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INSTRUCTOR’S SOLUTIONS
MANUAL
Financial Accounting Seventh Canadian Edition
- William (Bill) Thomas, Baylor University
Wendy M. Tietz, Kent State University Walter T. Harrison, Jr., Baylor University Greg Berberich, University of Waterloo Catherine Seguin, University of Toronto
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Copyright © 2021 Pearson Canada Inc.ii Contents
Chapter 1: The Financial Statements 1
Chapter 2: Recording Business Transactions 48
Chapter 3: Accrual Accounting and Income 114
Chapter 4: Cash and Receivables 192
Chapter 5: Inventory and Cost of Goods Sold 237
Chapter 6: Property, Plant, and Equipment, and Intangible Assets 295
Chapter 7: Liabilities 361
Chapter 8: Shareholders’ Equity 417
Chapter 9: The Statement of Cash Flows 466
Chapter 10: Financial Statement Analysis 532
Appendix B: Investments and the Time Value of Money 588
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Copyright © 2021 Pearson Canada Inc. 1 Chapter 1
The Financial Statements
Short Exercises
(5 min.) S 1-1
- Assets are resources controlled by the company as a result of past events and from which
the company expects to receive future economic benefits.
Shareholders’ equity represents the insider claims of a business, the claims to the assets held by the owners of the business.
Assets and shareholders’ equity differ in that shareholders’ equity is a claim to assets.
Assets must be at least as large as shareholders’ equity. Equity can be smaller than assets.
- Both liabilities and shareholders’ equity are claims to assets.
Liabilities are the outsider claims to the assets of a business. Shareholders’ equity represents the insider claims to the assets of the business.
(5 min.) S 1-2
Total assets = Total liabilities + Shareholders’ equity
- $300,000 = $150,000 + $150,000
- 290,000 = 90,000 + 200,000
- 220,000 = 100,000 + 120,000
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Financial Accounting Seventh Canadian Edition Instructor’s Solutions Manual
- Copyright © 2021 Pearson Canada Inc.
(continued) S 1-2
A different presentation should be:
a) Total assets = Total liabilities + Shareholders’ equity
= $150,000 + $150,000 = $300,000
b) Shareholders’ equity = Total assets – Total liabilities
= $290,000 – $90,000 = $200,000
c) Total liabilities = Total assets – Shareholders’ equity
= $220,000 – $120,000 = $100,000
(5 min.) S 1-3
- Shareholders’ Equity = Assets – Liabilities
It would not change in analyzing a household or a neighbourhood restaurant’s information.
- Liabilities = Assets – Shareholders’ Equity
(5-10 min.) S 1-4
- Accounts payable L g. Accounts receivable A
- Common shares E h. Long-term debt L
- Cash A i. Merchandise inventories A
- Retained earnings E j. Notes payable L
- Land A k. Accrued expenses payable L
- Prepaid expenses A l. Equipment A
(5 min.) S 1-5
- Income and expenses
- Net income, or net earnings (or net loss, if negative)
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