Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second Canadian Edition
EXERCISE 1-1
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
8
5
6
1
7
2
3
4
Ethics
Corporation
Common shares
Accounts payable
Accounts receivable
Creditor
Financing activities
Retained earnings
P1-1A
(a) 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.
(b)
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.
(c)
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.
(d)
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 and Richard to
choose. It is simpler to form than a corporation and less costly.
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PROBLEM 1-9A
Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second Canadian Edition
1.
Karim Corporation has violated the monetary unit assumption. Although the
death of the company’s president will have an impact on the company it
cannot be measured in monetary terms and therefore cannot be recorded.
2.
In order to comply with the full disclosure principle, Topilynyckyj Ltd. must
adhere to generally accepted accounting principles. Even though the
company is small, investors, creditors and other financial statements users
still require information on which to base their decisions.
3.
If the shipyard chooses to report its financial results only once every two
years, it will be violating the time period assumption. This assumption states
that the life of a business can be divided into artificial time periods and that
useful reports can be generated covering those periods. As a minimum,
reports should be produced annually.
4.
Paradis Inc. has violated the economic entity assumption. In order to
properly report the financial condition and performance of the company,
Marc Paradis’ personal assets must not be recorded in the company’s
accounts. The boat is being used primarily for personal pleasure and should
not be recorded as an asset of the business.
5. Bourque Corporation is violating the cost principle by recording equipment
at an amount higher than they actually paid for it. The amount that the
company would have paid for it if there had not been a “flood sale” is
irrelevant.
PROBLEM 2-1A
(a) Generally accepted accounting principles are the accounting rules that
have substantial authoritative support and are recognized as a general
guide for financial reporting in Canada. In Canada, the primary
responsibility for the development of the generally accepted accounting
principles rests with the Canadian Institute of Chartered Accountants
and is codified in the CICA Handbook.
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Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second Canadian Edition
(b) Financial reporting is the term used to describe all of the financial
information presented by a company – both in its financial statements
and in additional disclosures in the annual report. The basic objective of
financial reporting is to communicate information that is useful to
investors, creditors and others in making investment and lending
decisions and in assessing management performance.
(c) In order for information provided in financial statements to be useful, it
must be understood by the users. Many investors may not understand
detailed scientific findings. While scientific findings, knowledgeable
employees and good customer relationships are important to business,
these are non-financial performance measures. As such, they are not
part of the financial report. The information is relevant to users, but may
not necessarily be capable of being reliably measured. The fourth
qualitative characteristic, comparability, is not specifically addressed
here.
BRIEF EXERCISE 3-1
a.
b.
c.
d.
e.
f.
Assets
Liabilities
Shareholders’
Equity
+
+
+
+/-
+
NE
NE
NE
NE
NE
NE
+
+
NE
EXERCISE 3-3
(a)
1.
Shareholders invested $15,000 cash in the business.
2. Purchased office equipment for $5,000, paying $1,000 in cash and the balance of $4,000
on account.
3.
Paid $750 cash for supplies.
4.
Earned $8,000 in revenue, receiving $4,600 cash and $3,400 on account.
5.
Paid $1,500 cash on accounts payable.
6.
Paid $2,000 cash dividends to shareholders.
7.
Paid $800 cash for rent.
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Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second Canadian Edition
8.
9.
10.
11.
Collected $450 cash from customers on account.
Paid salaries of $2,900.
Incurred $500 of utilities expense on account.
Paid $1,500 of income tax expense.
(b)
Issued common Shares
Service revenue
Dividends
Rent expense
Salaries expense
Utilities expense
Income tax expense
Increase in shareholders' equity
$15,000
8,000
(2,000)
(800)
(2,900)
(500)
(1,500)
$15,300
Service revenue
Rent expense
Salaries expense
Utilities expense
Income tax expense
Net earnings
$8,000
(800)
(2,900)
(500)
(1,500)
$2,300
(c)
EXERCISE 3-5
Account
Normal Balance
Financial Statement
Account Classification
Accounts payable
Accounts receivable
Cash and cash
equivalents
Common stock
Dividends
Credit
Debit
Debit
Balance sheet
Balance sheet
Balance sheet
Current liability
Current asset
Current asset
Credit
Debit
Shareholders’ equity
N/A
Income taxes payable
Interest expense
Interest income
Inventories
Prepaid expenses
Property and
equipment
Revenues
Credit
Debit
Credit
Debit
Debit
Debit
Balance sheet
Statement of retained
earnings
Balance sheet
Statement of earnings
Statement of earnings
Balance sheet
Balance sheet
Balance sheet
Credit
Statement of earnings
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3-4
Current liability
Expense
Revenue
Current asset
Current asset
Property, plant and
equipment
Revenue
Chapter 3
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Kimmel, Weygandt, Kieso, Trenholm
Canadian Edition
Financial Accounting, Second
EXERCISE 3-12
(a)
Oct. 1
Cash
4,000
Common Shares
4,000
(Invested cash in business in exchange for common
3
Furniture
3,000
Accounts Payable
(Purchased furniture on account)
shares)
4
6
10
10
12
15
20
20
Cash
Supplies
Cash
(Purchased supplies)
400
400
Accounts Receivable
800
Service Revenue
(Billed clients for services provided)
800
Cash
750
Service Revenue
(Received cash for services rendered)
750
Cash
Notes Payable
(Obtained loan from bank)
8,000
8,000
Accounts Payable
1,500
Cash
(Made payment on accounts payable)
Rent Expense
Cash
(Paid cash for rent)
1,500
250
250
800
Accounts Receivable
(Received cash in payment of account)
Accounts Receivable
740
Service Revenue
(Billed clients for services provided)
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3,000
800
740
3-5
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strictly prohibited.
Chapter 3
Kimmel, Weygandt, Kieso, Trenholm
Canadian Edition
Financial Accounting, Second
EXERCISE 3-12 (Continued)
(a)
(Continued)
Oct. 25
Cash
2,000
Common Shares
2,000
(Invested cash in business in exchange for common shares)
30
31
31
Dividends
Cash
(Paid cash dividends)
300
Store Wages Expense
Cash
(Paid wages)
500
Supplies Expense
Supplies
(Used supplies for operating)
180
300
500
180
(b)
HOLLY CORP.
Trial Balance
October 31, 2004
Debit
Cash
Accounts Receivable
Supplies
Furniture
Notes Payable
Accounts Payable
Common Shares
Dividends
Service Revenue
Store Wages Expense
Supplies Expense
Rent Expense
Totals
Solutions Manual
Credit
$12,600
00740
000,220
003,000
$08,000
0001,500
006,000
000,300
002,290
000,500
000,180
250
$17,790
______
$17,790
3-6
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strictly prohibited.
Chapter 3
Kimmel, Weygandt, Kieso, Trenholm
Canadian Edition
Financial Accounting, Second
EXERCISE 3-15
(a)
SPEEDY DELIVERY SERVICE, INC.
Trial Balance
July 31, 2004
Debit
Cash ($111,640 - $83,920 debit total of all accts. without cash)
Accounts Receivable
Prepaid Insurance
Delivery Equipment
Accumulated Amortization
Accounts Payable
Salaries Payable
Notes Payable
Common Shares
Retained Earnings
Dividends
Service Revenue
Amortization Expense
Salaries Expense
Gas and Oil Expense
Repair Expense
Insurance Expense
Income Tax Expense
Totals
Solutions Manual
Credit
$ 27,720
13,640
1,960
49,360
700
9,870
4,420
750
1,200
520
1,500
$111,640
3-7
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$ 19,745
7,390
815
18,450
40,000
4,63
0
20,610
000 0000
$111,640
Chapter 3
Kimmel, Weygandt, Kieso, Trenholm
Canadian Edition
Financial Accounting, Second
EXERCISE 3-15 (Continued)
(b)
SPEEDY DELIVERY SERVICE, INC.
Statement of Earnings
Year Ended July 31, 2004
Revenues
Service revenue
Expenses
Amortization expense
Salaries expense
Gas and oil expense
Repair expense
Insurance expense
Total expenses
Earnings before income tax
Income tax expense
Net earnings
$ 20,610
0
9,870
4,420
750
1,200
520
16,760
3,850
1,500
$ 2,350
SPEEDY DELIVERY SERVICE, INC.
Statement of Retained Earnings
Year Ended July 31, 2004
Retained earnings, August 1, 2003
Add: Net earnings
Less: Dividends
Retained earnings, July 31, 2004
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$4,630
2,350
6,980
700
$6,280
3-8
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strictly prohibited.
Chapter 3
Kimmel, Weygandt, Kieso, Trenholm
Canadian Edition
Financial Accounting, Second
EXERCISE 3-15 (Continued)
(b)
(Continued)
SPEEDY DELIVERY SERVICE, INC.
Balance Sheet
July 31, 2004
Assets
Current assets
Cash
Accounts receivable
Prepaid insurance
Total current assets
Property, plant and equipment
Delivery equipment0
Less: Accumulated amortization
Total property, plant and equipment
Total assets
$27,720
13,640
1,960
$43,320
$49,360
(19,745)
Liabilities and Shareholders' Equity
Liabilities
Accounts payable
$7,390
Salaries payable
815
Total current liabilities
Notes payable
Total liabilities
Shareholders' equity
Common shares
$40,000
Retained earnings
6,280
Total shareholders’ equity
Total liabilities and shareholders’ equity
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29,615
$72,935
$ 8,205
18,450
26,655
46,280
$72,935
3-9
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strictly prohibited.
Chapter 3
Kimmel, Weygandt, Kieso, Trenholm
Canadian Edition
Financial Accounting, Second
EXERCISE 4-5
1.
Mar. 031
2.
Amortization Expense ($500 X 3) ................................
Accumulated Amortization—Equipment..............
1,500
Unearned Rent Revenue .............................................
Rent Revenue ($10,200 X 1/3) ...........................
3,400
Interest Expense ..........................................................
Interest Payable ..................................................
600
Supplies Expense ........................................................
Supplies ($4,000 – $850) ....................................
3,150
Insurance Expense ($200 X 3) ....................................
Prepaid Insurance...............................................
600
Income Tax Expense ...................................................
Income Tax Payable ...........................................
15,000
Accounts Receivable............................................................
Service Revenue .........................................................
700
Office Supplies Expense ......................................................
Office Supplies ............................................................
1,600
Insurance Expense ..............................................................
Prepaid Insurance .......................................................
1,500
Amortization Expense ..........................................................
Accumulated Amortization—Office Equipment............
1,200
Salaries Expense .................................................................
Salaries Payable .........................................................
1,000
Income Tax Expense ...........................................................
Income Tax Payable ...................................................
3,500
Unearned Rent Revenue .....................................................
Rent Revenue .............................................................
800
31
3.
31
4.
31
5.
31
6.
31
1,500
3,400
600
3,150
600
15,000
EXERCISE 4-11
Aug.
31
31
31
31
31
31
31
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700
1,600
1,500
1,200
1,000
3,500
3-10
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800
Chapter 3
Kimmel, Weygandt, Kieso, Trenholm
Canadian Edition
Financial Accounting, Second
PROBLEM 4-1A
(a) 2.
Going concern assumption
(b) 3.
Monetary unit assumption
(c) 9.
Materiality
(d) 4.
Time period assumption
(e) 6.
Revenue recognition principle
(f)
Cost-benefit
10.
(g) 1.
(h)
Economic entity assumption
5.
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Chapter 3