Accounting Principles, 9th Canadian Edition SOLUTION MANUAL Accounting Principles, 9th Canadian Edition Volume 1 & 2 By Jerry Weygandt, Donald Kieso, /// Accounting Principles, 9th Canadian Edition Accounting Principles, 9th Canadian Edition Account

Accounting Principles, 9th Canadian Edition SOLUTION MANUAL Accounting Principles, 9th Canadian Edition Volume 1 & 2 By Jerry Weygandt, Donald Kieso, /// Accounting Principles, 9th Canadian Edition Accounting Principles, 9th Canadian Edition Accounting Principles, 9th Canadian Edition Volume 1 on 2. The Recording Process 1. Accounting in Acti 3. Adjusting the Accounts 4. Completion of the Accounting Cycle 5. Accounting for Merchandising Operations 6. Inventory Costing 7. Internal Control and Cash 8. Accounting for Receivables 9. Long-Lived Assets 10. Current Liabilities and Payroll Volume 2 9. Long-Lived Assets 10. Current Liabilities and Payroll 11. Financial Reporting Concepts 12. Accounting for Partnerships 13. Introduction to Corporations 14. Corporations: Additional Topics and IFRS 15. Non-Current Liabilities 16. Investments 17. The Cash Flow Statement 18. Financial Statement Analysis CHAPTER 1 Accounting Principles, 9th Canadian Edition Accounting in Action Learning Objectives 1. Identify the use and users of accounting and the objective of financial reporting. 2. Compare the different forms of business organization. 3. Explain the building blocks of accounting: ethics and the concepts included in the conceptual framework. 4. Describe the components of the financial statements and explain the accounting equation. 5. Analyze the effects of business transactions on the accounting equation. 6. Prepare financial statements. Accounting Principles, 9th Canadian Edition Accounting Principles, 9th Canadian Edition Summary of Questions by Learning Objectives and Bloom‘s Taxonomy Item LO BT Item LO BT Item LO BT Item LO Questions BT 1. 2. 3. 4. 1 1 1 2 5. 6. 7. C C C K 3 3 3 9. 10. 11. 3 3 3 13. 14. 15. 4 4 4 Item LO BT 8. 1 3 C K K C 12. 4 C C C K Brief Exercises 16. 4 K K C K 17. 5 18. 5 19. 6 20. 6 C AP K C 1. 5. 2. 3. 4. 2 3 3 6. 7. K C AN C 3 3 4 9. 10. 11. 4 4 4 13. 14. 15. 5 4,5 4,6 17. 6 18. 6 AP AP 8. 1 4 C C C AP 12. 5 Exercises AP AP K AP 16. 6 AP AP AP AP 1. 9. 2. 3. 4. 1 2 3 5. 1,3,5 6. 4 7. C C C C 4 10. 11. 3,5,6 5 5 13. 14. 15. 4,5 6 6 17. 6 AP 8. 5 K AP AP C 12. 4,5 Problems C C C AP 16. 6 AP AP AP AP 1. 1 S 4. 4 AP 7. 3,4,5,6 AP 10. 6 AN 2. 2,3 AP 5. 3,5 C 8. 4,5,6 AP 11. 3,4,5,6 AP 3. 4 AP 6. 4,6 AP 9. 6 AP Accounting Principles, 9th Canadian Edition Accounting Principles, 9th Canadian Edition Accounting Principles, 9th Canadian Edition Legend: The following abbreviations will appear throughout the solutions manual file. LO Learning objective Bloom's BT Taxonomy K Knowledge C Comprehension AP Application AN Analysis S Synthesis E Evaluation Difficulty: Level of difficulty S Simple M Moderate C Complex Time: Estimated time to complete in minutes AACSB Association to Advance Collegiate Schools of Business Communication Communication Ethics Ethics Analytic Analytic Tech. Technology Diversity Diversity Reflec. Thinking Reflective Thinking CPA CM CPA Canada Competency Map Ethics Professional and Ethical Behaviour PS and DM Problem-Solving and Decision-Making Comm. Communication Self-Mgt. Self-Management Team & Lead Teamwork and Leadership Reporting Financial Reporting Stat. & Gov. Strategy and Governance Mgt. Accounting Management Accounting Audit Audit and Assurance Finance Finance Tax Taxation Accounting Principles, 9th Canadian Edition Accounting Principles, 9th Canadian Edition ASSIGNMENT CLASSIFICATION TABLE Learning Objectives Questions Brief Exercises Exercises Problems Set A Problems Set B 1. Identify the use and users of accounting and the objective of financial reporting. 1, 2, 3 1 1, 2, 5 1 1 2. Compare the different forms of business organization. 4 2 3, 2 2 3. Explain the building blocks of accounting: ethics and the concepts included in the conceptual framework. 5, 6, 7, 8, 9, 10, 11 3, 4, 5, 6 3, 4, 5, 9, 10 2, 5, 7, 11 2, 5, 7, 11 4. Describe the components of the financial statements and explain the accounting equation. 12, 13, 14. 15, 16 7, 8, 9, 10, 11, 15 6, 7, 13 3, 4, 6, 7, 8, 11 3, 4, 6, 7, 8, 11 5. Analyze the effects of business transactions on the accounting equation. 17, 18 12, 13, 14 5, 8, 9, 10, 11, 12, 13 5, 7, 8, 11 6, 7, 8, 9, 10, 11 6. Prepare financial statements. 19, 20 14, 15, 16 17, 18 9, 14, 15, 16, 17 6, 7, 8, 9, 10, 11 2, 5, 7, 11 Accounting Principles, 9th Canadian Edition Accounting Principles, 9th Canadian Edition ASSIGNMENT CHARACTERISTICS TABLE Problem Number Description Difficulty Level Time Allotted (min.) 1A Identify users and uses of accounting information. Simple 15-20 2A Determine forms of business organization and types of accounting standards. Simple 15-20 3A Determine missing items. Complex 20-25 4A Classify accounts and prepare accounting equation. Simple 20-30 5A Assess accounting treatment. Moderate 20-25 6A Analyze transactions and calculate owner’s equity. Simple 35-45 7A Analyze transactions and prepare balance sheet. Simple 40-50 8A Analyze transactions and prepare financial statements. Moderate 40-50 9A Prepare financial statements. Simple 35-45 10A Determine missing amounts, and comment. Moderate 35-45 11A Discuss errors and prepare corrected balance sheet. Moderate 45-55 1B Identify users and uses of accounting information. Simple 15-20 2B Determine forms of business organization and types of accounting standards. Simple 15-20 3B Determine missing items. Complex 20-25 4B Classify accounts and prepare accounting equation. Simple 20-30 5B Assess accounting treatment. Moderate 20-25 6B Analyze transactions and calculate owner’s equity. Simple 35-45 7B Analyze transactions and prepare balance sheet. Simple 40-50 8B Analyze transactions and prepare financial statements. Moderate 40-50 9B Prepare financial statements. Simple 35-45 10B Determine missing amounts, and comment. Moderate 35-45 11B Discuss errors and prepare corrected balance sheet. Moderate 45-55 Accounting Principles, 9th Canadian Edition Accounting Principles, 9th Canadian Edition BLOOM‘S TAXONOMY TABLE Correlation Chart between Bloom’s Taxonomy, Learning Objectives and End-of- Chapter Material Learning Objective Knowledge Comprehension Application Analysis Synthesis Evaluat ion 1. Identify the use and users of accounting and the objective of financial reporting. Q1.3 BE1.1 E1.5 Q1.1 Q1.2 E1.1 E1.2 P1.1A P1.1B 2. Compare the different forms of business organization. Q1.4 BE1.2 BE1.4 BE1.10 E1.3 E1.7 P1.2A P1.2B P1.11B 3. Explain the building blocks of accounting: ethics and the concepts included in the conceptual framework. Q1.6 Q1.7 E1.5 Q1.5 Q1.8 Q1.9 Q1.10 Q1.11 BE1.4 BE1.5 P1.2A P1.2B P1.3A P1.3B P1.7A P1.7B P1.11A BE1.3 BE1.6 P1.11B E1.3 E1.4 E1.9 E1.10 P1.5A P1.5B 4. Describe the Q1.12 BE1.7 BE1.8 components of the Q1.13 BE1.9 financial statements Q1.14 BE1.10 and explain the Q1.16 BE1.14 accounting equation. BE1.11 BE1.15 E1.6 E1.7 E1.13 P1.4A P1.4B P1.6A P1.6B P1.7A P1.7B P1.8A P1.8B P1.11A P1.11B Accounting Principles, 9th Canadian Edition Accounting Principles, 9th Canadian Edition BLOOM‘S TAXONOMY TABLE (Continued) Learning Objective Knowledge Comprehension Application Analysis Synthesis Evaluat ion 5. Analyze the effects Q1.19 Q1.17 Q1.18 of business E1.5 Q1.20 BE1.12 transactions on the E1.8 BE1.13 accounting equation. E1.9 BE1.14 E1.10 E1.12 E1.11 E1.13 P1.5A P1.7A P1.5B P1.7B P1.8A P1.8B P1.11A P1.11B 6. Prepare financial Q1.19 BE1.15 P1.10A statements. Q1.20 BE1.16 P1.10B E1.9 BE1.17 BE1.18 E1.14 E1.15 E1.16 E1.17 P1.6A P1.6B P1.7A P1.7B P1.8A P1.8B P1.9A P1.9B P1.11A P1.11B Broadening Your BYP1.1 Santé Saga BYP1.3 BYP1.4 BYP1.2 Perspective BYP1. 6 BYP1.5 Accounting Principles, 9th Canadian Edition ANSWERS TO QUESTIONS 1. Yes. Accounting is the financial information system that provides useful financial information to every person who owns and uses economic resources or otherwise engages in economic activity. LO 1 BT: C Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting 2. Internal users are those who plan, organize, and run businesses and include managers, supervisors, directors, and company officers. External users work for other organizations but have reasons to be interested in the company’s financial position and performance, and include current or potential investors (owners), and creditors. Internal users may want answers to several types of questions. For example, the finance department wants to know if there is enough cash to pay the bills. The marketing department wants to know what price the business should use in selling its products to maximize profits. The human resources department wants to know how many people the business can afford to hire. The production department wants to know which product lines make the business the most profit. External users may want answers to several types of questions. For example, investors want to know if the company is earning enough to give them a return on their investment. Creditors want to know if the company is able to pay its debts as they come due. Labour unions want to know whether the owners can afford to pay increased wages and benefits. Customers are interested in whether a company will continue to honour its product warranties and support its product lines. Taxing authorities want to know whether the company respects the tax laws. Regulatory agencies want to know whether the company is respecting established rules. LO 1 BT: C Difficulty: M Time: 15 min. AACSB: None CPA: cpa-t001 CM: Reporting 3. The main objective of financial reporting is to provide useful information to investors and creditors (external users) to make decisions about a business. Users may be potential investors who need to decide if they wish to invest in the business or they may be creditors deciding if they wish to lend money to the business. These users want to know if the business is running successfully and can generate cash and earn a profit. LO 1 BT: C Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting Accounting Principles, 9th Canadian Edition Accounting Principles, 9th Canadian Edition QUESTIONS (Continued) 4. Proprietorships, partnerships, and corporations are the three main forms of business organizations. The main difference among these three forms is the size of the business. Since a proprietorship is a business owned by one person, it has limited resources. The size of the business is typically small and the life of the business is limited to the life of the owner. The size of businesses can expand in the case of a partnership as more owners are involved in the day-to day operations of the business. In order to achieve a large size, with a diverse group of owners, the corporate form is used to have easy transferability of the ownership through the issuance of shares. Another important difference is that the corporation is a separate legal entity and pays income taxes. In addition, the corporation is the only form where owners have limited liability with respect to the business. The following are the main characteristics of each form: a. b. c. A proprietorship is a private business with one owner who has unlimited liability for the business. The proprietorship has a limited life tied to the life of the owner. There is transparency between the owner and the business. Ultimately, the owner is personally responsible to pay tax on the profit of the business. A partnership has essentially the same characteristics as a proprietorship except that in a partnership, there is more than one owner. Partnerships are often used to organize service-type businesses, including professional practices. For corporations, the owners are one or more shareholders who enjoy limited liability. The corporation pays income taxes and can have an indefinite live since its ownership units, in the form of shares, are easily transferred to other owners. LO 2 BT: K Difficulty: M Time: 15 min. AACSB: None CPA: cpa-t001 CM: Reporting 5. Ethics is a fundamental business concept. If accountants do not have a high ethical standard, the information they produce will not have any credibility. Ethics are important to statement users because it provides them comfort that the financial information they are using is credible and reliable. LO 3 BT: C Difficulty: S Time: 5 min. AACSB: Ethics CPA: cpa-t001 cpa-e001 CM: Reporting and Ethics Accounting Principles, 9th Canadian Edition Accounting Principles, 9th Canadian Edition QUESTIONS (Continued) 6. The users of financial information of publicly accountable companies have different needs than the users of financial information of private companies. Publicly traded corporations are required to present financial information using accounting rules that are consistent with those used globally. To do this, public traded companies need to follow International Financial Reporting Standards (IFRS). Doing so helps Canadian companies compete in a global market. But following this set of policies and standards is often not essential or cost effective for privately owned businesses. The users of private company financial statements often do not require the extensive measurements and disclosures required by IFRS and thus private companies may report under Accounting Standards for Private Enterprises (ASPE). LO 3 BT: K Difficulty: M Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting 7. The reporting entity concept states that economic events can be identified with a particular unit of accountability. This concept requires that the activities of the entity be kept separate and distinct from the activities of its owners and all other economic entities. LO 3 BT: K Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting 8. Accounting information has relevance if it makes a difference in a decision. Faithful representation shows the economic reality of events rather than just their legal form. Faithful representation is achieved if the information is complete, neutral, and free from material error. Complete information includes all information necessary to show the economic reality of the transaction. Accounting information is neutral if it is free from bias intended to attain a predetermined result or encourage a particular behaviour. LO 3 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting 9. Historical cost represents the amount paid in a transaction. The fair value of an asset is generally the amount an asset could be sold for in the market. On the date of purchase, fair value and cost are the same. As time progresses, the fair value changes depending on the nature of the asset. LO 3 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting 10. In order for an event to be recognized in the accounting records, the event must change the entity’s financial position. Examples of events that are not transactions include hiring of employees and signing a lease for premises. LO 3 BT: C Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting Accounting Principles, 9th Canadian Edition Accounting Principles, 9th Canadian Edition QUESTIONS (Continued) 11. The monetary unit concept states that only transaction data that can be expressed as an amount of money may be included in the accounting records. Consequently, information that cannot be objectively measured in dollars cannot be included as transactions of the business. It is also assumed that the monetary unit is stable with respect to the value over several years. In other words, inflation is ignored. LO 3 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting 12. The basic accounting equation is Assets = Liabilities + Owner's Equity and the expanded accounting equation is Assets = Liabilities + Owner's Capital – Owner’s Drawings + Revenue − Expenses. The equation is the basis for recording and summarizing all the economic events and transactions of a business. LO 4 BT: K Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting 13. a. Assets are resources controlled by a business, as a result of past events, and from which future economic benefits (like cash) have the potential to flow into the business. Liabilities are existing obligations, arising from past events, the settlement of which will include an outflow of economic benefits (such as cash or services) Put more simply, liabilities are existing debts and obligations. Owner's equity is the owner’s claim on the residual assets of the company, which is the assets in a business after deducting liabilities. b. Revenues and investments by the owner increase owner's equity. Drawings and expenses decrease owner’s equity. LO 4 BT: K Difficulty: M Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting 14. Accounts Receivable represent amounts owed to the business by its customers for services performed or goods provided, but for which collection has not yet been received. It is an asset. Accounts Payable represent amounts owed by the business for services or goods received, but for which payment has not yet been made. It is a liability. LO 4 BT: K Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting 15. Profit or loss is the result of the calculation: revenues less expenses. If revenues exceed expenses, the business has experienced profit. If expenses exceed revenues, a loss is experienced by the business. Accounting Principles, 9th Canadian Edition Accounting Principles, 9th Canadian Edition LO 4 BT: C Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting Accounting Principles, 9th Canadian Edition Accounting Principles, 9th Canadian Edition QUESTIONS (Continued) 16. a. b. Accounts for assets, liabilities, and owner’s equity are reported on the balance sheet. Accounts for revenue and expenses are reported on the income statement. LO 4 BT: K Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting 17. Yes, a business can enter into a transaction in which only the left side of the accounting equation is affected. An example would be a transaction where an increase in one asset is offset by a decrease in another asset, such as when equipment is purchased for cash (resulting in an increase in the equipment asset account that is offset by a decrease in the cash asset account). LO 5 BT: C Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting 18. No, this treatment is not proper. While the transaction does involve a disbursement of cash, it does not represent an expense. Expenses are decreases in owner's equity resulting from business activities entered into for the purpose of earning profit. This transaction is a withdrawal of capital from the business by the owner and should be recorded as a decrease in both cash and owner’s equity. LO 5 BT: AP Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting 19. Financial statements are prepared in the following order: 1) Income statement, 2) Statement of owners’ equity, and 3) Balance sheet. This sequence is necessary because the profit or loss calculated on the income statement is used in the statement of owner’s equity, reporting the amounts that affect the owner’s equity during the year. The ending balance on the statement of owner’s equity is the year-end balance of the owner’s capital account. That balance is needed in the balance sheet. LO 6 BT: K Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting 20. It is likely that the use of rounded figures would not change the decisions made by the users of the financial statements. As well, presenting the information in this manner makes the statements easier to read and analyze, thereby increasing their usefulness to the users. LO 6 BT: C Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting Accounting Principles, 9th Canadian Edition Accounting Principles, 9th Canadian Edition SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE 1.1 User a. Kind of Decision b. Internal or External User Owner Marketing manager Creditor Chief financial officer Labour union 4 3 2 5 1 LO 1 BT: K Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting BRIEF EXERCISE 1.2 a. P b. C c. PP LO 2 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting BRIEF EXERCISE 1.3 Internal Internal External Internal External a. The student is provided with the opportunity to cheat on an exam. b. A production supervisor might become aware of a defect in a company‘s product that is ready to ship but his/her bonus is based on volume of shipments. c. A banker is able to approve a loan for an unqualified family member. LO 3 BT: AN Difficulty: C Time: 5 min. AACSB: Ethics CPA: cpa-t001 cpa-e001 CM: Reporting and Ethics Accounting Principles, 9th Canadian Edition Accounting Principles, 9th Canadian Edition Accounting Principles, 9th Canadian Edition BRIEF EXERCISE 1.4 a. F b. F c. T d. T e. T LO 3 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting BRIEF EXERCISE 1.5 a. F b. F c. T d. T LO 3 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting BRIEF EXERCISE 1.6 a. 5. Monetary unit concept b. 1. Historical cost c. 4. Reporting entity concept d. 2. Revenue recognition e. 3. Going concern assumption LO 3 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting BRIEF EXERCISE 1.7 Balance Sheet or Elements Income Statement a. Revenues Income Statement b. Assets Balance Sheet c. Owner‘s equity Balance Sheet d. Liabilities Balance Sheet e. Expenses Income Statement Accounting Principles, 9th Canadian Edition LO 4 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Repor