OVERVIEW OF CORPORATE FINANCIAL REPORTING

Solutions Manual for Understanding Financial Accounting, 3rd Canadian Edition By Christopher Burnley

CHAPTER 1

OVERVIEW OF CORPORATE FINANCIAL REPORTING

Learning Objectives 1.Define financial accounting and understand its relationship to economic decision-making.

2.Identify the main users of financial accounting information and explain how they use this information.

3.Describe the major forms of business organization and explain the key distinctions between them.

4.Explain the three categories of business activities and identify examples of transactions related to each category.

5.Identify and explain the content and reporting objectives of the four basic financial statements and the notes to the financial statements. 1 / 4

Burnley, Understanding Financial Accounting, Third Canadian Edition

Summary of Questions by Learning Objectives and Bloom’s Taxonomy

Item LO BT Item LO BT Item LO BT Item LO BT Item LO BT Discussion Questions

1. 1 K 6. 2 C 11. 5 C 16. 4 C 21. 5 C

2. 3 K 7. 2 C 12. 4 C 17. 4 C 22. 5 C

3. 3 C 8. 2 C 13. 4 C 18. 5 C 23 5 C

4. 3 C 9. 2 C 14. 4 C 19. 5 C

5. 2 C 10. 4 C 15. 4 C 20. 5 C

Application Problems

1. 4 C 4. 5 C 7. 5 AP 10. 5 AP 13. 5 AP

2. 4 C 5. 5 AP 8. 5 AP 11. 5 AP 14. 5 AP

3. 4 AP 6. 5 AP 9. 5 AP 12. 5 AP 15. 5 AP

User Perspective Problems

1. 2 C 2. 2 C 3. 3 C 4. 2 C 5. 2 C

Work in Process

1. 5 C 3. 5 C 5. 5 C

2. 5 C 4. 5 C 6. 5 C

Reading and Interpreting Published Financial Statements

1. 5 AN 3. 5 AN 5. 2,5 C

2. 5 AN 4. 5 AN 6. 5 AN

Cases

1. 2 C

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Burnley, Understanding Financial Accounting, Third Canadian Edition

Legend: The following abbreviations will appear throughout the solutions

manual file.

LO Learning objective BT Bloom's Taxonomy K Knowledge C Comprehension AP Application AN Analysis S Synthesis E Evaluation

Difficulty: Level of difficulty

E Easy M Medium H Hard

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 3 / 4

Burnley, Understanding Financial Accounting, Third Canadian Edition

SOLUTIONS TO DISCUSSION QUESTIONS

DQ1-1 Accounting, as an information system, provides economic information to users to allow them to determine whether the entity is operating effectively and efficiently. In addition, accounting facilitates the making of important decisions in the management of the entity, such as whether new assets should be purchased or leased, or whether equity financing should be used as opposed to debt financing.

LO 1 BT: K Difficulty: E Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

DQ1-2 The owner’s legal liability is as follows for each form of business:

Proprietorship: The owner (or proprietor) is responsible for the debts of

the business. His or her personal assets are at risk in the event of legal action.

Partnership: The owners (or partners) are responsible for the debts of the

business. Their personal assets are at risk in event of legal action.

Corporation: The owners (or shareholders) are only responsible for the

debts of the corporation to the extent of their investment in the company’s shares. Any debts in excess of this amount are not their responsibility.

The taxation of income is as follows for each form of business:

Proprietorship: The income of a proprietorship is taxed in the hands of the

owner (i.e. the proprietor).

Partnership: The income of a partnership is taxed in the hands of the

owners (i.e. the partners).

Corporation: The income of a corporation is taxed separately (i.e. the

corporation files its own tax return). Any income distributed to the shareholders (i.e. dividends) is then taxed in the hands of the owners (i.e.the shareholders).

LO 3 BT: K Difficulty: E Time: 15 min. AACSB: None CPA: cpa-t001 CM: Reporting

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