MGAB01
Chapters 1 & 2
E1–6 Inferring Values by Using the Statement of Earnings and Statement of Financial
Position Equations LO1-1
Review the chapter explanations of the statement of earnings and the statement of financial
position equations. Apply these equations in each independent case to compute the two missing
amounts for each case. Assume that it is the end of 2016, the first full year of operations for the
company.
(Hint: Organize the listed items as they are presented in the statement of financial position and
statement of earnings equations and then compute the missing amounts.)
Independent
Cases
A
Total
Revenues
$91,700
B
C
69,260
D
58,680
E
84,840
Total
Expenses
$76,940
Net Earnings
(Loss)
Total
Assets
$140,200
74,240
$14,740
107,880
76,430
97,850
21,770
78,720
Total
Liabilities
$69,000
Shareholders’
Equity
$79,010
69,850
17,890
78,680
25,520
79,580
As a creditor how would you use this information to decide whether or not to lend $50,000,
repayable over five years, to either Company B or Company C?
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MGAB01
Chapters 1 & 2
P2–1 Identifying Accounts on a Classified Statement of Financial Position and Their
Normal Debit or Credit Balances (AP2−1)LO2-2, 2-5
Saputo Inc.
Saputo Inc. is Canada’s leading processor of dairy products. The company produces, markets,
and distributes a wide array of products of the utmost quality, including cheese, fluid milk, yogurt,
dairy ingredients, and snack cakes. Saputo’s products are distributed in many countries, primarily
in Canada, the United States, and Argentina. The following are several of the accounts that
appeared on the company’s recent statement of financial position:
Account
Statement of Financial Position Debit or Credit
Balance
Classification
1. Cash and cash equivalents
________________
________________
2. Deferred income tax liabilities
________________
________________
3. Retained earnings
________________
________________
4. Income taxes payable
________________
________________
5. Prepaid expenses
________________
________________
6. Contributed capital
________________
________________
7. Trademarks and other intangibles
________________
________________
8. Accounts payable
________________
________________
9. Accrued liabilities
________________
________________
10. Bank loans (short term)
________________
________________
11. Property, plant, and equipment
________________
________________
12. Long-term investments
________________
________________
13. Accounts receivable
________________
________________
14. Long-term debt
________________
________________
Required:
For each account, indicate how it normally should be categorized on a classified statement of
financial position. Use CA for current asset, NCA for non-current asset, CL for current liability,
NCL for non-current liability, and SE for shareholders’ equity. Also indicate whether the account
normally has a debit or a credit balance.
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MGAB01
Chapters 1 & 2
Question 3:
Wind Jammer Inc. (WJI) was incorporated in 2020 by its sole shareholder, Jie Whaler.
WJI operates a yacht that provides tours of Toronto Harbour. The yacht can also be
rented by private groups on a per hour basis. During September 2020, its first month of
operation, the following transaction and events occurred.
September 1: WJI was incorporated and Jie Whaler contributed $275,000 cash in
exchange for 100 common shares of the company.
September 2: Purchased a yacht, the Wind Jammer XL, for $300,000, paying $200,000
in cash and the remainder as a loan payable to the seller of the boat. Interest on the loan
is 12%, due monthly starting September 30, 2020. The loan must be repaid in full on
August 31, 202.
September 2: The seller has agreed to rent a docking space to WJI for $300 per month.
WJI paid $1,500 for docking rights up to the end of January, 2020.
September 3: Insurance is arranged. The monthly premium of $370 is payable on the
15th of each month, and the first payment is made on September 15, 2020.
September 4: WJI paid $4,500 for lumber and supplies to construct a booth for selling
tickets at the dock. Leftover lumber worth about $2,000 was taken to Jie Whaler’s home
in Oakville to be used to build a deck.
September 4: WJI purchased $1,650 worth of fuel, and life jackets and other safety
supplies worth $1,900, all on credit. The costs for the safety supplies are not considered
material.
September 15: WJI received a deposit of $3,000 from a customer, who wants to rent the
boat for a company party on October 2, 2020. The full price of the rental will be $6,000.
September 1-30: Sales for the month were:
- Rentals paid in cash = $5,600
- Rentals on credit (still outstanding at September 30th) = $970
- Tour tickets paid for in cash - $8,800. $550 worth of the tour tickets were unused
as of the end of September.
September 30: WJI paid $8,000 to Jie Whaler as a salary, and $4,600 to employees for
the month’s wages.
Additional information:
● About half the fuel is remaining at the end of September.
● A lawyer’s bill for $1,100 for incorporating the company is received on October 2.
©Cases in Financial Accounting – A Principles-Based Approach
Alan J. Richardson – Thomson Nelson 2007
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