CH 01

Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Third Canadian Edition
CHAPTER 1
Introduction to Financial Statements
ASSIGNMENT CLASSIFICATION TABLE
Study Objectives 1. 2. 3. Explain why accounting is important. Identify the uses and users of accounting. Explain the three main types of business activity. Describe the content and purpose of each of the financial statements. Questions 1, 2, 3 4, 5, 6 7, 8, 9 Brief Exercises 1 2, 3 4 Exercises 1 1 1, 2 1A, 2A 3A, 4A 1B, 2B 3B, 4B A Problems B Problems
4.
10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20
5, 6, 7, 8, 9, 10, 11
3, 4, 5, 6, 4A, 5A, 7, 8, 9, 10, 6A, 7A, 11 8A, 9A
4B, 5B, 6B, 7B, 8B, 9B
Solutions Manual 1-1 Chapter 1 Copyright 2006 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.
ASSIGNMENT CHARACTERISTICS TABLE

Problem Number 1A 2A 3A 4A 5A 6A 7A 8A 9A 1B 2B 3B 4B 5B 6B 7B 8B 9B Description Determine forms of business organization. Identify uses and users of financial statements. Identify business activities. Classify accounts. Use accounting equation. Prepare financial statements. Prepare cash flow statement. Use financial statement relationships to calculate missing amounts; write memo. Prepare corrected balance sheet. Determine forms of business organization. Identify uses and users of financial statements. Identify business activities. Classify accounts. Use accounting equation. Prepare financial statements. Prepare cash flow statement. Use financial statement relationships to calculate missing amounts; write memo. Prepare corrected statement of earnings. Difficulty Level Moderate Complex Simple Moderate Complex Moderate Moderate Moderate Moderate Moderate Complex Simple Moderate Complex Moderate Moderate Moderate Moderate Time Allotted (min.) 25-30 40-50 25-30 25-30 30-40 40-50 30-40 40-50 20-30 25-30 40-50 25-30 25-30 30-40 40-50 30-40 40-50 20-30
ANSWERS TO QUESTIONS
1. A person cannot earn a living, spend money, buy on credit, make an investment, or pay taxes without receiving, using, or dispensing financial information. Accounting provides financial information to interested users through the preparation and distribution of financial statements and is therefore vital to our society and economic system. Ethics are important because without the expectation of ethical behaviour, the information presented in the financial statements would have no credibility for the accounting profession. It would therefore be useless to financial statement users. Yes, I agree. Investors rely on financial reports for investment decisions. If the information is incorrect the share price may rise and when the correct information is reported the share price may fall. Investors who purchased shares, relying on the incorrect information, may lose money. Likewise, managers use accounting information to make business decisions. Erroneous information can lead to suboptimal decision making which may result in financial difficulties for the business and lay-offs for employees. (a) (b) The three basic forms of business organization are (1) proprietorship, (2) partnership, and (3) corporation. Advantages of a corporation are limited liability (shareholders not being personally liable for corporate debts) and transferability of ownership. Disadvantages of a corporation are increased government regulations and the fact that corporations are taxed as a separate legal entity. Corporations may receive more favourable tax treatment than other forms of business organizations. Partnerships and proprietorships are easier to form (and dissolve) than corporations. Proprietorships and partnerships are not taxed as separate entities. The partners and proprietors pay personal income tax on their share of profits. Depending on the circumstances this may be an advantage or disadvantage. Disadvantages of proprietorships and partnerships are unlimited liability (proprietors/partners are personally liable for all debts of the business) and difficulty in obtaining financing compared to corporations. Internal users are those who plan, run, and work for the business. They include directors, management, and employees. External users are those outside the business who have either a present or potential direct financial interest (investors and creditors) or an indirect financial interest (taxing authorities, regulatory agencies, labour unions, customers, and economic planners).
2.
3.
4.
5.
(a) (b)
Questions (Continued)
6. Investors use financial information to make decisions to buy, hold or sell shares of the company. For example, investors rely on accurate and timely financial reporting to evaluate the company's earnings and profitability in relation to other competitors. Creditors lend money to the company, and are not owners. They use financial reporting to evaluate the risks of granting credit or lending money and are concerned about the ability of the company to pay off its debts as it become due. (a) Operating activities are the activities that the organization undertakes to earn a profit. It includes the day-to-day activities which generate revenues and cause expenses to be incurred. In order to earn profits a company must first purchase resources they need to operate. The purchase of these resources (assets) are considered to be investing activities. Finally, the company must have sufficient funds to purchase assets and to operate. While some of the necessary cash will be generated from operations, often the company has to raise external funds by either issuing shares or borrowing money. Financing activities involve the activities undertaken by the company to raise cash externally. Two primary operating activities are the sales revenue generated from selling inventory and the expense related to the cost of sales. Two primary investing activities are the purchase of property, plant, and equipment, such as a building, and the purchase of a long-term investment. Two primary financing activities for a corporation are borrowing money (debt) and selling shares (equity). 8. Accounts receivable is classified as an operating activity because receivables are created in conjunction with the generation of revenue. An accounts receivable is created when a company earns revenue but does not collect the cash immediately. The generation of revenue is an operating activity and therefore, the accounts receivable is classified in the same manner. A bank would want to ensure that the company has sufficient cash available to repay any loans owed to the bank. If the company paid out all its cash in the form of dividends there would be no funds available to repay this debt. It is likely that the use of rounded figures would not change the decisions made by the users of the financial statements. As well, presenting the information in this manner make the statements easier to read and analyze thereby increasing their utility to the users.
7.
(b)
9.
10.
11. The balance sheet is prepared as at a specific point in time because it shows what the business owns (its assets) and what it owes (its liabilities). These items are constantly changing. In order to present them it is necessary to select one point in time. The other statements (earnings, retained earnings and cash flow) cover a period of time as they report activities and measure performance that takes place over time. Retained earnings are the cumulative earnings retained in a corporation. Retained earnings are increased by net earnings and are decreased by dividends and net losses. (a) The primary purpose of the cash flow statement is to provide financial information about the cash receipts and cash payments of a company for a specific period of time. The three categories of the cash flow statement are operating activities, investing activities, and financing activities. These categories represent the three principal types of business activities. The statement of earnings reports net earnings for the period. The net earnings figure from the statement of earnings is shown on the statement of retained earnings as an addition to beginning retained earnings. If there is a net loss it is deducted from the opening balance in retained earnings. The statement of retained earnings explains the change in the retained earnings balance from one period to the next. The ending balance of retained earnings is reported on the balance sheet. The cash flow statement explains the change in the cash balance from one period to the next. The ending balance of cash is reported on the balance sheet.
12.
13.
(b)
14.
(a)
(b)
(c) 15.
Yes. Net earnings does appear on the statement of earningsit is the result of subtracting expenses from revenues. In addition, net earnings appears in the statement of retained earningsit is shown as an addition to the beginning-of-period retained earnings. Indirectly, the net earnings of a company is also included in the balance sheet, as it is included in the retained earnings account, which appears in the shareholders' equity section of the balance sheet. (a) (b) The basic accounting equation is Assets = Liabilities + Shareholders Equity. The basic accounting equation represents the relationships between assets, liabilities, and shareholders' equity expressed in the balance sheet. Assets must be in balance with the claims on the assets (liabilities + shareholders' equity).
16.
17. (a) Assets are resources owned by a business. Liabilities are claims of creditors against assets. Put more simply, liabilities are existing debts and obligations. Shareholders equity is the ownership claim on total assets. The items that affect shareholders equity are common shares (investments by shareholders) and retained earnings (through dividends, revenues, and expenses).
(b)
18. 19.
The liabilities are (b) accounts payable, (g) income tax payable and (j) long-term debt. (a) (b) (c) (d) (e) (f) (g) (h) Statement of earnings Balance sheet (assets) Statement of earnings Balance sheet (assets) Balance sheet (shareholders equity) Balance sheet (liabilities) Cash flow statement Statement of retained earnings
20.
One possible complication is that the number of days included in each fiscal year will vary, thus causing reported sales to vary from year to year. However, the difference is often only a few days and in most cases does not have a material impact on the financial statements.
SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 1-1
(a) The accountants behaviour is unethical. The correct action would have been to adjust the accounting records so that they agreed to the physical count of supplies. Taking home the extra supplies is theft. If the company accountant feels that she should be compensated for her extra work, she should address her concerns by discussing the matter with her employer. To ensure all employees adhere to appropriate ethical behaviour, the company should implement clear policies outlining expectations of ethical behaviour. As well, top management must illustrate, through their own actions, that ethical behaviour is expected of all employees.
(b)
BRIEF EXERCISE 1-2

(a) (b) (c) P PP C
BRIEF EXERCISE 1-3

Investors Marketing managers Creditors Chief financial officer Canada Revenue Agency (a) 4 3 2 5 1 (b) External Internal External Internal External
BRIEF EXERCISE 1-4

(a) (b) (c) (d) (e) (f) O F F F I O + + + -
BRIEF EXERCISE 1-5

(a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) BS BS SE BS BS SE SE BS BS SE SE BS
BRIEF EXERCISE 1-6

SE BS CF BS RE (a) (b) (c) (d) (e) Revenue earned during the period Supplies on hand at the end of the year Cash received from borrowing money during the period Total debt at the end of the period Dividends paid to shareholders during the period
BRIEF EXERCISE 1-7

(a) (b) (c) $80,000 $50,000 = $30,000 (Shareholders equity) $45,000 + $60,000 = $105,000 (Assets) $94,000 $52,000 = $42,000 (Liabilities)
BRIEF EXERCISE 1-8

(a) Total assets = = = = = = (c) Total liabilities = = = (d) Shareholders equity = = = Total liabilities + Shareholders equity $45,000 + $100,000 $145,000 Total liabilities + Shareholders equity (share capital + retained earnings) $90,000 + ($150,000 + $100,000) $340,000 Total assets Shareholders equity (share capital + retained earnings) $170,000 ($35,000 + $65,000) $70,000 Total assets Total liabilities $500,000 ($500,000 2) $250,000
(b)
Total assets
BRIEF EXERCISE 1-9

(a) (b) (c) ($700,000 + $150,000) ($500,000 $80,000) = $430,000 (Shareholders equity) ($500,000 + $100,000) + ($700,000 - $500,000+ $50,000 + $10,000) = $860,000 (Total assets) ($700,000 $90,000) ($700,000 $500,000 + $120,000) = $290,000 (Total liabilities)
BRIEF EXERCISE 1-10

(a) (b) (c) (d) (e) (f) (g) (h) A L A A SE L SE A
BRIEF EXERCISE 1-11

(a) (b) (c) (d) (e) (f) (g) (h) NE C R R E E D E
SOLUTIONS TO EXERCISES
EXERCISE 1-1
(a) (b) (c) (d) (e) (f) (g) (h) (i) (j) 6 1 10 2 3 9 4 7 8 5 Corporation Accounts payable Assets Creditor Financing activities Ethics Retained earnings Common shares Accounts receivable Dividends
EXERCISE 1-2
(a) (b) (c) (d) (e) (f) (g) (h) I F F O F I F F + + + + -
EXERCISE 1-3
(a) (b) (c) (d) (e) (f) (g) (h) BS SE SE BS CF SE BS SE (i) (j) (k) (l) (m) (n) (o) (p) BS SE RE CF CF BS BS CF
EXERCISE 1-4
(a) (b) Assets - Liabilities = Shareholders equity $95,000 - $80,000 = $15,000 Ending balance - Beginning balance = Change in shareholders equity $40,000 - $15,000 = $25,000 Total revenues - Total expenses = Net earnings $215,000 - $175,000 = $40,000 Change in shareholders' equity during year - Net earnings + Dividends = Issue of shares $25,000 - $40,000 + $24,000 = $9,000 (c) (d) Total Assets - Shareholders equity = Total liabilities $125,000 - $95,000 = $30,000 Ending balance Beginning balance = Change in shareholders equity $130,000 - $95,000 = $35,000 Total revenues Total expenses = Net earnings $100,000 - $85,000 = $15,000 Change in shareholders equity during year Net earnings - Issue of shares = Dividends $35,000 - $15,000 - $25,000 = $5,000 (e) (f) Liabilities + Shareholders equity = Total assets $65,000 + $23,000 (from (f)) = $88,000 Beginning balance in shareholders' equity + Issue of shares - Dividends + Net earnings1 = Ending balance in shareholders' equity $35,000 + $4,000 - $30,000 + $14,000 = $23,000
1
Total revenues - Total expenses = Net earnings $54,000 - $40,000 = $14,000
EXERCISE 1-5
(a) L A A A A A L A L A SE SE Accounts payable and accrued liabilities Accounts receivable Capital assets Cash Goodwill and other intangibles Inventory Long-term debt Other assets Other liabilities Prepaid and other expenses Retained earnings Share capital
(b) Assets Cash Accounts receivable Inventory Prepaid and other expenses Capital assets Goodwill and other intangibles Other assets Total assets Liabilities Accounts payable and accrued liabilities Other liabilities Long-term debt Total liabilities Shareholders equity Share capital Retained earnings Total shareholders equity Total assets $548,559 = = Total liabilities $310,461 + + $ 23,315 36,319 267,221 11,292 160,625 39,682 10,105 $548,559 $217,777 54,389 38,295 $310,461 $131,768 106,330 $238,098 Shareholders equity $238,098
EXERCISE 1-6
(a) A SE E E A A E A E R L L R R E Cash and short-term investments Retained earnings Cost of goods sold Selling, general and administrative expenses Prepaid expenses Inventories Other expenses Receivables Income tax expense Sales Income taxes payable Accounts payable Franchising revenues Drayage (transportation) and other income Interest expense
(b)
COOLBRANDS INTERNATIONAL INC. Statement of Earnings Year Ended August 31, 2004 Revenues Sales Franchising revenues Drayage (transportation) and other income Total revenues Expenses Cost of goods sold Selling, general and administrative expenses Other expenses Interest expense Total expenses Earnings before income tax Income tax expense Net earnings $584,951 4,786 53,083 642,820 438,458 115,131 7,663 1,994 563,246 79,574 30,731 $ 48,843
EXERCISE 1-7
KON INC. Statement of Earnings Year Ended December 31, 2006 Revenues Service revenue Expenses Salaries expense Rent expense Utilities expense Advertising expense Total expenses Earnings before income tax Income tax expense Net earnings $58,000 $28,000 10,400 2,400 1,800 42,600 15,400 6,000 $ 9,400 KON INC. Statement of Retained Earnings Year Ended December 31, 2006 Retained earnings, January 1 Add: Net earnings Less: Dividends Retained earnings, December 31 $57,000 9,400 66,400 7,000 $59,400
EXERCISE 1-8
AURORA LTD. Balance Sheet December 31, 2006 Assets Cash Accounts receivable Supplies Equipment Total assets Liabilities and Shareholders Equity Liabilities Accounts payable Shareholders equity Common shares Retained earnings Total shareholders equity Total liabilities and shareholders equity *$27,500 $7,000 = $20,500 $18,500 10,000 8,000 40,000 $76,500
$16,000 40,000 20,500* 60,500 $76,500
EXERCISE 1-9
(a) Camping fee revenue General store revenue Total revenue Expenses ($138,000 + $7,000) Net earnings SEA SURF CAMPGROUND, INC. Statement of Retained Earnings Year Ended December 31, 2006 Retained earnings, January 1 Add: Net earnings Less: Dividends Retained earnings, December 31 SEA SURF CAMPGROUND, INC. Balance Sheet December 31, 2006 Assets Cash Supplies Equipment Total assets Liabilities and Shareholders Equity Liabilities Accounts payable Notes payable Total liabilities Shareholders equity Common shares Retained earnings Total shareholders equity Total liabilities and shareholders equity $ 10,500 2,500 119,000 $132,000 $18,000 17,000 35,000 4,000 $31,000 $137,000 25,000 162,000 145,000 $ 17,000
(b)
$ 11,000 50,000 61,000 40,000 31,000 71,000 $132,000
EXERCISE 1-10
VAN TRAN CORPORATION Cash Flow Statement Year Ended December 31, 2006 Operating activities Cash received from customers Cash paid for expenses Cash provided by operating activities Investing activities Cash paid for new equipment Cash used by investing activities Financing activities Cash received from lenders Cash dividends paid Cash provided by financing activities Net increase in cash Cash, January 1, 2006 Cash, December 31, 2006 $65,000 (20,000) $45,000 $(50,000) (50,000) $20,000 (6,000) 14,000 9,000 12,000 $21,000
EXERCISE 1-11
(a) Yu Corporation is distributing nearly all of this year's net earnings as dividends. This suggests that Yu is not pursuing rapid growth. Companies that have a lot of opportunities for growth normally retain their earnings and pay low dividends. Surya Corporation is not generating sufficient cash from operating activities to fund its investing activities. This is common for companies in their early years of existence. Naguib is financing its assets mainly through equity. The company has $400,000 ($150,000 + $250,000) of total assets, which are funded 37.5% ($150,000 $400,000) by liabilities and 62.5% ($250,000 $400,000) by equity. Since equity does not have to be repaid and does not require interest payments, the company appears to be in a healthy financial position.
(b) (c)
SOLUTIONS TO PROBLEMS
PROBLEM 1-1A
1. The professors should incorporate their business because of their concerns about the legal liabilities. A corporation is the only form of business that provides limited liability to its owners. Joseph should run his bait shop as a proprietorship because this is the simplest form of business to establish. It is also the least expensive. He is the only person involved in the business and is planning to operate for a limited time. Robert and Tom should form a corporation when they combine their operations. This is the best form of business for them to choose because they expect to raise significant funds in the coming year and it is easier to raise funds in a corporation. A corporation may also receive more favourable income tax treatment. A partnership would be the most likely form of business for Darcy, Ellen and Meg to choose. It is simpler to form than a corporation and less costly. Herv is most likely to select to operate his business as a proprietorship. He wants to maintain control of the business. Operating as a proprietorship will allow him to do this. He has no savings or personal assets, therefore will not require a corporation to protect his personal assets.
2.
3.
4.
5.
PROBLEM 1-2A
1. In deciding to extend credit to a new customer, The North Face Inc. would focus its attention on the balance sheet of the new customer. The terms of credit they are extending require repayment in a short period of time. Funds to repay the credit would come from cash on hand. The balance sheet of the new customer will show if the company has enough cash to meet its obligations. An investor purchasing common shares of Music Online, Inc. that they intend to hold for a long period of time, five years, should focus on the companys statement of earnings. The statement of earnings reports the companys past performance in terms of revenues, expenses and net earnings. This is generally regarded as a good indicator of the companys future performance. In deciding whether to extend a loan the Caisse dconomie Base Montral is interested in two thingsthe ability of the company to make interest payments on an annual basis for the next five years and the ability to repay the principal amount at the end of five years. In order to evaluate both of these factors the focus should be on the cash flow statement. This statement provides information on the cash the company generates from its operations on an ongoing basis. This will be the most important factor in determining if the company will survive and be able to repay both principal and interest on the loan. The CEO should focus on the cash flow statement as this statement clearly sets out the cash generated from operating activities and the amount the company has spent in the past on purchasing equipment and paying dividends. Note to instructor: Other answers may be valid provided they are properly supported.
2.
3.
4.
PROBLEM 1-3A
(a) Indigo Books & Music High Liner Foods Incorporated Mountain Equipment Co-op Ganong Bros. Limited Royal Bank Operating Sale of books Payment for fish Payment for inventory Payment of utility bill Payment of interest on savings accounts Payment of wages and benefits Investing Purchase of long-term investments Purchase of production equipment Purchase of store fixtures Purchase of production equipment Financing Sale of shares Issue debt securities to investors Borrow money from a bank Payment of dividends to shareholders
Purchase office Sale of bonds equipment Purchase of store fixtures Sale of shares
The Gap, Inc.
PROBLEM 1-3A (Continued) (b) Financing Sale of shares is common to all corporations. Issue of debt is common to all corporations. Borrowing from a bank is common to all businesses. Payment of dividends is common to all corporations. Sale of bonds is common to large corporations. Investing Purchase and sale of property, plant, and equipment would be common to all businessesthe types of assets would vary according to the nature of the business. Some types of businesses require a larger investment in long-lived assets. A new business or expanding business would be more apt to be acquiring assets. Operating The activities identified would be common to most businesses with the exception of the payment of interest on savings accounts. The source of the cash receipt (e.g., sale of books) and cash payment (e.g., payment for fish) would vary by the nature of the business.
PROBLEM 1-4A
(a) Accounts payable and accrued charges Accounts receivable Cash and cash equivalents Common shares Income and other taxes payable Interest expense Inventories Long-term debt Property and equipment Sales L A A SE L E A L A R (b) O O N/A* F O O O F I O
* Each of the activitiesoperating, financing, and investingexplains the change in cash and cash equivalents. Cash and cash equivalents is not classified by itself, but rather is the result of the changes in all the activities.
PROBLEM 1-5A
(a) (Note: amounts are in millions of dollars) (i) Total assets = Total liabilities + Total shareholders equity Total assets = $2,414.4 + $1,646.9 Total assets = $4,061.3 Total liabilities = Total assets Total shareholders equity Total liabilities = $4,065.7 $1,810.9 Total liabilities = $2,254.8 Ending balance - Beginning balance = Change in shareholders equity $1,810.9 - $1,646.9 = $164.0 Change in shareholders' equity during year - Issue of shares + Dividends = Net earnings Net earnings = $164.0 - $0.7 + $25.6 Net earnings = $188.9 Total expenses = Total revenues Net earnings Total expenses = $6,222.7 $188.9 Total expenses = $6,033.8 (iv) Total liabilities = Total assets Total shareholders equity Total liabilities = $4,275.7 $2,394.7 Total liabilities = $1,881.0 Total assets = Total liabilities + Total shareholders equity Total assets = $1,680.1 + $2,430.6 Total assets = $4,110.7
(ii)
(iii)
(v)
PROBLEM 1-5A (Continued) (a) (Continued) (vi) Ending balance - Beginning balance = Change in shareholders equity $2,430.6 - $2,394.7 = $35.9 Dividends = (Issue of shares + Net earnings) - Change in shareholders' equity Dividends = ($3.8 + $69.3*) - $35.9 Dividends = $37.2 *Net earnings = Total revenues Total expenses Net earnings = $7,400.1 $7,330.8 Net earnings = $69.3 (b) At the end of fiscal 2004, Sears financed 44.5% ($1,810.9 million $4,065.7 million) of its assets with equity and 55.5% of its assets with debt ($2,254.8 million $4,065.7 million). For the same period, 59% ($2,430.6 million $4,110.7 million) of Hudsons Bay's assets were financed by equity and 41% ($1,680.1 million $4,110.7 million) by debt. Sears is slightly more risky because more of its assets are financed by debt.
PROBLEM 1-6A
ONE PLANET COSMETICS CORP. Statement of Earnings Month Ended June 30, 2006 Revenues Service revenue Expenses Supplies expense Gas and oil expense Advertising expense Utilities expense Total expenses Earnings before income taxes Income tax expense Net earnings $8,000 $1,200 900 500 300 2,900 5,100 1,275 $3,825
ONE PLANET COSMETICS CORP. Statement of Retained Earnings Month Ended June 30, 2006 Retained earnings, June 1 Add: Net earnings Less: Dividends Retained earnings, June 30 0 3,825 3,825 1,000 $2,825 $
PROBLEM 1-6A (Continued) ONE PLANET COSMETICS CORP. Balance Sheet June 30, 2006 Assets Cash Accounts receivable Cosmetic supplies Equipment Total assets Liabilities and Shareholders Equity Liabilities Notes payable Accounts payable Total liabilities Shareholders equity Common shares Retained earnings Total shareholders equity Total liabilities and shareholders equity $14,000 1,375 15,375 0 26,200 2,825 29,025 $44,400 $ 6,000 4,000 2,400 32,000 $44,400
PROBLEM 1-7A
Maison Corporation should include the following items in its cash flow statement: Cash, January 1, 2006 Cash paid to suppliers Cash dividends paid Cash paid to purchase equipment Cash received from customers MAISON CORPORATION Cash Flow Statement Year Ended December 31, 2006 Operating activities Cash received from customers Cash paid to suppliers Cash provided by operating activities Investing activities Cash paid to purchase equipment Cash used by investing activities Financing activities Cash dividends paid Cash used by financing activities Increase in cash Cash, January 1, 2006 Cash, December 31, 2006 $137,000 (100,000) $37,000 $(15,000) (15,000) $(13,000) (13,000) 9,000 20,000 $29,000
PROBLEM 1-8A
(a) i. ii. Total assets = Total liabilities + Shareholders' equity Total Assets = $110,000 Land = Total assets (from (i)) - Cash - Accounts receivable - Building Land = $110,000 $5,000 $10,000 $45,000 Land = $50,000 Accounts payable = Total liabilities Notes payable Accounts payable = $76,500 $69,600 Accounts payable = $6,900 Shareholders equity = Total liabilities and shareholders' equity Total liabilities Total shareholders' equity = $110,000 $76,500 Total shareholders' equity = $33,500 Retained earnings = $27,000 (from (x)) Common shares = Total shareholders equity Retained earnings Common shares = $33,500 (from (iv)) $27,000 (from (v)) Common shares = $6,500 Operating expenses = Revenue Earnings before income tax Operating expenses = $80,000 $30,000 Operating expenses = $50,000 Net earnings = Earnings before income tax Income tax expense Net earnings = $30,000 $10,000 Net earnings = $20,000 Net earnings (from (viii)) = $20,000 Ending retained earnings = Beginning retained earnings + Net earnings Dividends Ending retained earnings = $12,000 + $20,000 (from (ix)) - $5,000 Ending retained earnings = $27,000
iii.
iv.
v. vi.
vii.
viii.
ix. x.
PROBLEM 1-8A (Continued) (b) In preparing the financial statements, the first statement to be prepared is the statement of earnings. The net earnings figure is used in the statement of retained earnings to calculate the ending balance of retained earnings. The balance sheet is then completed using the balance of retained earnings as calculated in the statement of retained earnings. Finally the cash flow statement explains the reasons for the change in the beginning and ending cash balances, reported on the balance sheet.
PROBLEM 1-9A
(a) Because the balance sheet reports assets and claims to those assets at a specific point in time, it should be dated December 31, 2006 and not for the year ended December 31, 2006. A corporation is a separate legal entity. The boat and the related loan belong to Guy personally and therefore should not be included as an asset (or liability) of the corporation. The $10,000 receivable from Guy's brother is owed to Guy personally and not to the corporation. Because the corporation is a separate legal entity, the loan receivable should not be included in the corporation's balance sheet. (b) GG CORPORATION Balance Sheet December 31, 2006 Assets Cash Accounts receivable Inventory Total assets Liabilities and Shareholders Equity Liabilities Accounts payable $40,000 Notes payable 15,000 Total liabilities 55,000 Shareholders equity 40,000* Total liabilities and shareholders equity $95,000 *$55,000 $10,000 ($18,000 $13,000) = $40,000 $20,000 45,000 30,000 $95,000
PROBLEM 1-1B
1. Dawn will likely operate her vegetable stand as a proprietorship because she is planning on operating it for a short time period and a proprietorship is the simplest and least costly to form and dissolve. Joseph and Sabra should form a corporation when they combine their operations. This is the best form of business for them to choose because they expect to raise significant funds in the coming year. It is easier to raise funds in a corporation. A corporation may also receive more favourable tax treatment. The professors should incorporate their business because of their concerns about the legal liabilities. A corporation is the only form of business that provides limited liability to its owners. Abdur would likely form a corporation because he needs to raise funds to invest in inventories and property, plant, and equipment. He has no savings or personal assets and it is normally easier to raise funds through a corporation. A partnership would be the most likely form of business for Mary, Richard and Jigme to choose. It is simpler to form than a corporation and less costly.
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3.
4.
5.
PROBLEM 1-2B
1. In making an investment in common shares the Ontario investor is becoming a partial owner of the company. In this case, the investment will be held for three years. The information that will be most relevant to him will be on the statement of earnings. The statement of earnings reports the past performance of the company in terms of its revenue, expenses and net earnings. This is the best indicator of the companys future potential. In deciding to extend credit to a new customer, Comeau Lte would focus its attention on the new customer's balance sheet. The terms of credit they are extending require repayment in a short period of time. Funds to repay the credit would come from cash on hand. The balance sheet of the new customer will show if the company has enough cash to meet its obligations. In order to determine whether the company is generating enough cash to increase the amount of dividends paid to investors, the CEO of Private Label Corporation needs information on the amount of cash generated and used in various activities of his business. The cash flow statement is the most useful statement for this purpose. This statement presents the amount of cash flow at the beginning and end of the period as well as the details of the amount of cash generated by operating activities and the amount spent on expanding operations (investment activities). In deciding whether to extend a loan, the Laurentian Bank is interested in two things: the ability of the company to make interest payments on an annual basis for the next five years and the ability to repay the principal amount at the end of five years. In order to evaluate both of these factors the focus should be on the cash flow statement. This statement provides information on the cash the company generates from its operating activities on an ongoing basis. This will be the most important factor in determining if the company will survive and be able to repay the principal and interest on the loan. Note to instructor: Other answers may be valid provided they are properly supported.
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3.
4.
PROBLEM 1-3B
(a) Abitibi Consolidated Inc. Wilfrid Laurier University Students' Union Biovail Corporation Operating Sale of newsprint Investing Purchase long- term investments Purchase office equipment Purchase other companies Purchase of basketball equipment Purchase computers Purchase airplanes Financing Sale of shares Borrow money from a bank Sale of bonds Payment of dividends to shareholders Distribute earnings to partners Sale of shares
Payment of wages and benefits Payment of research expenses Maple Leaf Sports Payment for & Entertainment court rentals Ltd. Grant Thornton LLP WestJet Airlines Ltd. (b) Bill clients for professional services Payment for jet fuel
Financing Sale of shares is common to all corporations. Borrowing from a bank is common to all businesses. Payment of dividends is common to all corporations. Sale of bonds is common to large corporations. Earnings distributed to partners is common to all partnerships. Investing Purchase and sale of property, plant, and equipment would be common to all businessesthe types of assets would vary according to the type of business and some types of businesses require a larger investment in long-lived assets. A new business or expanding business would be more apt to acquire assets. Operating The general activities identified would be common to most businesses, although the service or product might change.
PROBLEM 1-4B
(a) Bank overdraft Capital assets Incomefood and beverage operations Incomegolf course operations Inventory Office and general expense Payables and accruals Receivables Term debt Wage and benefits expense L A R R A E L A L E (b) * I O O O O O O F O
* Bank overdrafts are usually considered to be part of the cash balance explained by the change in activities on the cash flow statement.
PROBLEM 1-5B
(a) (Note: amounts are in millions of dollars) (i) Total liabilities = Total assets Total shareholders equity Total liabilities = $1,716.6 $1,012.9 Total liabilities = $703.7 Total shareholders' equity = Total assets Total liabilities Total shareholders' equity = $1,837.8 $669.0 Total shareholders' equity = $1,168.8 Ending balance Beginning balance = Change in shareholders equity $1,168.8 $1,012.9 = $155.9 Dividends = (Issue of shares + Net earnings) Change in shareholders' equity Dividends = ($3.2 + $176.9*) $155.9 Dividends = $24.2 *Net earnings = Total revenues Total expenses Net earnings = $4,096.1 $3,919.2 Net earnings = $176.9 (iv) Total assets = Total liabilities + Total shareholders equity Total assets = $1,533.6 + $1,597.5 Total assets = $3,131.1 Total assets = Total liabilities + Total shareholders equity Total assets = $1,455.9 + $1,863.0 (from (vi)) Total assets = $3,318.9
(ii)
(iii)
(v)
PROBLEM 1-5B (Continued) (a) (Continued) (vi) End of year, total shareholders' equity = Beginning of year, total shareholders' equity + Issue of shares during year + Net earnings Dividends End of year, total shareholder's equity = $1,597.5 + $7.8 + $257.7* $0 End of year, total shareholder's equity = $1,863.0
*Net earnings = Total revenues Total expenses Net earnings = $4,415.2 $4,157.5 Net earnings = $257.7 (b) The balance sheet provides a snapshot of the company "at" a point in time Therefore the differing year end date may affect the comparability of the assets, liabilities and shareholders' equity. For examples inventories may be lower after Christmas possibly making Shoppers Drug Mart's total assets lower in January than they would be if the company had its year end in May. The statement of earnings reports the results of operations over a period of time. Assuming the length of the reporting periods are the same, the effects of different year-end dates should be minimal on any assessment of performance for the two companies.
PROBLEM 1-6B
AERO FLYING SCHOOL LTD. Statement of Earnings Month Ended May 31, 2006 Revenues Service revenue Expenses Fuel expense Rent expense Advertising expense Repair expense Insurance expense Earnings before income tax Income tax expense Net earnings $9,600 $3,400 1,200 900 700 400
6,600 3,000 900 $2,100
AERO FLYING SCHOOL LTD. Statement of Retained Earnings Month Ended May 31, 2006 Retained earnings, May 1 Add: Net earnings Less: Dividends Retained earnings, May 31 $ 0 2,100 2,100 500 $1,600
PROBLEM 1-6B (Continued) AERO FLYING SCHOOL LTD. Balance Sheet May 31, 2006 Assets Cash Accounts receivable Equipment Total assets Liabilities and Shareholders Equity Liabilities Notes payable Accounts payable Total liabilities Shareholders equity Common shares ($45,000 + $1,800) Retained earnings Total shareholders equity Total liabilities and shareholders equity $27,900 2,400 30,300 46,800 1,600 48,400 $78,700 $ 7,200 11,200 60,300 $78,700
PROBLEM 1-7B
Frenette Corporation should include the following items in its cash flow statement: Cash, July 1, 2005 Cash paid to suppliers Cash paid for income tax Cash dividends paid Cash paid to buy equipment Cash received from customers FRENETTE CORPORATION Cash Flow Statement Year Ended June 30, 2006 Operating activities Cash received from customers Cash paid to suppliers Cash paid for income tax Cash provided by operating activities Investing activities Cash paid to purchase equipment Cash used by investing activities Financing activities Cash dividends paid Cash used by financing activities Increase in cash Cash, July 1, 2005 Cash, June 30, 2006 $168,000 (89,000) (20,000) $59,000 ($26,000) (26,000) ($7,000) (7,000) 26,000 30,000 $56,000
PROBLEM 1-8B
(a) i. ii. Total assets = Total liabilities and shareholders equity Total assets = $85,000 Cash = Total assets (Accounts receivable + Land + Building and equipment) Cash = $85,000 ($20,000 + $15,000 + $40,000) Cash = $10,000 Retained earnings = $26,000 (as per statement of retained earnings) Common shares = Total liabilities and shareholders equity (Liabilities + Retained earnings) Common shares = $85,000 ($15,000 + $26,000) Common shares = $44,000 Operating expenses = Service revenue Earnings before income tax Operating expenses = $75,000 $30,000 Operating expenses = $45,000 Net earnings = Earnings before income tax Income tax expense Net earnings = $30,000 $9,000 Net earnings = $21,000 Net earnings = $21,000 (same as (vi)) Dividends = Beginning retained earnings + Net earnings Ending retained earnings Dividends = $10,000 + $21,000 $26,000 Dividends = $5,000
iii. iv.
v.
vi.
vii. viii.
PROBLEM 1-8B (Continued)

(b) In preparing the financial statements, the first statement to be prepared is the statement of earnings. The net earnings figure is used in the statement of retained earnings to calculate the ending balance of retained earnings. The balance sheet is then completed using the balance of retained earnings as calculated in the statement of retained earnings. Finally the cash flow statement explains the reasons for the change in the beginning and ending cash balances, reported on the balance sheet.
PROBLEM 1-9B
(a) 1. The $7,000 of revenue that the company earned in 2005 should not be included in the 2006 revenues. The $7,000 should be added to the beginning balance of retained earnings. In order to properly calculate the net earnings for the year all expenses must be included in the statement of earnings. Although payment is not due until 2007, income tax expense relates to 2006 and should therefore be recorded in the 2006 statement of earnings. Since the corporation did not incur or pay the $13,200 of rent expense, it should not be included in the statement of earnings. Including the $13,200 as an expense misstates the corporation's net earnings and presents misleading results. Including the cost of the ski trip as vacation expense misstates the corporation's net earnings. The $2,000 is a personal expense incurred by Pam and should not be reported on the corporation's statement of earnings. KETTLE CORPORATION Statement of Earnings Year Ended December 31, 2006 Revenue ($60,000 $7,000) Expenses Insurance expense Earnings before income tax Income tax expense Net earnings $53,000 5,000 48,000 12,000 $36,000
2.
3.
4.
(b)
BYP 1-1 FINANCIAL REPORTING PROBLEM

(a) Loblaw's year end dates for 2003 and 2002 were January 3, 2004 and December 28, 2002. The dates differ because the company selects as its year end the Saturday nearest the end of its calendar year. ($ in millions) Total assets ($ in millions) 2003
Total Shareholde rs' Equity $4,732 = = 38.9% Total Assets $12,177 Total Liabilitie s $7,445 = = 61.1% Total Assets $12,177
(b) (c)
2003 $12,177
2002 $11,110
2002
Total Shareholde rs' Equity $4,124 = = 37.1% Total Assets $11,110 Total Liabilitie s $6,986 = = 62.9% Total Assets $11,110
In 2003 Loblaw's appears to be financing its assets more with equity. Debt financing decreased from 62.9% in 2002 to 61.1% in 2003. (d) ($ in millions) Cash from operating activities 2003 $1,032 2002 $998
In 2002 the company used $995 for investing activities so the $998 they generated from operating activities was sufficient to cover this amount. However, in 2003, the company used $1,448 in investing activities but only generated $1,032 from operating activities. (e) ($ in millions) Sales 2003 $25,220 2002 $23,082
From 2002 to 2003, Loblaw's sales increased by 9.3% [($25,220 $23,082) $23,082].
BYP 1-1 (Continued)

(f) ($ in millions) Net earnings 2003 $845 2002 $728
From 2002 to 2003 Loblaws net earnings increased by 16 percent [($845 $728) $728]. The main reason net earnings increased faster than the percentage increase in sales was because expenses such as interest expense declined in 2003.
BYP 1-2 COMPARATIVE ANALYSIS PROBLEM

(a) ($ in millions) 1. Total assets Total liabilities Shareholders' equity Sales Net earnings Increase (decrease) in cash Loblaw $12,177 7,445 4,732 $25,220 845 $(205) Sobeys $3,274.7 1,699.2 1,575.5 $11,046.8 167.5 $(149.9)
2. 3. (b)
Loblaw's total assets were approximately 3.7 times greater ($12,177 million vs. $3,274.7 million) than Sobeys total assets. Loblaw finances more of it assets using debt (61.1%) than does Sobey's (51.9%) meaning that Loblaw may be slightly more risky than Sobey's. Loblaw's sales are 2.28 times greater than Sobey's ($25,220 $11,046.8) but its net earnings are over 5 times higher ($845 $167.5). This indicates that Loblaw does a better job of controlling its expenses. Both companies ended up with a net decrease in cash during the year. Sobeys' was due primarily to attempts by the company to reduce debt while Loblaw used cash to finance investing activities such as the purchase of fixed assets. It can be seen from this information that both companies appear profitable but Loblaw is a much larger business.
BYP 1-3 RESEARCH CASE

(a) The ten red flags that investors should look for to ensure that the statement of earnings reflects the companys bottom line are: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. (b) Companies taking a Big Bath Highlighting everything but the bad stuff Companies attempting to move debt off the balance sheet Revisions to the companys pension plan Turning expenses into assets Earnings that are not from operations and not expected to recur The accounting treatment of stock option plans Channel-stuffing or moving inventory to distributors to improve performance Companies which change accounting standards from US to Canadian GAAP or vice versa Information in the notes to the financial statement such as the addition of a going concern note
A shareholder should read the notes to the financial statements. According to Al Rosen, the footnotes to the financial statements are a treasure trove of information," He suggests that users "Read the footnotes first. After seeing all the ways a company has bent, spindled and mutilated its earnings, you may have an entirely different outlook on the company." According to the research article, Toronto-based e-commerce company Microforum Inc. was involved in a scandal in September 2000.
(c)
BYP 1-4 INTERPRETING FINANCIAL STATEMENTS

(a) Gildan Activewear Inc. may report its financial results in U.S. dollars because it raises capital in U.S. markets or many of its transactions may occur in U.S. dollars. In either situation the financial statements may be more appropriate for the users' needs if they are prepared using U.S. dollars. ($ in U.S. thousands) Percentage increase in sales = Percentage increase in net earnings =
$533,368 - $431,195 = 23.7% $431,195 $60,251 - $53,156 = 13.3% $53,156
(b)
Sales improved faster than net earnings meaning the company's expenses were growing at a faster rate than its sales. For example, the cost of sales increased by 25.7% [($378,696 - $301,341) $301,341] during the year indicating that the cost of sales was increasing more rapidily then sales. Increases in the expenses will cause net earnings to grow at a slower rate than sales. (c) Gildan appears to be growing as indicated by the increase in sales and net earnings and the large amounts of cash being used in investing activities. Companies with good growth opportunities often choose to retain their earnings in the business to help finance future growth rather than pay out dividends. 2004
Total Liabilitie s Total Assets
(d) =
2003
$165,460 $429,663
$161,409 $489,004
= 33%
Total Shareholde rs' Equity Total Assets
= 38.5%
$264,203 $429,663
$327,595 $489,004
= 67%
= 61.5%
In 2004 the company is using less debt and more equity to finance it operations. The reduction in debt financing makes the company less risky and in a better financial position.
BYP 1-4 (Continued)

(e) The company's cash declined because cash was used to purchases assets (cash used for investing activities - $53,820) and to repay debt (cash used for financing activities - $14,350). The overall decrease in cash occurred because the company used the cash from operations to buy assets (investing activities) and repay debt (financing activities). When looking at the relationship between cash and net earnings it is better to compare net earnings to cash from operations rather than the overall cash balance as the cash balance can be affected by other activities (such as purchasing or selling property, plant and equipment) that have little to do with cash generated from earnings.
(f)
BYP 1-5 A GLOBAL FOCUS

(a) External uses include investors and creditors, amongst others. Investors (shareholders) use accounting information to make decisions to buy, hold, or sell their shares. Creditors, such as suppliers and bankers, use accounting information to evaluate the risks of granting credit or lending money. Zachary will likely not be able to find such information in the financial statements themselves. However, non-financial information is likely to be available in Michelin's annual report or on the company's website. In accounting language, expenses are the cost of assets consumed or services used in the process of generating revenues. Expenses take many forms and are identified by various names, depending on the type of asset consumed or service used. For example, Loblaw keeps track of these types of expenses: cost of sales, selling and administrative expenses (such as cost of food products, wages of store employees, advertising costs, office supplies, utilities), amortization expense (allocation of the cost of using long-lived assets), interest expense (amounts of interest paid on various debts), and income taxes (corporate taxes paid to the provincial and federal governments). This should generate considerable discussion given the recent trend towards adoption of international rules. For example, Canadian accounting standard setters have proposed the abandonment of Canadian GAAP in favour of use of IFRS. In the European Union, companies with publicly-traded shares or debt on a European exchange must use IFRS for their financial reporting for year ends beginning on or after January 1, 2005. A discussion of transparency within global markets is encouraged.
(b)
(c)
(d)
BYP 1-6 FINANCIAL ANALYSIS ON THE WEB

Due to the frequency of change with regard to information available on the World Wide Web, the Accounting on the Web cases are updated as required. Their suggested solutions are also updated whenever necessary, and can be found online in the Instructor Resources section of our home page <www.wiley.com/canada/kimmel>.
BYP 1-7 INTERPRETING FINANCIAL STATEMENTS

(a) A creditor might be concerned about the decline in the amount of cash. They may feel that the ability of the company to meet its debt obligations is reduced. In particular they may be concerned that the company generated more on investing and financing activities than it generated from operating activities. They may be concerned that the company is financing the purchase of property, plant, and equipment from operating funds. Creditors may want to look at the companys balance sheet to examine the overall debt position of the company. An investor would be concerned about the fact that the auditors are questioning the continued viability of this company. The inability of the company to generate cash from operations and the fact that the company is disposing of significant assets to raise cash would cause them to reconsider whether they want to continue to invest in this company. I would be interested in seeing their projections for future sales growth and profitability. I would also want to see their interim financial statements to see how the company is performing in the current year.
(b)
(c)
BYP 1-8 COMMUNICATION ACTIVITY

(a) (b) The primary function of a cash flow statement is to provide financial information about the cash receipts and cash payments of a business for a specific period of time. Operating activities involve money from the provision of goods or services to customers. Financing activities involve raising and eventually repaying, outside funds for corporations by borrowing money and issuing (selling) shares in exchange for cash. Investing activities involve the purchase of the long-lived resourcescalled assetsthat a company needs to operate. Company A is in better shape because it is bringing in cash from operatingits dayto-dayactivities. It is also repaying monies received from creditors or investors. Company B has had to rely on outside financing to support the fact that its operating activities are draining cash from the company. It should be noted that the situation demonstrated by Company Bs numbers would be typical of a company in its start-up stage or if it represents a very short time frame, such as when a beverage manufacturer maximizes production of beverages prior to the busy holiday selling season.
(c)
BYP 1-9 ETHICS CASE

(a) (b) The stakeholders in this situation are the new CEO and CFO, and the creditors and investors who rely on the financial statements to make business decisions. The CEO and CFO should not sign the certification until they have taken steps to assure themselves that the most recent reports accurately reflect the activities of the business. However, as the current management of the company, they cannot refuse to sign the certification just because they are new. They are the management team now and must accept the responsibility that goes with these positions. The CEO and CFO have no alternative other than to take the steps necessary to assure themselves of the accuracy of the financial information, and, if accurate, sign the certification. If the information is not accurate, they need to make the required corrections to the financial information.
(c)
BYP 1-10 SERIAL PROBLEM

(a) Natalie has a choice between a sole proprietorship and a corporation. A partnership is not an option since she is the sole owner of the business. A proprietorship is the easiest to create and operate because there are no formal procedures involved in creating the proprietorship. However, if she operates the business as a proprietorship she will personally have unlimited liability for the debts of the business. Operating the business as a corporation would limit her liability to her investment in the business. Natalie will in all likelihood require the services of a lawyer to incorporate. Costs to incorporate as well as additional ongoing costs to administrate and operate the business as a corporation may be costly. Natalie may choose the proprietorship form of business organization. The organization is small and Natalie may not wish to incur the costs of incorporation. It may be easier to stop operating the business if Natalie decides not to continue. If Natalie believes this is a long term commitment and anticipates net earnings, then she should choose the incorporation alternative. Incorporation costs may prove to be onerous at the outset; however, with anticipated net earnings and future growth anticipated, the benefits with anticipated net earnings and future growth anticipated, the benefits of limited liability and lower income tax rates may outweigh the costs of incorporation. (b) Yes. Natalie will need accounting information to help her operate her business. She will need information on her cash balance on a daily or weekly basis to help her determine if she can pay her bills. She will need to know the cost of her services so she can establish her prices. She will need to know revenue and expenses so she can report her net earnings for income tax purposes. If she borrows money, she will need financial statements so lenders can assess the liquidity, solvency, and profitability of the business. Natalie would also find financial statements useful to better understand her business and identify financial issues as early as possible. Monthly financial statements would be best because they are more timely, but are more work to prepare.
BYP 1-10 (Continued)

(c) Assets: Liabilities: Shareholder's Equity: Revenue Expenses (d) (e) Cash, Accounts Receivable, Supplies, Equipment, Prepaid Insurance Accounts Payable, Unearned Revenue, Notes Payable Common Shares, Retained Earnings, Dividends Teaching Revenue Advertising Expense, Supplies Expense, Travel Expense, Telephone Expense, Insurance Expense
Natalie should maintain a separate bank account for her business. The business is a separate entity from Natalie and must be accounted for separately. I recommend that Natalie keep the car as a personal asset and pay for all costs personally. She should keep track of how many kilometres she drives for business purposes versus personal use and determine the percentage of business use versus personal use. She should keep track of all costs of owning and operating her car including such things as fuel, insurance, registration, and repairs and maintenance. She can then multiply the percentage of business use by the total cost of owning and operating her car to calculate the amount of expense the business can record for travel. The business will record this as an expense. Natalie can either reimburse herself for these business expenses by taking cash out of the business to pay for these costs or she can treat it as an investment in the business. (Note to instructors: This last question is fairly complex and there are income tax considerations. This suggested solution does not cover all of the issues that should be considered. The intent is to encourage students to begin to think about how to deal with a fairly common issue for self-employed people.)
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Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Third Canadian Edition

3, 4, 5, 6, 4A, 5A, 7, 8, 9, 10, 6A, 7A, 11 8A, 9A

4B, 5B, 6B, 7B, 8B, 9B

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Third Canadian Edition

ASSIGNMENT CHARACTERISTICS TABLE

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Third Canadian Edition

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Third Canadian Edition

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Third Canadian Edition

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Third Canadian Edition

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Third Canadian Edition

SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 1-2

BRIEF EXERCISE 1-3

BRIEF EXERCISE 1-4

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Third Canadian Edition

BRIEF EXERCISE 1-5

BRIEF EXERCISE 1-6

BRIEF EXERCISE 1-7

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Third Canadian Edition

BRIEF EXERCISE 1-8

BRIEF EXERCISE 1-9

BRIEF EXERCISE 1-10

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Third Canadian Edition

BRIEF EXERCISE 1-11

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Third Canadian Edition

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Third Canadian Edition

Total revenues - Total expenses = Net earnings $54,000 - $40,000 = $14,000

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Third Canadian Edition

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Third Canadian Edition

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Third Canadian Edition

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Third Canadian Edition

$16,000 40,000 20,500* 60,500 $76,500

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Third Canadian Edition

$ 11,000 50,000 61,000 40,000 31,000 71,000 $132,000

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Third Canadian Edition

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Third Canadian Edition

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Third Canadian Edition

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Third Canadian Edition

The Gap, Inc.

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Third Canadian Edition