weygandt, Donald Kieso, Paul Kimmel, Trenholm, Warren, Novak (All Chapters) EXERCISES Exercise 1 Mike Homes is a business owned by Mike Smit h. The accounting for this business is done by Mike’s sister Leigh. Leigh is currently preparing the 2024 year -end financial statements that Mike will use for three purposes: 1. to submit with his tax returns; 2. to support a loan application; and 3. to help him evaluate the success of the business. Instructions a) For each of the three purposes identified, describe the information needs the user will fulfill based on Mike Home s’ financial statements. b) Leigh has suggested that she can help Mike out by recording some January 2025 revenue in December 2024 . She feels this is reasonable because it is just a slight timing difference and so “not really dishonest.” Comment on the ethical implications of this suggestion and explain how each of the three users’ needs may be affected if Leigh implements her suggestion. Solution Exercise 1 (10 min.) a) Information needs for each of the three users: 1. The tax department will want to know whether the company respects the tax laws. 2. The bank’s loans officer will evaluate the risk of granting credit or lending money. 3. Mike will be able to assess whether the business is earning him the amount of profit he is expecting in comparison with other similar businesses. b) Leigh’s action would be unethical because it would be misrepresenting the true results of the business operations for 2024 . It would violate the trust each financial statement user places in the accounting information. The effect on each of the needs identified in part a) would be: 1. The tax department might assess higher taxes than are warranted. 2. The bank might lend more money to Mike than they would otherwise, based on expectations of higher future profits than can actually be achieved because the bank’s projections are based on incorrect historical information. 3. Mike might assume that past projects were more profitable than they really were. He might therefore reject new projects based on the assumption that he does not need to increase his sales above current levels in order to earn target profit levels. Bloomcode: Comprehension Difficulty: Easy Learning Objective: Identify the uses and users of accounting and the objective of financial reporting. Section Reference: Why Is Accounting Important? CPA: Financial Reporting CPA: Problem -Solving and Decision -Making CPA: Professional and Ethical Behaviour AACSB: Ethics Test Bank for Accounting Principles, 9th Canadian Edition, (Volume 1) By Jerry Weygandt, Donald Kieso, Paul Kimmel, Trenholm, Warren, Novak (All Chapters) Exercise 2 The following are six questions that users of accounting information might ask about Agusta Auto Towing. Instructions For each question, indicate who the decision maker is and whether it is an external or internal user. Decision Decision maker External or internal a) Can Agusta’s operations generate sufficient cash to make payments on a term loan? b) Does Agusta have sufficient assets to provide security for a mortgage loan? c) Should Agusta continue its current business, or look for more profitable opportunities in a different line of business? d) Were the profit -sharing bonuses paid to unionized employees equal to the percentage of profit stated in the employment contract? e) Was the amount of harmonized sales taxes (HST) that Agusta remitted to the tax department equal to 13% of its revenue, as required by law? f) Does Agusta have enough money in the bank to provide drawings to the owner? Solution Exercise 2 (10 min.) Decision Decision maker External or internal a) Can Agusta’s operations generate sufficient cash to make payments on a term loan? Banker External b) Does Agusta have sufficient assets to provide security for a mortgage loan? Banker/lender External c) Should Agusta continue its current business, or look for more profitable opportunities in a different line of business? Management Internal d) Were the profit -sharing bonuses paid to unionized employees equal to the percentage of profit stated in the employment contract? Employee union External e) Was the amount of harmonized sales taxes (HST) that Agusta remitted to the tax department equal to 13% of it s revenue, as required by law? Tax assessor (Canada Revenue Agency) External f) Does Agusta have enough money in the bank to provide drawings to the owner? Owner Internal Bloomcode: Comprehension Test Bank for Accounting Principles, 9th Canadian Edition, (Volume 1) By Jerry Weygandt, Donald Kieso, Paul Kimmel, Trenholm, Warren, Novak (All Chapters) Difficulty: Easy Learning Objective: Identify the uses and users of accounting and the objective of financial reporting. Section Reference: Why Is Accounting Important? CPA: Financial Reporting AACSB: Analytic Exercise 3 MGS Company recently released its first set of financial statements. B elow is a list of potential users of the financial statements: 1. Labour union 2. Customers 3. Canadian Imperial Bank of Commerce 4. Canada Revenue Agency 5. Potential shareholders/investors 6. Sales Manager 7. Marketing Manager 8. Economic planner s 9. Provincial securities commission 10. Human Resource s Director Instructions a) For each user, identify whether the user is an external or internal user. b) Provide a brief explanation as to the difference between external and internal users. Solution Exercise 3 (15 min.) a) 1. external 2. external 3. external 4. external 5. external 6. internal 7. internal 8. external 9. external 10. internal Test Bank for Accounting Principles, 9th Canadian Edition, (Volume 1) By Jerry Weygandt, Donald Kieso, Paul Kimmel, Trenholm, Warren, Novak (All Chapters) b) External users do not work for the company and may use the information to base future decisions about the company (i.e., loans, invest, or future profitability) or in the case of governments and regulators , whether the company is respecting laws and regulations. Internal users plan, organize, and run the company. They use the information to create or alter future budgets, projects, or for detailed comparisons. Bloomcode: Knowledge Difficulty: Easy Learning Objective: Identify the uses and users of accounting and the objective of financial reporting. Section Reference: Why Is Accounting Important? CPA: Financial Reporting AACSB: Analytic Exercise 4 The following is a list of users of accounting information: A) Managers B) Regulators C) Employees D) Shareholders E) Lenders F) Suppliers G) External auditors Instructions Match the most appropriate user to the following user objectives. (Note: Each user should only be applied once.) _______(1) The accuracy of the internal budgeted financial information _______(2) Verification that the financial statements are fairly presented _______(3) Compliance with income tax laws _______(4) The company’s ability to repay its loans _______(5) Fairness of wages _______(6) The company’s ability to pay for its inventory _______(7) The company’s ability to generate profits and provide a return on investment Solution Exercise 4 (5 min.) ___A___(1) The accuracy of the internal budgeted financial information ___G___(2) Verification that the financial statements are fairly presented ___B___(3) Compliance with income tax laws ___E___(4) The ability of a company to repay its loans Test Bank for Accounting Principles, 9th Canadian Edition, (Volume 1) By Jerry Weygandt, Donald Kieso, Paul Kimmel, Trenholm, Warren, Novak (All Chapters) ___C___(5) Fairness of wages ___F___(6) The company’s ability to pay for its inventory ___D___(7) The company’s ability to generate profits and provide a return on investment Bloomcode: Comprehension Difficulty: Easy Learning Objective: Identify the uses and users of accounting and the objective of financial reporting. Section Reference: Why Is Accounting Important? CPA: Financial Reporting AACSB: Analytic Exercise 5 The following is a list of users of accounting information: a) Managers b) Regulators c) Employees d) Shareholders e) Lenders f) Suppliers Instructions Identify the above users as internal (I) or external (E) using the following format: _______(a) Managers _______(b) Regulators _______(c) External auditors _______(d) Shareholders _______(e) Lenders _______(f) Suppliers Solution Exercise 5 (5 min.) ___I___(a) Managers ___E__ (b) Regulators ___E___(c) External auditors ___E__ (d) Shareholders ___E__ (e) Lenders ___E__ (f) Suppliers Bloomcode: Comprehension Test Bank for Accounting Principles, 9th Canadian Edition, (Volume 1) By Jerry Weygandt, Donald Kieso, Paul Kimmel, Trenholm, Warren, Novak (All Chapters) Difficulty: Easy Learning Objective: Identify the uses and users of accounting and the objective of financial reporting. Section Reference: Why Is Accounting Important? CPA: Financial Reporting AACSB: Analytic Exercise 6 Listed below are various types of business organizations: 1. Three individuals created a law practice. The law practice does not pay its own taxes. 2. Two individuals bought shares of a company as an inves tment. 3. A single mother opens her own hair salon. The hair salon pays its own taxes . 4. Husband and wife decide to open a daycare business. The wife will operate and maintain the daycare while the husband works his normal full -time job. The daycare income will be reported solely on the wife’s personal tax return. 5. A public company with 100 shareholders. 6. Two friends create a chocolate company business. All profits will be on their personal returns. Instructions a) For each of the six situations, identify the type of business organization. b) For each of the six situations, identify the owner’s liability. Solution Exercise 6 (10 min.) a) b) 1. Partnership Unlimited 2. Corporation Limited 3. Corporation Limited 4. Proprietorship Unlimited 5. Corporation Limited 6. Partnership Unlimited Bloomcode: Comprehension Difficulty: Easy Learning Objective: Compare the different forms of business organization. Section Reference: Forms of Business Organization CPA: Fina ncial Reporting AACSB: Analytic Exercise 7 Listed below are various situations relating to business organizations: Test Bank for Accounting Principles, 9th Canadian Edition, (Volume 1) By Jerry Weygandt, Donald Kieso, Paul Kimmel, Trenholm, Warren, Novak (All Chapters) 1. Paul’s Woodworking does not have a separate legal existence apart from the one person who owns it. 2. Luke and Sheri own Wise Financial Inc., a financial and personal taxation services provider. Neither Luke nor Sheri has personal responsibility of the debts of Wise Financial Inc. 3. Lucky Snacks is owned by Ray Umber, who is personally liable for the debts of the business. 4. Ownership of Tractor and Wheels Corporation is divided into thousands of shares. 5. Chris and Melissa own Chris’ Curiosity, a restaurant. Both Chris and Melissa are personally liable for the debts of the business. 6. Torby Technologies has two owners and does not pay income taxes. Instructions Determine whether the situation described above refers to a proprietorship, partnership, or corporation. Solution Exercise 7 (5 min.) 1. Proprietorship 2. Corporation 3. Proprietorship 4. Corporation 5. Partnership 6. Partnership Bloomcode: Application Difficulty: Medium Learning Objective: Compare the different forms of business organization. Section Reference: Forms of Business Organization CPA: Financial Reporting AACSB: Analytic Exercise 8 Each of the following independent situations represents a violation of accounting principles: 1. It is now the end of 2024 and Stella Corp. is preparing its annual financial statements. The company has been experiencing severe financial difficulties and ma nagement anticipates that the company will cease operations in 2025 , but this is not disclosed in the financial statements. 2. Fritz Schmitz runs a small business. All receipts from the business are deposited into Fritz’s personal bank account and all Frit z’s expenses, both personal and business, are paid out of this same account. Fritz makes no attempt to maintain separate records for the business. 3. Dean has a mining company that is very profitable. Over the past few years, Dean has been very good at maintaining his business records and books. However, Dean’s wife has recently been using the company account to pay for her personal expenses. She informed Dean that since he owns the company all the money earned will go to him anyway and therefore using eit her the company account or their personal bank account makes no difference. Test Bank for Accounting Principles, 9th Canadian Edition, (Volume 1) By Jerry Weygandt, Donald Kieso, Paul Kimmel, Trenholm, Warren, Novak (All Chapters) Instructions For each of the situations listed above, fill in the appropriate letter to indicate which of the following accounting principles has been violated: a) Going concern assumption b) Reporting entity concept Solution Exercise 8 (5 min.) 1. a 2. b 3. b Bloomcode: Analysis Difficulty: Medium Learning Objective: Explain the building blocks of accounting: ethics and the concepts included in the conceptual framework. Section Reference: Generally Accepted Accounting Principles CPA: Financial Reporting AACSB: Analytic Exercise 9 1. Explain the going concern assumption. How is it relevant in accounting for a business that may be going through temporary financial difficulties? 2. Explain how the reporting entity concept applies when a business is owned and operated by a sole proprietor. Solution Exercise 9 (10 min.) 1. The going concern assumption states that a business is assumed that it will continue its operations for the foreseeable future. This means that even though a business may be experiencing financial difficulties, assets and liabilities are still presented as though the assets will continue to be used in the business and liab ilities will be honoured. If it becomes apparent that the business will discontinue operations, it is necessary to report in the financial statements that the company is not a going concern. 2. The reporting entity concept requires that only the events an d transactions of a business be reported in the financial statements of a business. Therefore, although an unincorporated business is not a separate legal entity in the same sense that a corporation is, the accountant must still ensure that personal econom ic activities ( transactions, assets, and liabilities ) of the business owner are not reported in the business’s financial statements. Bloomcode: Analysis Difficulty: Medium Learning Objective: Explain the building blocks of accounting: ethics and the concepts included in the conceptual framework. Test Bank for Accounting Principles, 9th Canadian Edition, (Volume 1) By Jerry Weygandt, Donald Kieso, Paul Kimmel, Trenholm, Warren, Novak (All Chapters) Section Reference: Generally Accepted Accounting Principles CPA: Financial Reporting AACSB: Analytic Exercise 10 Both of the following independent situations represents a departure from generally accepted ac counting principles: 1. Strad Music Supplies is a proprietorship owned and operated by Giuseppe Amati. Giuseppe started the business with funds given to him by his uncle. He gives his uncle a copy of Strad’s financial statements each year so that his uncle will see this was a goo d investment. In 2023 both Giuseppe and his uncle were disappointed that sales had decreased from the prior year. When Giuseppe wins $50,000 in a lottery during 2024, he decides to record the amount as revenue in the financial statements of the business to avoid disappointing his uncle even further. 2. Xavier Quinn, the owner of Quinn’s Travel, is thinking of retiring in less than six months because the business has become unsuccessful . Xavier has determined that he will be unable to realize the full value of the business’s assets and will be unable to repay all of the business’s debts. Xavier makes no such disclosures in the financial statements. Instructions For each situation listed above: a) Identify which principle, concept, or assumption has been violated b) Describe what the correct accounting treatment would be, and c) Explain why the correct treatment provides better information. Solution Exercise 10 (10 min.) 1. The reporting entity concept has been violated. Giuseppe should record o nly transactions related to the business in Strad’s financial statements. By including personal income, a correct evaluation of the business’s performance cannot be made. 2. The going concern assumption is violated. To provide users with accurate and time ly data, t he assets and liabilities should be accounted for as though the business will cease to exist . Bloomcode: Application Difficulty: Medium Learning Objective: Explain the building blocks of accounting: ethics and the concepts included in the concep tual framework. Section Reference: Generally Accepted Accounting Principles CPA: Financial Reporting CPA: Professional and Ethical Behaviour AACSB: Analytic Exercise 11 You were auditing the accounting records of Aldi Tool Company, owned and operated by Chad Fleming, and noticed the following events: 1. Chad deals with foreign suppliers who invoice the company in U.S. dollars. Chad normally records Test Bank for Accounting Principles, 9th Canadian Edition, (Volume 1) By Jerry Weygandt, Donald Kieso, Paul Kimmel, Trenholm, Warren, Novak (All Chapters) the amounts in the accounting records as displayed in the invoice because he thinks the exchange rate is similar to the Canadian dollar. 2. Chad often receives deposits for contracts to be completed in the following fiscal year. He reports all deposits as revenue once the cash is received. 3. Chad wrote a cheque for $ 900 to Little Hugs Day Care Cent re. The amount relates to child care service for Chad’s daughter Gabrielle. Instructions Identify the accounting principle, concept, or assumption violated in each of the events described above. Solution Exercise 11 (5 min.) 1. Monetary unit concept 2. Revenue r ecognition principle 3. Reporting entity concept Bloomcode: Analysis Difficulty: Medium Learning Objective: Explain the building blocks of accounting: ethics and the concepts included in the conceptual framework. Section Reference: Generally Accepted Accounting Principles CPA: Financial Reporting AACSB: Analytic Exercise 12 The following is a list of fundamental and enhancing qualitative characteristics: 1. relevance 2. faithful representation 3. neutral 4. comparability 5. consistency 6. verifiability 7. timeliness 8. understandability Instructions Using the list of qualitative characteristics stated above, identify the appropriate qualitative characteristic being described in each of the statements below. (Note: a characteristic cannot be used more than once.) a) Characteristic that requires that information cannot be selected to favour one set of interested parties over another. b) Characteristic requiring information be available to decision makers before it loses its ability to influence decisions. c) Characteristic requiring that numbers and descriptions in financial statements represent what really Test Bank for Accounting Principles, 9th Canadian Edition, (Volume 1) By Jerry Weygandt, Donald Kieso, Paul Kimmel, Trenholm, Warren, Novak (All Chapters) existed or happened. d) Information that is capable of making a difference in a decision is said to have this qualitative characteristic. e) Characteristic being employed when a company uses the same accounting principles from year to year. Solution Exercise 12 (5 min.) a) neutral b) timeliness c) faithful representation d) relevance e) consistency Bloomcode: Comprehension Difficulty: Easy Learning Objective: Explain the building blocks of accounting: ethics and the concepts included in the conceptual framework. Section Reference: Generally Accepted Accounting Principles CPA: Financial Reporting AACSB: Analytic Exercise 13 In each of the following situations, the accountant for Stan Design Services (Stan) must decide how to record the information in the financial statements. Stan is a proprietorship owned and operated by Maria Steinwald. 1. Maria would like to borrow money from the bank to expand the business. Since she owns a house that can be pledged as security for a bank loan, she asks the accountant to ensure that the house is shown on Stan’s balance sheet. 2. The account ant is confident that with a new contract that was signed, Stan will be a successful business for many years to come. However, before that was finalized, he was curious whether there would be any effect on accounting for the assets and liabilities of the business if its ongoing viability had been in doubt. Instructions For each of the situations, identify what principle would guide the accountant in deciding how to report the situation, and describe the correct treatment. Solution Exercise 13 (5 min.) 1. The reporting entity concept requires that no personal economic activities (e.g. , assets) are recorded in the records of the business, and therefore the house should not be included on Stan’s balance sheet. Test Bank for Accounting Principles, 9th Canadian Edition, (Volume 1) By Jerry Weygandt, Donald Kieso, Paul Kimmel, Trenholm, Warren, Novak (All Chapters) 2. The going concern assumption applies. In accordance with this assumption, accounting for the business should be based on the assumption that it will continue for the foreseeable future, so there is no difference in the accounting in this situation. Bloomcode: Analysis Difficulty: Medium Learning Objective: Explain the building blocks of accounting: ethics and the concepts included in the conceptual framework. Section Reference: Generally Accepted Accounting Principles CPA: Financial Reporting AACSB: Analytic Exercise 14 Listed below are various types of organizations: 1. publicly accountable enterprise 2. bank or credit union 3. private corporation 4. security broker 5. Canadian partnership Instructions a) For each organization, identify the appropriate accounting standards the org anization should follow (ASPE or IFRS). b) If applicable, identify if any organization has the option to follow both standards. Solution Exercise 14 (5 min.) a) 1. IFRS 2. IFRS 3. ASPE 4. IFRS 5. ASPE b) Canadian private companies including corporations have the option to adopt IFRS or ASPE. Therefore 3. and 5. can adopt either set of standards. Bloomcode: Knowledge Difficulty: Easy Learning Objective: Explain the building blocks of accounting: ethics and the concepts included in t he conceptual framework. Section Reference: Generally Accepted Accounting Principles CPA: Financial Reporting Test Bank for Accounting Principles, 9th Canadian Edition, (Volume 1) By Jerry Weygandt, Donald Kieso, Paul Kimmel, Trenholm, Warren, Novak (All Chapters) AACSB: Analytic Exercise 15 For the accounts listed below, fill in the appropriate code letter to indicate whether the item is an Asset (A), Liability (L), or Owner's Equity (OE) item. ______ 1. Rent Expense ______ 6. Cash ______ 2. Equipment ______ 7. Accounts Receivable ______ 3. Accounts Payable ______ 8. L. Landry, Drawings ______ 4. L. Landry, Capital ______ 9. Service Revenue ______ 5. Insurance Expense ______ 10. Notes Payable Solution Exercise 15 (5 min.) 1. OE 2. A 3. L 4. OE 5. OE 6. A 7. A 8. OE 9. OE 10. L Bloomcode: Knowledge Difficulty: Easy Learning Objective: Explain the building blocks of accounting: ethics and the concepts included in the conceptual framework. Section Reference: Generally Accepted Accounting Principles CPA: Financial Reporting AACSB: Analytic Exercise 16 1. What is meant by the historical cost measurement method? Explain why the method is used primarily when accounting for assets used in a business. 2. Explain the monetary unit concept. Explain how a business may have competitive advantage s that