Last revised: May 2021
SOLUTIONS MANUAL
to accompany
Fundamental Accounting Principles
17th Canadian Edition
by Larson/Dieckmann/Harris
Revised for the 17th Edition by:
John Harris, Seneca College
Technical checks by: Rhonda Heninger, SAIT
Solutions Manual to accompany Fundamental Accounting Principles, 17th Canadian Edition. © 2022
McGraw Hill 2-1
,Last revised: May 2021
Chapter 2 Analyzing and Recording
Transactions
Chapter Opening Critical Thinking Challenge Questions*
Accounting information results in the ability to make effective day to day business decisions.
Understanding cash flow and tracking revenue helps Tyler to invest in creating the right
products to meet customer demands. It also helps Tyler to understand profitability and how to
best invest her marketing dollars to sell the most profitable products.
Knowledge Check-Up Questions
1. a) 2. c) 3. a) 4. c) 5. d)
6. b) 7. c) 8. b) 9. a) 10. d)
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 Spin Master’s
December 31, 2020 balance sheet: Cash, Trade and other receivables, Inventories,
Prepaid expenses, Advances on royalties, Property, plant and equipment, Intangible
assets, Goodwill or Deferred income tax assets. Three different liability accounts would
include any of the following: Trade Payables and other liabilities (same as Accounts
payable and accrued liabilities), Contract liabilities (same as unearned revenue), Loans
and borrowings, Provisions and contingent liabilities, Income tax payable and Lease
liabilities.
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
Solutions Manual to accompany Fundamental Accounting Principles, 17th Canadian Edition. © 2022
McGraw Hill 2-2
, Last revised: May 2021
payable, notes payable, unearned revenue and bank loan), owner’s capital and revenue
accounts.
5. Three debit balance accounts from Recipe Unlimited Corporation’s December 31, 2020
balance sheet might include any of the following: Cash and cash equivalents; Accounts
receivable; Prepaid expenses, deposits and other; Inventories; Property, plant and
equipment; Long-term receivables; or Other assets. Three credit balance accounts might
include any of the following: Accounts payable and accrued liabilities; Gift card liability;
Current portion of lease liabilities; Maintenance provisions; Long-term debt; Other liabilities;
Deferred tax liability; Common share capital; or Contributed surplus. Recipe Unlimited has a
deficit, which means their Retained earnings is in a debit balance but it should be a credit
balance.
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 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 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
account Balance statement
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.
Solutions Manual to accompany Fundamental Accounting Principles, 17th Canadian Edition. © 2022
McGraw Hill 2-3
, Last revised: May 2021
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.
12. The title of the financial statements must have the 1) company name, 2) the name of the
financial statement and 3) the date. Dollar signs are used beside the first number in each
column and on the total. Some numbers are indented to show a list of similar numbers in a
category. For instance, all expenses are indented. This formatting makes the financial
statements easier to read. Indentations do not represent debits and credits. The financial
statements do not have debits and credits like the trial balance.
QUICK STUDY
Quick Study 2-1
Answer Answer Detail Account
A Asset 1. Buildings
E Expenses (Equity) 2. Building Repair Expense
E Expenses (Equity) 3. Wages Expense
L Liability 4. Wages Payable
A Asset 5. Notes Receivable
L Liability 6. Notes Payable
A Asset 7. Prepaid Advertising
E Expenses (Equity) 8. Advertising Expense
L Liability 9. Advertising Payable
L Liability 10. Unearned Advertising
R Revenues (Equity) 11. Advertising Revenue
R Revenues (Equity) 12. Interest Income
E Expenses (Equity) 13. Interest Expense
L Liability 14. Interest Payable
R Revenues (Equity) 15. Subscription Revenue
L Liability 16. Unearned Subscription
Revenue
A Asset 17. Prepaid Subscription Fees
A Asset 18. Supplies
E Expenses (Equity) 19. Supplies Expense
R Revenues (Equity) 20. Rent Revenue
L Liability 21. Unearned Rent Revenue
Solutions Manual to accompany Fundamental Accounting Principles, 17th Canadian Edition. © 2022
McGraw Hill 2-4
SOLUTIONS MANUAL
to accompany
Fundamental Accounting Principles
17th Canadian Edition
by Larson/Dieckmann/Harris
Revised for the 17th Edition by:
John Harris, Seneca College
Technical checks by: Rhonda Heninger, SAIT
Solutions Manual to accompany Fundamental Accounting Principles, 17th Canadian Edition. © 2022
McGraw Hill 2-1
,Last revised: May 2021
Chapter 2 Analyzing and Recording
Transactions
Chapter Opening Critical Thinking Challenge Questions*
Accounting information results in the ability to make effective day to day business decisions.
Understanding cash flow and tracking revenue helps Tyler to invest in creating the right
products to meet customer demands. It also helps Tyler to understand profitability and how to
best invest her marketing dollars to sell the most profitable products.
Knowledge Check-Up Questions
1. a) 2. c) 3. a) 4. c) 5. d)
6. b) 7. c) 8. b) 9. a) 10. d)
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 Spin Master’s
December 31, 2020 balance sheet: Cash, Trade and other receivables, Inventories,
Prepaid expenses, Advances on royalties, Property, plant and equipment, Intangible
assets, Goodwill or Deferred income tax assets. Three different liability accounts would
include any of the following: Trade Payables and other liabilities (same as Accounts
payable and accrued liabilities), Contract liabilities (same as unearned revenue), Loans
and borrowings, Provisions and contingent liabilities, Income tax payable and Lease
liabilities.
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
Solutions Manual to accompany Fundamental Accounting Principles, 17th Canadian Edition. © 2022
McGraw Hill 2-2
, Last revised: May 2021
payable, notes payable, unearned revenue and bank loan), owner’s capital and revenue
accounts.
5. Three debit balance accounts from Recipe Unlimited Corporation’s December 31, 2020
balance sheet might include any of the following: Cash and cash equivalents; Accounts
receivable; Prepaid expenses, deposits and other; Inventories; Property, plant and
equipment; Long-term receivables; or Other assets. Three credit balance accounts might
include any of the following: Accounts payable and accrued liabilities; Gift card liability;
Current portion of lease liabilities; Maintenance provisions; Long-term debt; Other liabilities;
Deferred tax liability; Common share capital; or Contributed surplus. Recipe Unlimited has a
deficit, which means their Retained earnings is in a debit balance but it should be a credit
balance.
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 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 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
account Balance statement
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.
Solutions Manual to accompany Fundamental Accounting Principles, 17th Canadian Edition. © 2022
McGraw Hill 2-3
, Last revised: May 2021
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.
12. The title of the financial statements must have the 1) company name, 2) the name of the
financial statement and 3) the date. Dollar signs are used beside the first number in each
column and on the total. Some numbers are indented to show a list of similar numbers in a
category. For instance, all expenses are indented. This formatting makes the financial
statements easier to read. Indentations do not represent debits and credits. The financial
statements do not have debits and credits like the trial balance.
QUICK STUDY
Quick Study 2-1
Answer Answer Detail Account
A Asset 1. Buildings
E Expenses (Equity) 2. Building Repair Expense
E Expenses (Equity) 3. Wages Expense
L Liability 4. Wages Payable
A Asset 5. Notes Receivable
L Liability 6. Notes Payable
A Asset 7. Prepaid Advertising
E Expenses (Equity) 8. Advertising Expense
L Liability 9. Advertising Payable
L Liability 10. Unearned Advertising
R Revenues (Equity) 11. Advertising Revenue
R Revenues (Equity) 12. Interest Income
E Expenses (Equity) 13. Interest Expense
L Liability 14. Interest Payable
R Revenues (Equity) 15. Subscription Revenue
L Liability 16. Unearned Subscription
Revenue
A Asset 17. Prepaid Subscription Fees
A Asset 18. Supplies
E Expenses (Equity) 19. Supplies Expense
R Revenues (Equity) 20. Rent Revenue
L Liability 21. Unearned Rent Revenue
Solutions Manual to accompany Fundamental Accounting Principles, 17th Canadian Edition. © 2022
McGraw Hill 2-4
