BTB110
Assignment 1; Spring, 2005
Due: Tuesday, March 22
Value: 10%
1.Presented below are some of the accounting concepts dicussed in Chapter 1 of your
Accounting text:
1. Adequate disclosure
3. Cost
5. Unit of measure
2. Accounting period
4. Going concern
6. Business entity
Instructions: Use the numbers from the above list to identify the accounting concept that is
described in each statement below. Do not use a number more than once.
(a)_____States the rationale why property, plant, and equipment are not reported at liquidation
value. (Do NOT use the cost concept here)
(b)_____Indicates that personal and business record keeping should be separately maintained
.
(c)_____Assumes that the dollar is the measure used to report on financial performance.
(d)_____Separates financial information into time periods for reporting purposes.
(e)_____Indicates that the market value changes subsequent to the purchase are not recorded in
the accounts.
(f)_____Dictates that all circumstances and events that make a difference to financial statement
users should be disclosed.
2.Financial decisions often depend on one financial statement more than the others. Consider
each of the following independent hypothetical situations:
(a)An Ontario investor is considering purchasing the common shares of Total Fitness Ltd., which
operates 13 fitness centers in the Toronto area. The investor plans on holding the investment for
at least three years.
(b)Comeau Ltee. is considering extending credit to a new customer. The terms of the credit
would require the customer to pay within 45 days of receipt of goods.
Instructions: For each situation, state whether the individual would pay most attention to the
information provided by the statement of earnings, balance sheet, or cash flow statement.
Choose only one financial statement in each case, and provide a brief justification for your choice.
3. Presented below are selected financial statement items for Frenette Corporation for June 30,
2004:
Cash, July 1, 2003
Inventory
Cash paid to suppliers
Building
Common shares
Cash paid for income tax
$ 60,000
65,000
105,000
400,000
25,000
20,000
Cash dividends paid
Cash paid to buy equipment
Equipment
Revenues
Cash received from customers
$ 10,000
25,000
40,000
200,000
185,000
Instructions: Determine which of these items should be included in a cash flow statement, and
then prepare the statement for Frenette Corporation for the year ended June 30, 2004.
.
4. From your studies, indicate which strategy most closely reflects that chosen by
Brad, John and Courtney for their business. Support your choice by 2 examples
from the Movies Door to Door text.
5. Review the first 4 chapters of Movies Dorr to Door.com, and determine the
following:
a) Where did the owners get their financing from ? What accounts on the
balance sheet would be affected by this financing?
b) What did the owners of the company invest in while setting up their
company? In which financial statement would this information be
recorded?
c) Which financial statement would be used to keep track of the operations
data for Movies Dorr toDoor.com?
6. Here are the incomplete financial statements for Baxter, Inc.
Baxter Incorporated
Balance Sheet
November 30, 2004
Assets
Cash
Inventory
Building
$5,000
10,000
50,000
Total Assets
65,000
Liabilities& Shareholder Equity
Liabilities
Accounts Payable
$7,000
Shareholder Equity
Common Shares
(1)
Retained Earnings
(2)
Total Liabilities +
65,000
Retained Earnings
Baxter Incorporated
Statement of Earnings
Year Ended November 30, 2004
Revenues
Operating Expenses
Earnings before Income Tax
Income Tax Expense
Net Earnings
Baxter Incorporated
Statement of Retained Earnings
Year Ended November 30, 2004
Beginning retained earnings
Net Earnings
Dividends
Ending Retained Earnings
$80,000
(3)
$30,000
10,000
(4)
$10,000
(5)
($5000)
$25,000
Required:
a) Determine the missing amounts for items 1-5
b) Assume that the statements shown above give a net earnings figure on the cash basis.
Using the information given below, recalculate net earnings to reflect accounting on the
accrual basis.
1. A review of records at the end of November indicates that Baxter has earned
$4750 in November, but will be receiving it in January, 2005.
2. A review of records indicates that Baxter owes suppliers $2500 for goods
purchased in November. Baxter plans to pay for those goods in December.
3. A review of company records indicates that $225 of office supplies (listed in the
inventory account ) has been used up during November,
4. Company records show that $750 included in the cash account represents
unearned revenue. The customer paid in advance, nad has not yet received the
service he paid for.