(Solution Manual) Accounting Principles Canadian Edition Volume 1

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

Business

Solution Manual

9th Edition

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Solution Manual for Accounting Principles Canadian Edition Volume 1, The downloadable file consists of 1708 pages, and the total size of the file is 7.62 MB. Purchase now only for highly discounted price.

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

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Solutio ns Manual for Accounting Principles, Ninth Canadian Edition By Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak (All Chapters) CHAPTER 1 Accounting in Action Learning Objectives 1.Identify the use and users of accounting and the objective of financial reporting . 2.Compare the different forms of business organization . 3.Explain the building blocks of accounting: ethics and the concepts included in the conceptual framework . 4.Describe the components of the financial statements and explain the accounting equation. 5.Analyze the effects of business transactions on the accounting equation. 6.Prepare financial statements.Solutio ns Manual for Accounting Principles, Ninth Canadian Edition By Weygandt, Kie so, Kimme l, Trenholm, Warren, Novak Summary of Quest ions by Learning Objectives and Bloom’s Taxonomy Item LO BT Item LO BT Item LO BT Item LO BT Item LO BT Questions 1. 1 C 5. 3 C 9. 3 C 13. 4 K 17. 5 C 2. 1 C 6. 3 K 10. 3 C 14. 4 K 18. 5 AP 3. 1 C 7. 3 K 11. 3 C 15. 4 C 19. 6 K 4. 2 K 8. 3 C 12. 4 K 16. 4 K 20. 6 C Brief Exercises 1. 1 K 5. 3 C 9. 4 AP 13. 5 AP 17. 6 AP 2. 2 C 6. 3 C 10. 4 AP 14. 4,5 AP 18. 6 AP 3. 3 AN 7. 4 C 11. 4 K 15. 4,6 AP 4. 3 C 8. 4 AP 12. 5 AP 16. 6 AP Exercises 1. 1 C 5. 1,3,5 K 9. 3,5,6 C 13. 4,5 AP 17. 6 AP 2. 1 C 6. 4 AP 10. 5 C 14. 6 AP 3. 2 C 7. 4 AP 11. 5 C 15. 6 AP 4. 3 C 8. 5 C 12. 4,5 AP 16. 6 AP Problems 1. 1 S 4. 4 AP 7. 3,4,5,6 AP 10. 6 AN 2. 2,3 AP 5. 3,5 C 8. 4,5,6 AP 11. 3,4,5,6 AP 3. 4 AP 6. 4,6 AP 9. 6 AP Solutio ns Manual for Accounting Principles, Ninth Canadian Edition By Weygandt, Kie so, Kimme l, Trenholm, Warren, Novak Legend : The following abbreviations will appear throughout the solutions manual file. LO Learning objective BT Bloom's Taxonomy K Knowledge C Comprehension AP Application AN Analysis S Synthesis E Evaluation Difficulty: Level of difficulty S Simple M Moderate C Complex Time: Estimated time to complete in minutes AACSB Association to Advance Collegiate Schools of Business Communication Communication Ethics Ethics Analytic Analytic Tech. Technology Diversity Diversity Reflec. Thinking Reflective Thinking CPA CM CPA Canada Competency Map Ethics Professional and Ethical Behaviour PS and DM Problem -Solving and Decision -Making Comm. Communica tion Self-Mgt. Self-Management Team & Lead Teamwork and Leadership Reporting Financial Reporting Stat. & Gov. Strategy and Governance Mgt. Accounting Management Accounting Audit Audit and Assurance Finance Finance Tax Taxation Solutio ns Manual for Accounting Principles, Ninth Canadian Edition By Weygandt, Kie so, Kimme l, Trenholm, Warren, Novak ASSIGNMENT CLASSIFICATION TABLE Learning Objectives Questions Brief Exercises Exercises Problems Set A Problems Set B 1. Identify the use and users of accounting and the objective of financial reporting. 1, 2, 3 1 1, 2, 5 1 1 2. Compare the different forms of business organization. 4 2 3, 2 2 3. Explain the building blocks of accounting: ethics and the concepts included in the conceptual framework. 5, 6, 7, 8, 9, 10, 11 3, 4, 5, 6 3, 4, 5, 9, 10 2, 5, 7, 11 2, 5, 7, 11 4. Describe the comp onents of the financial statements and explain the accounting equation. 12, 13, 14. 15, 16 7, 8, 9, 10, 11, 15 6, 7, 13 3, 4, 6, 7, 8, 11 3, 4, 6, 7, 8, 11 5. Analyze the effects of business transactions on the accounting equation. 17, 18 12, 13, 14 5, 8, 9, 10, 11, 12, 13 5, 7, 8, 11 6, 7, 8, 9, 10, 11 6. Prepare financial statements. 19, 20 14, 15, 16 17, 18 9, 14, 15, 16, 17 6, 7, 8, 9, 10, 11 2, 5, 7, 11 Solutio ns Manual for Accounting Principles, Ninth Canadian Edition By Weygandt, Kie so, Kimme l, Trenholm, Warren, Novak ASSIGNMENT CHARACTERISTICS TABLE Problem Number Description Difficulty Level Time Allott ed (min.) 1A Identify users and use s of accounting information. Simple 15-20 2A Determine forms of business organization and types of accounting standards . Simple 15-20 3A Determine missing items . Complex 20-25 4A Classify accounts and prepare ac counting equation. Simple 20-30 5A Assess accounting treatment. Moderate 20-25 6A Analyze transactions and calculate owner’s equity. Simple 35-45 7A Analyze transactions and prepare balance sheet. Simple 40-50 8A Analyze transactions and prepare finan cial statements. Moderate 40-50 9A Prepare financial statements. Simple 35-45 10A Determine missing amount s, and comment . Moderate 35-45 11A Discuss errors and prepare corrected balance sheet. Moderate 45-55 1B Identify users and use s of accounting in formation. Simple 15-20 2B Determine forms of business organization and types of accounting standards . Simple 15-20 3B Determine missing items. Complex 20-25 4B Classify accounts and prepare accounting equation. Simple 20-30 5B Assess accounting treat ment. Moderate 20-25 6B Analyze transactions and calculate owner’s equity. Simple 35-45 7B Analyze transactions and prepare balance sheet. Simple 40-50 8B Analyze transactions and prepare financial statements. Moderate 40-50 9B Prepare financial state ments. Simple 35-45 10B Determine missing amounts , and comment. Moderate 35-45 11B Discuss errors and p repare corrected balance sheet. Moderate 45-55 Solutio ns Manual for Accounting Principles, Ninth Canadian Edition By Weygandt, Kie so, Kimme l, Trenholm, Warren, Novak BLOOM’S TAXONOMY TABLE Correlation Chart between Bloom’s Taxonomy, Learning Objectives and End -of- Chapter Material Learning Objective Knowledge Comprehension Application Analysis Synthesis Evaluat ion 1. Identify the use and users of accounting and the objective of financial repo rting. Q1.3 BE1.1 E1.5 Q1.1 Q1.2 E1.1 E1.2 P1.1A P1.1B 2. Compare the different forms of business organization. Q1.4 BE1.2 BE1.4 BE1.10 E1.3 E1.7 P1.2A P1.2B P1.11B 3. Explain the building blocks of accounting: ethics and the concepts included in the conceptual framework. Q1.6 Q1.7 E1.5 Q1.5 Q1.8 Q1.9 Q1.10 Q1.11 BE1.4 BE1.5 BE1.6 E1.3 E1.4 E1.9 E1.10 P1.5A P1.5B P1.2A P1.2B P1.3A P1.3B P1.7A P1.7B P1.11A P1.11B BE1.3 4. Describe the components of the financial statements and explain the accounting equation . Q1.12 Q1.13 Q1.14 Q1.16 BE1.11 BE1.7 BE1.8 BE1.9 BE1.10 BE1.14 BE1.15 E1.6 E1.7 E1.13 P1.4A P1.4B P1.6A P1.6B P1.7A P1.7B P1.8A P1.8B P1.11A P1.11B Solutio ns Manual for Accounting Principles, Ninth Canadian Edition By Weygandt, Kie so, Kimme l, Trenholm, Warren, Novak BLOOM’S TAXONOMY TABLE (Continued) Learning Objective Knowledge Comprehension Application Analysis Synthesis Evaluat ion 5. Analy ze the effects of business transactions on the accounting equation. Q1.19 E1.5 Q1.17 Q1.20 E1.8 E1.9 E1.10 E1.11 P1.5A P1.5B Q1.18 BE1.12 BE1.13 BE1.14 E1.12 E1.13 P1.7A P1.7B P1.8A P1.8B P1.11A P1.11B 6. Prepare financial statements. Q1.19 Q1.20 E1.9 BE1.15 BE1.16 BE1.17 BE1.18 E1.14 E1.15 E1.16 E1.17 P1.6A P1.6B P1.7A P1.7B P1.8A P1.8B P1.9A P1.9B P1.11A P1.11B P1.10A P1.10B Broadening Your Perspective BYP1.1 Santé Saga BYP1. 6 BYP1.3 BYP1.4 BYP1.2 BYP1.5 Solutio ns Manual for Accounting Principles, Ninth Canadian Edition By Weygandt, Kie so, Kimme l, Trenholm, Warren, Novak ANSWERS TO QUESTIONS 1. Yes. Ac counting is the financial information system that provides useful financial information to every person who owns and uses economic resources or otherwise engages in economic activity. LO 1 BT: C Difficulty: S Time: 5 min. AACSB: None CPA: cpa -t001 C M: Reporting 2. Internal users are those who plan, organize, and run businesses and include managers, supervisors, directors, and company officers. External users work for other organizations but have reasons to be interested in the company’s financial posit ion and performance, and include current or potential investors (owners), and creditors. Internal users may want answer s to several types of question s. For example, the finance department wants to know if there is enough cash to pay the bills. The marketi ng department wants to know what price the business should use in selling its products to maximize profits. The human resources department wants to know how many people the business can afford to hire. The production department wants to know which product lines make the business the most profit. External users may want answer s to several types of question s. For example, investors want to know if the company is earning enough to give them a return on their investment. Creditors want to know if the company is able to pay its debts as they come due. L abour unions want to know whether the owners can afford to pay increased wages and benefits. Customers are interested in whether a company will continue to honour its product warranties and support its product lin es. Taxing authorities want to know whether the company respects the tax laws. Regulatory agencies want to know whether the company is respecting established rules. LO 1 BT: C Difficulty: M Time: 15 min. AACSB: None CPA: cpa -t001 CM: Reporting 3. The main objective of financial reporting is to provide useful information to investors and creditors (external users) to make decisions about a business . Users may be potential investors who need to decide if they wish to invest in the business or they may be creditors deciding if they wish to lend money to the business. These users want to know if the business is running successfully and can generate cash and earn a profit. LO 1 BT: C Difficulty: S Time: 5 min. AACSB: None CPA: cpa -t001 CM: Reporting Solutio ns Manual for Accounting Principles, Ninth Canadian Edition By Weygandt, Kie so, Kimme l, Trenholm, Warren, Novak QUESTIONS (Continued) 4. Proprietorships, partnerships , and corporations are the three main forms of business organization s. The main difference among these three forms is the size of the business. Since a proprietorship is a business owned by one perso n, it has limited resources . The size of the business is typically small and the life of the business is limited to the life of the owner. The size of businesses can expand in the case of a partnership as more owners are involved in the day -to-day operatio ns of the business. In order to achieve a large size, with a diverse group of owners, the corporate form is used to have easy transferability of the ownership through the issuance of shares. Another important difference is that the corporation is a separat e legal entity and pays income taxes . In addition, the corporation is the only form where owners have limited liability with respect to the business. The following are the main characteristics of each form: a. A proprietorship is a private business with one owner who has unlimited liability for the business. The proprietorship has a limited life tied to the life of the owner. There is transparency between the owner and the business. Ultimately , the owner is personally responsible to pay tax on the profi t of the business. b. A partnership has essentially the same characteristics as a proprietorship except that in a partnership , there is more than one owner . Partnerships are often used to organize service -type businesses, including professional practice s. c. For corporat ions, the owners are one or more shareholders who enjoy limited liability. The corporation pays income taxes and can have an indefinite live since its ownership units , in the form of shares , are easily transferred to other owners . LO 2 BT: K Difficulty: M Time: 15 min. AACSB: None CPA: cpa -t001 CM: Reporting 5. Ethics is a fundamental business concept. If accountants do not have a high ethical standard, the information they produce will not have any credibility. Ethics are import ant to statement users because it provides them comfort that the financial information they are using is credible and reliable. LO 3 BT: C Difficulty: S Time: 5 min. AACSB: Ethics CPA: cpa -t001 cpa-e001 CM: Reporting and Ethics Solutio ns Manual for Accounting Principles, Ninth Canadian Edition By Weygandt, Kie so, Kimme l, Trenholm, Warren, Novak QUESTIONS (Continued) 6. The users of financial information of public ly accountable companies have different needs than the users of financial information of private companies. Pu blicly traded corporations are required to present financial information using accounting rules that are consistent with those used globally . To do this , public traded companies need to follow International Financial Reporting Standards (IFRS). Doing so helps Canadian companies compete in a global market. But f ollowing t his set of policies and standards is often not essential or cost effective for privately owned businesses . The users of private compan y financial statements often do not require the extensive measurements and disclosure s require d by IFRS and thus private companies may report under Accounti ng S tandards for Private Enterprises (ASPE) . LO 3 BT: K Difficulty: M Time: 10 min. AACSB: None CPA: cpa -t001 CM: Reporting 7. The reporting entity concept states that economic events can be identified with a particular unit of accountability. This conce pt requires that the activities of the entity be kept separate and distinct from the activities of its owners and all other economic entities. LO 3 BT: K Difficulty: M Time: 5 min. AACSB: None CPA: cpa -t001 CM: Reporting 8. Accounting information has relevance if it makes a difference in a decision. Faithful representation shows the economic reality of events rather than just their legal form. Faithful representation is achieved if the information is complete, neutral , and free from material error. Com plete information includes all information necessary to show the economic reality of the transaction. Accounting information is neutral if it is free from bias intended to attain a predetermined result or encourage a particular behaviour . LO 3 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa -t001 CM: Reporting 9. Historical cost represents the amount paid in a transaction. The f air value of an asset is generally the amount an asset could be sold for in the market. On the date of purchase, fair value and cost are the same. As time progresses, the fair value changes depending on the nature of the asset. LO 3 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa -t001 CM: Reporting 10. In order for an event to be recognized in the accounting re cords, the event must change the entity’s financial position. Examples of events that are not transactions include hiring of employees and signing a lease for premises. LO 3 BT: C Difficulty: S Time: 5 min. AACSB: None CPA: cpa -t001 CM: Reporting Solutio ns Manual for Accounting Principles, Ninth Canadian Edition By Weygandt, Kie so, Kimme l, Trenholm, Warren, Novak QUES TIONS (Continued) 11. The monetary unit concept states that only transaction data that can be expressed as an amount of money may be included in the accounting records. Consequently, information that cannot be objectively measured in dollars cannot be inc luded as transactions of the business. It is also assumed that the monetary unit is stable with respect to the value over several years. In other words, inflation is ignored . LO 3 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa -t001 CM: Repor ting 12. The basic accounting equation is Assets = Liabilities + Owner's Equity and the expanded accounting equation is Assets = Liabilities + Owner's Capital − Owner’s Drawings + Revenue − Expenses. The equation is the basis for recording and summarizing all the economic events and transactions of a business. LO 4 BT: K Difficulty: S Time: 5 min. AACSB: None CPA: cpa -t001 CM: Reporting 13. a. Assets are resources controlled by a business , as a result of past events , and from which future economic benefits (like cash) have the potential to flow into the business . Liabilities are existing obligations, arising from past events, the settlement of which will inc lude an outflow of economic benefits (such as cash or services) Put more simply, liabilities are existing debts and obligations. Owner's equity is the owner’s claim on the residual assets of the company, which is the assets in a business after dedu cting li abilities . b. Revenues and investments by the owner increase owner's equity . Drawings and expenses decrease owner’s equity . LO 4 BT: K Difficulty: M Time: 10 min. AACSB: None CPA: cpa -t001 CM: Reporting 14. Accounts Receivable represent amou nts owed to the business by its customers for services performed or goods provided , but for which collection has not yet been received . It is an asset. Accounts Payable represent amounts owed by the business for services or goods received, but for which pa yment ha s not yet been made. It is a liability. LO 4 BT: K Difficulty: S Time: 5 min. AACSB: None CPA: cpa -t001 CM: Reporting 15. Profit or loss is the result of the calculation: revenues less expenses. If revenues exceed expenses, the business has ex perience d profit. If expenses exceed revenue s, a loss is experienced by the business. LO 4 BT: C Difficulty: S Time: 5 min. AACSB: None CPA: cpa -t001 CM: Reporting Solutio ns Manual for Accounting Principles, Ninth Canadian Edition By Weygandt, Kie so, Kimme l, Trenholm, Warren, Novak QUESTIONS (Continued) 16. a. Accounts for assets, liabilities , and owner’s equity are reported on the balance sheet. b. Accounts for revenue and expenses are reported on the income statement. LO 4 BT: K Difficulty: S Time: 5 min. AACSB: None CPA: cpa -t001 CM: Reporting 17. Yes, a business can enter into a transaction in which only the left sid e of the accounting equation is affected. An example would be a transaction where an increase in one asset is offset by a decrease in another asset, such as when equipment is purchased for cash (resulting in an increase in the equipment asset accou nt that is offset by a decrease in the cash asset account). LO 5 BT: C Difficulty: S Time: 5 min. AACSB: None CPA: cpa -t001 CM: Reporting 18. No, this treatment is not proper. While the transaction does involve a disbursement of cash, it does not repr esent an expense. Expenses are decrease s in owner's equity resulting from business activities entered into for the purpose of earning profit . This transaction is a withdrawal of capital from the business by the owner and should be recorded as a decrease in both ca sh and owner’s equity. LO 5 BT: AP Difficulty: S Time: 5 min. AACSB: None CPA: cpa -t001 CM: Reporting 19. Financial statements are prepared in the following order: 1) Income statement , 2) Statement of owners’ equity , and 3) Balance sheet. This sequenc e is necessary because the profit or loss calculated on the income statement is used in the statement of owner’s equity, reporting the amount s that affect the owner’s equity during the year . The ending balance on the statement of owner’s equity is the year -end balance of the owner’s capital account . That balance is needed in the balance sheet. LO 6 BT: K Difficulty: S Time: 5 min. AACSB: None CPA: cpa -t001 CM: Reporting 20. It is likely that the use of rounded figures would not change the dec isions made by the users of the financial statements. As well, presenting the information in this manner makes the statements easier to read and analyze , thereby increasing their usefulness to the users. LO 6 BT: C Difficulty: S Time: 5 min. AACSB: No ne CPA: cpa-t001 CM: Reporting Solutio ns Manual for Accounting Principles, Ninth Canadian Edition By Weygandt, Kie so, Kimme l, Trenholm, Warren, Novak SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE 1.1 a. b. Kind of Internal or User Decision External User Owner 4 Internal Marketing manager 3 Internal Creditor 2 External Chief financial officer 5 Internal Labour union 1 Externa l LO 1 BT: K Difficulty: S Time: 5 min. AACSB: None CPA: cpa -t001 CM: Reporting BRIEF EXERCISE 1.2 a. P b. C c. PP LO 2 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa -t001 CM: Reporting BRIEF EXERCISE 1.3 a. The student is provided wi th the o pportunity to cheat on an exam. b. A production supervisor might become aware of a defect in a company’s product that is ready to ship but his/her bonus is based on volume of shipments. c. A banker is able to approve a loan for an unqualified family me mber. LO 3 BT: AN Difficulty: C Time: 5 min. AACSB: Ethics CPA: cpa -t001 cpa-e001 CM: Reporting and Ethics Solutio ns Manual for Accounting Principles, Ninth Canadian Edition By Weygandt, Kie so, Kimme l, Trenholm, Warren, Novak BRIEF EXERCISE 1.4 a. F b. F c. T d. T e. T LO 3 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa -t001 CM: Reporting BRIEF EXERCISE 1.5 a. F b. F c. T d. T LO 3 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa -t001 CM: Reporting BRIEF EXERCISE 1.6 a. 5. Monetary unit concept b. 1. Historical cost c. 4. Reporting entity concept d. 2. Revenue recognition e. 3. Going concern assumption LO 3 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa -t001 CM: Reporting BRIEF EXERCISE 1.7 Balance Sheet or Elements Income Statement a. Revenues Income Statement b. Assets Balance Sheet c. Owner’s equity Balance Sheet d. Liabilities Balanc e Sheet e. Expenses Income Statement LO 4 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa -t001 CM: Reporting Solutio ns Manual for Accounting Principles, Ninth Canadian Edition By Weygandt, Kie so, Kimme l, Trenholm, Warren, Novak BRIEF EXERCISE 1.8 a. $75,000 − $24,000 = $ 51,000 (Owner's Equity) b. $150,000 + $ 91,000 = $ 241,000 (Assets) c. $89,000 − $52,000 = $ 37,000 (Liabilities) LO 4 BT: AP Difficulty: C Time: 5 min. AACSB: None CPA: cpa -t001 CM: Reporting BRIEF EXERCISE 1.9 a. $120,000 + $232,000 = $352,000 ( Assets ) b. $190,000 − $ 91,000 = $99,000 ( Total liabilities ) c. $800,000 − ($800,000 x ½) = $400,000 ( Owner’s equity ) LO 4 BT: AP Difficulty: M Time: 5 min. AACSB: None CPA: cpa -t001 CM: Reporting BRIEF EXERCISE 1.10 Assets = Liabilities + Owner’s Equity $850,000 = $5 50,000 + X Owner’s Equity = Assets − Liabilities $300,000 = $ 850,000 − $550,000 a. ($850,000 + $1 30,000) − ($550,000 − $80,000) = $510,000 (Owner's equity) b. ($550,000 − $95,000) + ($ 300,000 − $40,000 + $100,000) = $815,000 (Assets) c. ($850,000 + $ 45,000) − ($550,000 − $50,000) = $3 95,000 ending balance Owne r’s equity $395,000 + $40,000 − $300,000 = $1 35,000 Profit LO 4 BT: AP Difficulty: M Time: 5 min. AACSB: None CPA: cpa -t001 CM: Reporting Solutio ns Manual for Accounting Principles, Ninth Canadian Edition By Weygandt, Kie so, Kimme l, Trenholm, Warren, Novak BRIEF EXERCISE 1.11 1. Accounts receivable A 2. Salaries payable L 3. Equipment A 4. Suppli es A 5. Owner’s capital OE 6. Note s payable L LO 4 BT: K Difficulty: S Time: 5 min. AACSB: None CPA: cpa -t001 CM: Reporting BRIEF EXERCISE 1.12 Trans - action Assets Liabilities Owner's Equity Capital Draw ings Revenues Expenses a. +$250 +$250 NE NE NE NE b. +500 NE NE NE +$500 NE c. –300 NE NE NE NE –$300 d. –250 –250 NE NE NE NE e. +1,000 NE +$1,000 NE NE NE f. –400 NE NE –$400 NE NE g. NE NE NE NE NE NE h. +500 / –500 NE NE NE NE NE i. +450 +450 NE NE NE NE LO 5 BT: AP Difficulty: M Time: 10 min. AACSB: None CPA: cpa -t001 CM: Reporting BRIEF EXERCISE 1.13 Description Transaction Analysis a. Cash paid in advance for rent . 2 b. Owner invest s cash in the business. 1 c. Supplies are purchased on account. 3 d. Company provides se rvice on account. 4 LO 5 BT: AP Difficulty: M Time: 5 min. AACSB: None CPA: cpa -t001 CM: Reporting Solutio ns Manual for Accounting Principles, Ninth Canadian Edition By Weygandt, Kie so, Kimme l, Trenholm, Warren, Novak BRIEF EXERCISE 1.14 E a. Advertising expense R b. Commission fees earn ed I c. Cash received from the comp any’s owner E d. Amounts paid to employees R e. Services performed on account E f. Utilities incurred D g. Cash distributed to company owner LO 4,5 BT: AP Difficulty: S Time: 5 min. AACSB: None CPA: cpa -t001 CM: Reporting BRIEF EXERCIS E 1.15 a. $25,000 + $50,000 − $68,000 = drawings $ 7,000 b. $65,000 + $33,000 − $68,000 = profit $30,000 c. $65,000 Ending balance 2023 = Opening balance 2024 d. $65,000 + $20,000 + $17,000 − $12,000 = $ 90,000 LO 4,6 BT: AP Difficulty: M Time: 10 min. AACSB: None CPA: cpa -t001 CM: Reporting BRIEF EXERCISE 1.16 PRAIRIE COMPANY Income Statement Month Ended October 31, 2024 Revenues Service revenue ................................ ............... $23,000 Expenses Advertising expense ................................ ........ $3,600 Rent expense ................................ ................... 2,600 Total expenses ................................ ............ 6,200 Profit for the month ................................ .............. $16,800 LO 6 BT: AP Difficulty: S Time: 10 min. AACSB: None CPA: cpa -t001 CM: Reporting Solutio ns Manual for Accounting Principles, Ninth Canadian Edition By Weygandt, Kie so, Kimme l, Trenholm, Warren, Novak BRIEF EXERCISE 1.17 PRAIRIE COMPANY Statement of Owner's Equity Month Ended October 31, 2024 N. Woods , capital, October 1 ............................... $36,000 Add: Profit for the month ................................ . 16,800 52,800 Less: Drawings ................................ .................... 6,000 N. Woods , capital, October 31 ............................. $46,800 LO 6 BT: AP Difficulty: S Time: 10 min. AACSB: None CPA: cpa -t001 CM: Reporting BRIEF EXERCISE 1.18 PRAIRIE COMP ANY Balance Sheet October 31, 2024 Assets Cash ................................ ................................ .................. $ 59,300 Accounts receivable ................................ ........................ 77,500 Total assets ................................ ............................... $136,800 Liabilities and Owner's Equity Liabilities Accounts payable ................................ ..................... $ 90,000 Owner 's equity N. Woods , capital ................................ ...................... 46,800 Total liabilities and owner's equity .................. $136,800 LO 6 BT: AP Difficulty: S Time: 10 min. AACSB: None CPA: cpa -t001 CM: Reporting Solutio ns Manual for Accounting Principles, Ninth Canadian Edition By Weygandt, Kie so, Kimme l, Trenholm, Warren, Novak SOLUTIONS TO EXERCISES EXERCISE 1.1 a. Customer s E - External Store manager I - Internal Canada Revenue Agency E - External Supplier E - External Labour unions E - External Chief Financial Officer I - Internal Marketing manager I - Internal Loan officer E - External b. Can the company afford to give our members a pay raise ? E How does the company’s profitabi lity compare with other companies in the industry? E Do we need to borrow money in the near future? I What does it cost to manufacture each unit produced? I Has the company paid all income tax amounts owing? E Which prod uct should we emphasize? I LO 1 BT: C Difficulty: M Time: 15 min. AACSB: None CPA: cpa -t001 CM: Reporting Solutio ns Manual for Accounting Principles, Ninth Canadian Edition By Weygandt, Kie so, Kimme l, Trenholm, Warren, Novak EXERCISE 1.2 a. Chief Financial Officer — Can lululemon Athletica Inc . generate enough cash to expand its product line? Human Resource Manage r — What is lululemon Athletica Inc.’s annual salary expense? b. Creditor — Does lululemon Athletica Inc. have enough cash available to make its monthly debt payments? Investor — How much did lululemon Athletica Inc. pay in dividends last year? LO 1 BT: C Difficulty: M Time: 10 min. AACSB: None CPA: cpa -t001 CM: Reporting EXERCISE 1.3 Proprietorship Partnership Publicly Traded Corporation a. F F T b. F F F c. F F T d. F F T e. F F T f. F T T g. T T F h. F F T LO 2,3 BT: C Difficulty : M Time: 10 min. AACSB: None CPA : cpa -t001 CM: Reporting Solutio ns Manual for Accounting Principles, Ninth Canadian Edition By Weygandt, Kie so, Kimme l, Trenholm, Warren, Novak EXERCISE 1.4 a. 2 Faithful representation b. 1 Relevance c. 5 Neutrality d. 6 Understandability e. 4 Verifiability f. 3 Comparability LO 3 BT: C Difficulty: C Time: 10 min. AACSB: None CPA: cpa -t001 CM: Reporting EXERCI SE 1.5 a. 8 Corporation b. 10 Generally accepted accounting principles (GAAP ) c. 1 Accounts payable d. 11 Accounts receivable e. 12 Owner’s equity f. 5 Prepaid expense g. 3 Creditor h. 7 Assets i. 4 International Financ ial Reporting Standards (IFRS) j. 6 Profit k. 2 Expenses l. 9 Unearned revenue LO 1,3,5 BT: K Difficulty: M Time: 10 min. AACSB: None CPA: cpa -t001 CM: Reporting EXERCISE 1.6 a. $6,800 - $400 - $900 - $3,500 = $2,000 b. $18,000 - $6,800 = $11,20 0 c. Same as b. $11,200 d. $26,200 - $21,700 = $4,500 e. $21,200 – $11,200 = $10,000 LO 4 BT: AP Difficulty: S Time: 10 min. AACSB: None CPA: cpa -t001 CM: Reporting Solutio ns Manual for Accounting Principles, Ninth Canadian Edition By Weygandt, Kie so, Kimme l, Trenholm, Warren, Novak EXERCISE 1.7 The statement of owner’s equity is a calculation presented in statement form, and therefore we can use the following equation and solve for the unknown in this question : Owner’s equity, beginning of period + Owner’s investments + Profit (loss) for the period – Owner’s withdrawals = Owner’s equity, end of period a. Owne r’s equity, December 31, 20 24 = $370 ,000 – $210,000 = $160,000 $0 + $100,000 + Profit(loss) - $50,000 = $160,000 Profit(loss) = $160,000 - $100,000 + 50,000 Profit (loss) = $ 110,000 b. Owner’s equity, December 31, 20 25 = $440,000 - $290,000 = $150,000 $160,000 (see a.) + $40,000 + Profit(loss) - $0 = $150,000 Profit(loss) = $150,000 - $160,000 - $40,000 Profit (loss) = $(50,000) c. Owner’s equity, December 31, 20 26 = $525,000 - $355,000 = $170,000 $150,000 (see b.) + $10,000 + Profit(loss) - $60,000 = $170,000 Profit(loss) = $ 170,000 - $150,000 - $10,000 + $60,000 Profit (loss) = $70,000 LO 4 BT: AP Difficulty: C Time: 15 min. AACSB: None CPA: cpa -t001 CM: Reporting Solutio ns Manual for Accounting Principles, Ninth Canadian Edition By Weygandt, Kie so, Kimme l, Trenholm, Warren, Novak EXERCISE 1.8 a. b. 1. Accounts payable L BS 2. Accounts receivable A BS 3. Cash A BS 4. Equipment A BS 5. Interest payable L BS 6. Interest revenue Eq IS 7. Interest expense Eq IS 8. Investment by the owner Eq OE 9. Service revenue Eq IS 10. Prepaid rent A BS 11. P. Zizler, capital (opening balance) Eq OE 12. P. Zizler, drawings Eq OE 13. Salaries expense Eq IS 14. Supplies A BS 15. Supplies expense Eq IS 16. Unearned revenue L BS LO 5 BT: CP Difficulty: S Time: 10 min. AACSB: None CPA: cpa -t001 CM: Reporting Solutio ns Manual for Accounting Principles, Ninth Canadian Edition By Weygandt, Kie so, Kimme l, Trenholm, Warren, Novak EXERCISE 1.9 a. and b. 1. This accounting treatment is incorrect, as it violates the historical cost principle. Land was reported a t its market value, when it should have b een recorded and reported at cost. 2. This accounting treatment is correct. Although a commitment for future payments is put into place when the lease is signed, an exchange has not yet taken place so there is no tran saction that need s to be recorded. At this time, all that is required concerning this lease is to disclose the details of the commitment in the notes to the financial statements. 3. This accounting treatment is incorrect, as it violates the reporting entity concept. An owner’s personal transactions should be kept separate from those of the business. Instead of being charged as an expense to the business, the transaction should be recorded as drawings taken by the owner. 4. This accounting treatment i s incorrect, because , at the time of payment, the i nsurance coverage had not yet been used up. The amount should have been recorded to Prepaid Insurance. Eventually, when the coverage expires at the end of one year, the full amount of $1,200 will have beco me insurance expense under the matching concept . 5. It is assumed that a company is a going concern, unless the notes state otherwise. Consequently, the statement in the notes that the company is a going concern need not be added. 6. The company is required to make the disclosure that it is following ASPE . LO 3,5,6 BT: C Difficulty: C Time: 15 min. AACSB: None CPA: cpa -t001 CM: Reporting Solutio ns Manual for Accounting Principles, Ninth Canadian Edition By Weygandt, Kie so, Kimme l, Trenholm, Warren, Novak EXERCISE 1.10 a. and b. 1. This is a transaction that should be recorded in the accounts as there has been an excha nge of assets. Cash was reduced and equipment was i ncrease d. The historical cost of $10,000 should be used when recording this transaction. 2. This is a transaction that should be recorded in the accounts as there has been an exchange of assets. Cash was red uced and equipment was increase d. The transaction is to be recorded in Canadian funds to follow the monetary unit concept , so the amount that should be used when recording this transaction is $5,200. 3. This is a transaction that should be recorded in the accounts because a performance obligation has been completed related to a contract with a customer and accounts receivable should be increased as the company now has a right to payment . The amount of $4,000 should be used when recording this transaction. 4. This is not a transaction as an exchange has not yet occurred . 5. This is a transaction that should be recorded in the accounts because an asset (cash ) has increased and a liability (unearned revenue) has increased. The company has an obligation to perform services for the customer at a future date. The amou nt of $4,000 should be used when recording this transaction. LO 3,5 BT: C Difficulty: M Time: 10 min. AACSB: None CPA: cpa -t001 CM: Reporting