Chapter Opening Vignette Critical Thinking Challenge Questions

Fundamental Accounting Principles, Volume 1, 17e Edition By Kermit Larson (Solutions Manual All Chapters)

(Download link at the end of this file)

• / 4

Last revised: May 2021

Solutions Manual to accompany Fundamental Accounting Principles, 17th Canadian Edition. © 2022 McGraw Hill 1-2 Chapter 1 Accounting in Business

Chapter Opening Vignette Critical Thinking Challenge Questions*

• What questions might Molly Burke (MB) need the answers to, to get a loan from a

bank?The key question the bank wants answered is whether Molly Burke can repay the loan. In

order to assess this, they would ask questions such as:

• Financial Results: How much is the business earning per year? How profitable have MB’s events been for the past year? How much are revenues and expenses? How are the results compared to the past year or couple of years? Where do you expect results to be in the next few years?• Cash: How much cash does Molly Burke currently have? How much does she want for the loan? What is her credit score?• Debt: Are there any outstanding loans? If so, what is the balance outstanding, the term, the payments, and the interest rate?• Assets: What personal or business assets does Molly Burke have? The bank may want to take some of Molly Burke’s assets as collateral.

• Customers: How many customers on average are served per day? How many

customers are new or repeat customers?

• Employees: How many employees does MB need to hire to serve customers? Does

Molly Burke pay his employees a salary or a wage? How much does MB pay them?Does MB have the cash in the bank to pay employees?• Production Assets: Does Molly Burke own any assets that are used in the production of MB creative outlets? If so, does MB pay cash or does MB owe money on it? If MB owes money, is interest? Does MB lease them? Does MB have insurance?

• Creative/Production Products (Inventory): How does Molly Burke manage MB

creative inventory? Does it become obsolete and, if so, over what time period?

• Advertising: Does Molly Burke advertise? If so, how much does MB pay?

• Taxes: What is the amount of income tax MB pays?

• There are many other questions that could be asked.

• Who else might require accounting information from Molly Burke’s business?

Other stakeholders that might require accounting information from Molly Burke’s business include Canada Revenue Agency (CRA), employees, and potential investors.

*The Chapter 1 Critical Thinking Challenge questions are asked at the beginning of this chapter. Students are reminded at the conclusion of the chapter to refer to the Critical Thinking Challenge questions at the beginning of the chapter. The solutions to the Critical Thinking Challenge questions are available here in the Solutions Manual and accessible to students in the print and eBook. 2 / 4

Last revised: May 2021

Solutions Manual to accompany Fundamental Accounting Principles, 17th Canadian Edition. © 2022 McGraw Hill 1-3 Knowledge Check-Up Questions

• a) 3. b) 4. b) 5. a)
• d) 8. a) 9. d) 10. c)

Concept Review Questions

• Accounting will provide Molly Burke (MB) useful information to make good decisions. For

instance, it is important for Molly Burke to track MB revenues and expenses to determine whether business is profitable (MB revenues are exceeding MB expenses). Based on the accounting information, Molly Burke can make decisions on how to price creative production activities where MB can decrease expenses to improve profits. Accounting will provide Molly Burke important information on MB business’ performance to make informed decisions on existing and planned activities strategy.

• Businesses offering products include Spin Master Corp., Lululemon, NIKE, and Reebok

which produce apparel; Dell, Hewlett-Packard, and Apple which produce computer equipment; and Abercrombie and Fitch, GAP, and Zara which produce clothing. Service business examples include: WestJet Airlines which provides airline services; Bell Canada, Rogers Communications, and Telus provide information communication services; and Google, Twitter, Skype, Facebook and Instagram which provide internet services.

• “Accounting is relevant to all students even if they do not plan on becoming an accountant.

If you are pursuing a career in marketing, you will need to understand information such as sales volume, advertising costs, promotion costs, salaries of sales personnel, and sales commissions. If you are studying human resources, you will need to understand the financial position of your company to determine whether you have the resources to hire new employees or provide existing employees a pay increase. Even if you do not pursue a career in business, understanding the basics of accounting can help you better understand your own personal finances and the world around us. I am convinced that this course will be a good investment of our time.”

• Answers will vary on what students would sell. Business organizations can be organized in

one of three forms: sole proprietorship, partnership, or corporation. These forms have implications for legal liability, taxation, continuity, number of owners, and legal status as

follows:

Sole Proprietorship Partnership Corporation Legal entity no no yes Limited liability no no yes Unlimited life no no yes Business income taxed no no yes One owner allowed yes no yes

Answers and reasons will vary for the best form of business. Possible answers include: A sole proprietorship would be easiest to form for a student. A partnership would be helpful in bringing people with multiple skills and/or resources together. A corporation would be the easiest to obtain financing and to limit liability.

• The equity section of the balance sheet reports a Hailey Walker, Capital account. The

presence of the owner’s capital account indicates that Organico has been organized as a sole proprietorship. 3 / 4

Last revised: May 2021

Solutions Manual to accompany Fundamental Accounting Principles, 17th Canadian Edition. © 2022 McGraw Hill 1-4

• The two organizations for which accounting information is available in Appendix III at the

end of the book are Recipe Unlimited Corporation, Spin Master Corp., Telus or Indigo.

• Hospitals, colleges, prisons, and bus lines are examples of organizations that can be

formed as profit-oriented businesses, government units, or not-for-profit establishments.

• External users and their uses of accounting information include: (1) lenders for measuring

the return of loans; (2) shareholders for assessing the acquisition of shares; (3) members of the board of directors for overseeing management; and (4) potential employees for judging employment opportunities. Other users are external auditors, consultants, regulators, unions, suppliers, and appraisers. Internal users and their uses of accounting information include: (1) management for overseeing performance, financial position, and cash flow; (2) current employees for generating special purpose reports to assist management; (3) internal auditors for identifying high-risk areas to audit; and (4) Sales staff to determine how to increase sales.

• The internal role of accounting is to serve the organization’s internal operating functions by

providing useful information in completing their tasks more effectively and efficiently. By providing this information, accounting helps the organization reach its overall goals.

• “Tyler, there are a number of areas you could pursue within accounting. There are also a

number of opportunities within those accounting areas. I have put together some information to help with your decision.”

Accounting professionals practice in four

broad fields including:

Accounting-related opportunities within each

field are numerous and include:

Financial accounting - Statement preparation

• Statement analysis
• Auditing
• Regulatory
• Consulting
• Planning
• Criminal investigation

Managerial accounting - General accounting

• Cost accounting
• Budgeting
• Internal auditing
• Management advisory services

Taxation - Preparation

• Planning
• Regulatory
• Investigations
• Consulting

Accounting-related - Lenders

• Consultants
• Analysts
• Traders
• Managers
• Directors
• Underwriters
• / 4