Question 1

Calculate the missing amount in each category of the accounting equation.

Accepted Answer

The answer of Calculate the missing amount in each category...

Question 2

Liabilities are the entity's legal obligations that result from past business events.

Accepted Answer

This is because liabilities are defined as the entity's legal obligations that result from past business events, such as a debt owed to a creditor or an obligation to provide goods or services to a customer.

Question 3

Accounting is a system that collects and processes financial information about an organization and reports that information to decision makers.

Accepted Answer

Accounting is indeed a system that collects and processes financial information about an organization and reports that information to decision makers.

Question 4

Investing activities involve collecting the necessary funds to operate the business.

Accepted Answer

Investing activities involve acquiring and disposing of long-term assets, such as property, plant, and equipment, and investments. Collecting funds to operate the business falls under financing activities.

Question 5

When a company ships products to a customer and bills the customer, the company should recognize revenue as earned.

Accepted Answer

Revenue recognition principle states that revenue should be recognized when it is earned, which means when the goods or services are delivered and the company has performed its obligations. Therefore, when a company ships products to a customer and bills the customer, the revenue can be recognized as earned.

Question 6

For Baggerly Fashions, the following information is available for the year ended December 31, 20C:
  The income tax rate is 35%.
Required:
Prepare an income statement for Baggerly Fashions.

Accepted Answer

The answer of For Baggerly Fashions, the following information is...

Question 7

Using the income statement model and the statement of financial position model, fill-in the missing amounts for each independent case below. Assume the amounts given are at the end of the first full year of operations of the company.

Accepted Answer

The answer of Using the income statement model and the...

Question 8

Baseline Corporation was formed two years ago to manufacture fitness equipment. It has been profitable and is growing rapidly. It currently has 150 shareholders and 90 employees; most of the employees own at least a few shares of Baseline's shares. The company has received financing from two banks. It will sell additional shares within the next three months and will also seek additional loans and hire new employees to support its continued growth.
Required:
1. Explain who relies on the information in financial statements prepared by Baseline Corporation.
2. Why is compliance with international financial reporting standards and accuracy in accounting important for Baseline?
3. A new accountant who tried to prepare Baseline's financial statements at the end of the current year made several errors. For each of the following items, indicate how the income statement and statement of financial position are affected by the error and the nature of the effect. (For example, an error might cause revenues and net income on the income statement and retained earnings and assets on the statement of financial position to be overstated). Ignore the effects of income taxes.
A. The company had sales for cash of $3,000,000. It also had sales on account of $1,800,000 that ha been collected by the end of the year, and sales on account of $200,000 that are expected to be collected early the following year. The accountant reported total sales revenue of $4,800,000.
B. The company had total inventories of $600,000 at the end of the year. Of this amount, inventory reported at $30,000 was obsolete and will have to be scrapped. The statement of financial position prepared by the accountant showed total inventories of $600,000.
C. The company has a bank loan for which interest expense during the year of $10,000 will be paid early in January of the next year. The accountant did not record either the interest expense or the related liability.

Accepted Answer

The answer of Baseline Corporation was formed two years ago...

Question 9

A note payable is a borrowing instrument that generally does not involve the payment of interest.

Accepted Answer

A note payable is a borrowing instrument that typically involves the payment of interest.

Question 10

Lopez Corporation began operations at the start of 20C. During the year, it made cash and credit sale totalling $974,000 and collected $860,000 in cash from its customers. It purchased inventory costing
$508,000, paid $25,000 for dividends and the cost of goods sold was $445,000. The corporation incurred the following expenses:
  Required:
1. Prepare an income statement showing revenues, expenses, pretax profit, income tax expense, and profit for the year ended December 31, 20C.
2. Based on the above information, what is the amount of trade receivables on the statement of financial position prepared at the end of 20C?
3. Based on the above information, what is the amount of retained earnings on the statement of financial position prepared at the end of 20C?

Accepted Answer

The answer of Lopez Corporation began operations at the start...

Question 11

A statement of financial position should be dated for a period (such as "For the year ended December 31, 20A"), whereas an statement of earnings should be dated at a point in time (such as "December 31, 20A").

Accepted Answer

A statement of financial position (balance sheet) is dated at a point in time, while a statement of earnings (income statement) covers a period of time.

Question 12

The purchase of equipment is an example of a financing activity.

Accepted Answer

The answer of The purchase of equipment is an example...

Question 13

Independent CAs in the public practice of accounting are viewed as employees of their clients.

Accepted Answer

Independent CAs in the public practice of accounting are viewed as independent contractors, not employees of their clients. They provide professional services and are not under the control of the client in terms of how they perform their work.

Question 14

The AcSB is currently the body responsible for establishing accounting standards.

Accepted Answer

The AcSB, or Accounting Standards Board, is the independent standard-setting body responsible for establishing accounting standards in Canada.

Question 15

Financing activities for corporations include borrowing money and selling shares.

Accepted Answer

Financing activities for corporations typically involve borrowing money through loans, issuing bonds, or selling shares of stock to investors.

Question 16

Alfred Company manufactures men's clothing. During 20B, the company reported the following items that affected cash. Indicate whether each of these items is a cash flow from operating activities (O), investing activities (I), or financing activities (F).
Purchased equipment by paying cash: _ Collected cash on account from customers: ___ Paid dividends to shareholders: ___
Paid cash for supplies: Paid suppliers for fabric:
Borrowed money from bank on a long-term note: _ Paid interest to bank on the note: ___
Paid wages to employees: ___
Sold shares to new shareholders: ___

Accepted Answer

The answer of Alfred Company manufactures men's clothing. During 20B,...

Question 17

Pool Supply, Inc., reported the following items for the year ended December 31, 20C:
  Required:
Prepare an income statement for the year.

Accepted Answer

The answer of Pool Supply, Inc., reported the following items...

Question 18

One of the disadvantages of a corporation when compared to a partnership is the limited liability of the owners.

Accepted Answer

The statement is incorrect. Limited liability in a corporation means that the owners (shareholders) are not personally responsible for the company's debts or legal liabilities beyond their investment in the company. This is actually an advantage of a corporation over a partnership, where partners have unlimited liability for the debts and obligations of the business.

Question 19

Rockaway Corporation's shareholders' equity equals one-fifth of the company's total assets. The company's liabilities are $125,000. What is the amount of the company's shareholders' equity?

Accepted Answer

The answer of Rockaway Corporation's shareholders' equity equals one-fifth of...

Question 20

The financial statement that shows an entity's economic resources and its liabilities is the statement of retained earnings.

Accepted Answer

The financial statement that shows an entity's economic resources and its liabilities is the balance sheet. The statement of retained earnings shows changes in the retained earnings account over a period of time.

Quiz 1: Financial Statements and Business Decisions