Solution Manual
Fundamental Accounting Principles, ( Volume 1)
By Larson/Jensen/Dieckmann.
17th Edition
,Chapter 2 Analyzing And
Recording Transactions
Chapter Opening Critical Thinking Challenge Questions*
Alexandre Bilodeau Experienced A Huge Setback In Achieving His Goal Of Winning Gold
In The 2006 Olympics. In The Face Of This Challenge, He Reflected On The Experience,
Set His Personal Goal And Had A Daily Action Plan To Achieve It. These Same Steps Can
Be Applied To Your Life. For Instance, You May Experience A Setback In This Accounting
Course. For Instance, You May Not Perform As Well On A Homework Assignment Or
Exam As You Would Have Liked. Like Alexandre Bilodeau, Take A Moment To
Understand Why You May Have Experience This Setback, Commit To A Personal Goal
And Have A Detailed Action Plan To Achieve It. This May Include Reading The Chapters
Before Class, Setting Aside A Few Hours Each Day To Work On The Homework, Meeting
Up With A Friend Once A Week To Discuss Challenging Topics And Going To Office
Hours. You Can Also Learn From Alexandre Bilodeau’s Determination In Pursuing Your
Career And In Facing Challenges In The Workplace.
,Concept Review Questions
1. Welcome To Lululemon! We Are Happy To Have You As A Co-Op Student. The
Fundamental Steps In The Accounting Process Are Those Involved In The
Accounting Cycle: Analyze Transactions To Determine If An Economic Exchange
Has Taken Place And, If So, Journalize And Post The Transaction. An Unadjusted
Trial Balance Is Then Prepared To Help Identify Potential Adjustments. Appropriate
Adjusting Entries Are Journalized And Posted And An Adjusted Trial Balance Is
Generated From Which The Financial Statements Are Prepared. Closing Entries Are
Then Journalized And Posted. Finally, A Post-Closing Trial Balance Is Prepared.
The Accounting Cycle Helps Lululemon Keep Track Of Its Business Activities.
These Business Transactions Include Buying Fabric, Selling Yoga Clothing And
Paying Employees. The Accounting Cycle Helps Produce Financial Statements
Which Provide Lululemon The Information To Make Good Business Decisions.
2. An Account Receivable Is An Amount Due To A Company, But The Amount Can Be
Increased By The Customer (Debtor) By Making Additional Purchases. An Account
Receivable Is Not A Single Document But Represents The Result Of Several Written,
Oral, Or Implied Promises To Pay The Creditor. A Note Receivable Is A Formal
Document That Specifies The Fixed Amount Due To A Company On A Fixed Date Or
On Demand.
3. Four Different Asset Accounts Would Include Any Of The Following From Danier’s
June 28, 2014 Balance Sheet: Cash, Accounts Receivable, Income Taxes
Recoverable, Inventories, Prepaid Expenses, Property And Equipment, Computer
Software And Deferred Income Tax Asset. Three Different Liability Accounts Would
Include Any Of The Following: Payables And Accruals (Same As Accounts Payable
And Accrued Liabilities), Deferred Revenue, Sales Return Provision And Deferred
Lease Inducements And Rent Liability.
4. A Debit Will Decrease And A Credit Will Increase The Following Accounts: Accounts
Payable, Owner’s Capital And Revenue. Answers Will Vary, But Can Include Liability
(Accounts Payable, Notes Payable, Unearned Revenue And Bank Loan), Owner’s
Capital And Revenue Accounts.
5. Three Debit Balance Accounts From Westjet’s December 31, 2014 Balance Sheet
Might Include Any Of The Following: Cash And Cash Equivalents; Restricted Cash;
Accounts Receivable; Prepaid Expenses, Deposits And Other; Inventory; Assets
Held For Sale; Property And Equipment; Intangible Assets; Or Other Assets. Three
Credit Balance Accounts Might Include Any Of The Following: Accounts Payable And
Accrued Liabilities; Advance Ticket Sales; Non-Refundable Guest Credits; Current
Portion Of Maintenance Provisions; Current Portion Of Long-Term Debt;
Maintenance Provisions; Long-Term Debt; Other Liabilities; Deferred Income Tax;
Share Capital; Equity Reserves; Hedge Reserves; Or Retained Earnings.
, 6. When A Company Sells Services Or Goods, They Will Exchange Their Service Or
Good For Cash. When The Company Sells Services Or Goods, They Earn Revenue.
In The Account Equation, Cash (Asset) Increases And Revenue (Equity) Increases.
If The Customer Does Not Pay Today, The Company Records An Accounts
Receivable Instead Of Cash. Accounts Receivable Holds Value For The Company
Because It Is A Promise From The Customer To Pay In The Future. When The
Customer Pays Cash, The Company No Longer Has An Accounts Receivable. With
The Accounting Equation, Accounts Receivable (Asset) Increases And Revenue
(Equity) Increases.
Account (1) Type Of (2) Normal (3) Financial (4) Time Period
Accoun Balance Statement
t
Accounts Asset Debit Balance Sheet A Specific Point In
Receivable Time
Revenue Equity Credit Income Statement Period Of Time
7. Owner’s Withdrawals Are When A Business Owner Takes Out Money That Was
Earned In The Business For Personal Use. An Example Is When An Owner Needs
To Take Out Money For A Personal Vacation. An Expense Occurs When A Cost Is
Needed To Run The Normal Operations Of The Business. An Example Is That A
Business Needs To Pay Its Employees For Selling Clothes At A Retail Store.
Account (5) Type Of (6) Normal (7) Financial
Account Balance Statement
Owner’s Withdrawals Equity Debit Statement Of
Changes In Equity
Expense Equity Debit Income Statement
8. Debited Accounts Are Recorded First. The Credited Accounts Are Indented.
9. A Transaction Should First Be Recorded In A Journal To Create A Complete Record
Of The Transaction In One Place. Then The Transaction Is Posted To The Ledger
Where Entries Are Summarized By Type, I.E., Cash, Accounts Payable, Interest
Expense, Etc., To Enable Analysis By Account. This Arrangement Also Means That
Fewer Errors Will Be Made In The Accounts.
10. Accounting Software Is A Tool That Makes Recording Accounting Transactions
Easier. You Are Still The “Brain” Behind The Accounting. You Will Need To Decide
When To Record A Transaction, How To Record The Transaction, How To Interpret
The Financial Statements And What Business Decisions To Make. Knowing How To
Record Accounting Manually Will Help You Understand The Entire Accounting
Process And What Happens Behind The Software. There Are Errors In Software
Programs. Over Relying On A Software Program Can Result In Large Errors. When
You Are Writing A Report Using The Computer, You Still Need To Know How To
Write Paragraphs And How To Explain Your Content. Just Like Accounting
Software, The Computer Is Only A Tool.
11. Not Preparing A Trial Balance Can Cause Errors In The Financial Statements. The
Trial Balance Helps To Identify And Correct Errors. If The Debits Do Not Equal The
Credits In The Trial Balance, This Is A Clue That Errors Need To Be Corrected.
Fundamental Accounting Principles, ( Volume 1)
By Larson/Jensen/Dieckmann.
17th Edition
,Chapter 2 Analyzing And
Recording Transactions
Chapter Opening Critical Thinking Challenge Questions*
Alexandre Bilodeau Experienced A Huge Setback In Achieving His Goal Of Winning Gold
In The 2006 Olympics. In The Face Of This Challenge, He Reflected On The Experience,
Set His Personal Goal And Had A Daily Action Plan To Achieve It. These Same Steps Can
Be Applied To Your Life. For Instance, You May Experience A Setback In This Accounting
Course. For Instance, You May Not Perform As Well On A Homework Assignment Or
Exam As You Would Have Liked. Like Alexandre Bilodeau, Take A Moment To
Understand Why You May Have Experience This Setback, Commit To A Personal Goal
And Have A Detailed Action Plan To Achieve It. This May Include Reading The Chapters
Before Class, Setting Aside A Few Hours Each Day To Work On The Homework, Meeting
Up With A Friend Once A Week To Discuss Challenging Topics And Going To Office
Hours. You Can Also Learn From Alexandre Bilodeau’s Determination In Pursuing Your
Career And In Facing Challenges In The Workplace.
,Concept Review Questions
1. Welcome To Lululemon! We Are Happy To Have You As A Co-Op Student. The
Fundamental Steps In The Accounting Process Are Those Involved In The
Accounting Cycle: Analyze Transactions To Determine If An Economic Exchange
Has Taken Place And, If So, Journalize And Post The Transaction. An Unadjusted
Trial Balance Is Then Prepared To Help Identify Potential Adjustments. Appropriate
Adjusting Entries Are Journalized And Posted And An Adjusted Trial Balance Is
Generated From Which The Financial Statements Are Prepared. Closing Entries Are
Then Journalized And Posted. Finally, A Post-Closing Trial Balance Is Prepared.
The Accounting Cycle Helps Lululemon Keep Track Of Its Business Activities.
These Business Transactions Include Buying Fabric, Selling Yoga Clothing And
Paying Employees. The Accounting Cycle Helps Produce Financial Statements
Which Provide Lululemon The Information To Make Good Business Decisions.
2. An Account Receivable Is An Amount Due To A Company, But The Amount Can Be
Increased By The Customer (Debtor) By Making Additional Purchases. An Account
Receivable Is Not A Single Document But Represents The Result Of Several Written,
Oral, Or Implied Promises To Pay The Creditor. A Note Receivable Is A Formal
Document That Specifies The Fixed Amount Due To A Company On A Fixed Date Or
On Demand.
3. Four Different Asset Accounts Would Include Any Of The Following From Danier’s
June 28, 2014 Balance Sheet: Cash, Accounts Receivable, Income Taxes
Recoverable, Inventories, Prepaid Expenses, Property And Equipment, Computer
Software And Deferred Income Tax Asset. Three Different Liability Accounts Would
Include Any Of The Following: Payables And Accruals (Same As Accounts Payable
And Accrued Liabilities), Deferred Revenue, Sales Return Provision And Deferred
Lease Inducements And Rent Liability.
4. A Debit Will Decrease And A Credit Will Increase The Following Accounts: Accounts
Payable, Owner’s Capital And Revenue. Answers Will Vary, But Can Include Liability
(Accounts Payable, Notes Payable, Unearned Revenue And Bank Loan), Owner’s
Capital And Revenue Accounts.
5. Three Debit Balance Accounts From Westjet’s December 31, 2014 Balance Sheet
Might Include Any Of The Following: Cash And Cash Equivalents; Restricted Cash;
Accounts Receivable; Prepaid Expenses, Deposits And Other; Inventory; Assets
Held For Sale; Property And Equipment; Intangible Assets; Or Other Assets. Three
Credit Balance Accounts Might Include Any Of The Following: Accounts Payable And
Accrued Liabilities; Advance Ticket Sales; Non-Refundable Guest Credits; Current
Portion Of Maintenance Provisions; Current Portion Of Long-Term Debt;
Maintenance Provisions; Long-Term Debt; Other Liabilities; Deferred Income Tax;
Share Capital; Equity Reserves; Hedge Reserves; Or Retained Earnings.
, 6. When A Company Sells Services Or Goods, They Will Exchange Their Service Or
Good For Cash. When The Company Sells Services Or Goods, They Earn Revenue.
In The Account Equation, Cash (Asset) Increases And Revenue (Equity) Increases.
If The Customer Does Not Pay Today, The Company Records An Accounts
Receivable Instead Of Cash. Accounts Receivable Holds Value For The Company
Because It Is A Promise From The Customer To Pay In The Future. When The
Customer Pays Cash, The Company No Longer Has An Accounts Receivable. With
The Accounting Equation, Accounts Receivable (Asset) Increases And Revenue
(Equity) Increases.
Account (1) Type Of (2) Normal (3) Financial (4) Time Period
Accoun Balance Statement
t
Accounts Asset Debit Balance Sheet A Specific Point In
Receivable Time
Revenue Equity Credit Income Statement Period Of Time
7. Owner’s Withdrawals Are When A Business Owner Takes Out Money That Was
Earned In The Business For Personal Use. An Example Is When An Owner Needs
To Take Out Money For A Personal Vacation. An Expense Occurs When A Cost Is
Needed To Run The Normal Operations Of The Business. An Example Is That A
Business Needs To Pay Its Employees For Selling Clothes At A Retail Store.
Account (5) Type Of (6) Normal (7) Financial
Account Balance Statement
Owner’s Withdrawals Equity Debit Statement Of
Changes In Equity
Expense Equity Debit Income Statement
8. Debited Accounts Are Recorded First. The Credited Accounts Are Indented.
9. A Transaction Should First Be Recorded In A Journal To Create A Complete Record
Of The Transaction In One Place. Then The Transaction Is Posted To The Ledger
Where Entries Are Summarized By Type, I.E., Cash, Accounts Payable, Interest
Expense, Etc., To Enable Analysis By Account. This Arrangement Also Means That
Fewer Errors Will Be Made In The Accounts.
10. Accounting Software Is A Tool That Makes Recording Accounting Transactions
Easier. You Are Still The “Brain” Behind The Accounting. You Will Need To Decide
When To Record A Transaction, How To Record The Transaction, How To Interpret
The Financial Statements And What Business Decisions To Make. Knowing How To
Record Accounting Manually Will Help You Understand The Entire Accounting
Process And What Happens Behind The Software. There Are Errors In Software
Programs. Over Relying On A Software Program Can Result In Large Errors. When
You Are Writing A Report Using The Computer, You Still Need To Know How To
Write Paragraphs And How To Explain Your Content. Just Like Accounting
Software, The Computer Is Only A Tool.
11. Not Preparing A Trial Balance Can Cause Errors In The Financial Statements. The
Trial Balance Helps To Identify And Correct Errors. If The Debits Do Not Equal The
Credits In The Trial Balance, This Is A Clue That Errors Need To Be Corrected.
