SOLUTIONS MANUAL - Solutions Manual to accompany Fundamental Accou...

Last revised: January 23, 2016.

Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. © 2016 McGraw-Hill Education Ltd. 2-1

SOLUTIONS MANUAL

to accompany Fundamental Accounting Principles 15 th Canadian Edition by Larson/Jensen/Dieckmann Revised for the 15 th

Edition by:

Praise Ma, Kwantlen Polytechnic University

Technical checks by:

Rhonda Heninger, Southern Alberta Institute of Technology Michelle Young, CPA Fundamental Accounting Principles Volume 1 Canadian 15th Edition Larson Solutions Manual Visit TestBankDeal.com to get complete for all chapters

Last revised: January 23, 2016.

Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. © 2016 McGraw-Hill Education Ltd. 2-2 Chapter 2 Analyzing and Recording Transactions Chapter Opening Critical Thinking Challenge Questions* Alexandre Bilodeau experienced a huge setback in achieving his goal of winning gold in the 2006 Olympics. In the face of this challenge, he reflected on the experience, set his personal goal and had a daily action plan to achieve it. These same steps can be applied to your life. For instance, you may experience a setback in this accounting course. For instance, you may not perform as well on a homework assignment or exam as you would have liked. Like Alexandre Bilodeau, take a moment to understand why you may have experience this setback, commit to a personal goal and have a detailed action plan to achieve it. This may include reading the chapters before class, setting aside a few hours each day to work on the homework, meeting up with a friend once a week to discuss challenging topics and going to office hours. You can also learn from Alexandre Bilodeau’s determination in pursuing your career and in facing challenges in the workplace.

Last revised: January 23, 2016.

Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. © 2016 McGraw-Hill Education Ltd. 2-3 Concept Review Questions

• Welcome to Lululemon! We are happy to have you as a co-op student. The

fundamental steps in the accounting process are those involved in the accounting cycle: Analyze transactions to determine if an economic exchange has taken place and, if so, journalize and post the transaction. An unadjusted trial balance is then prepared to help identify potential adjustments. Appropriate adjusting entries are journalized and posted and an adjusted trial balance is generated from which the financial statements are prepared. Closing entries are then journalized and posted.Finally, a post-closing trial balance is prepared.The accounting cycle helps Lululemon keep track of its business activities. These business transactions include buying fabric, selling yoga clothing and paying employees. The accounting cycle helps produce financial statements which provide Lululemon the information to make good business decisions.

• An account receivable is an amount due to a company, but the amount can be

increased by the customer (debtor) by making additional purchases. An account receivable is not a single document but represents the result of several written, oral, or implied promises to pay the creditor. A note receivable is a formal document that specifies the fixed amount due to a company on a fixed date or on demand.

• Four different asset accounts would include any of the following from Danier’s June

28, 2014 balance sheet: Cash, Accounts receivable, Income taxes recoverable,

Inventories, Prepaid expenses, Property and equipment, Computer software and Deferred income tax asset. Three different liability accounts would include any of the

following: Payables and accruals (same as Accounts payable and accrued

liabilities), Deferred revenue, Sales return provision and Deferred lease inducements and rent liability.

• A debit will decrease and a credit will increase the following accounts: Accounts

Payable, Owner’s capital and Revenue. Answers will vary, but can include liability (accounts payable, notes payable, unearned revenue and bank loan), owner’s capital and revenue accounts.

• Three debit balance accounts from WestJet’s December 31, 2014 balance sheet might

include any of the following: Cash and cash equivalents; Restricted cash; Accounts receivable; Prepaid expenses, deposits and other; Inventory; Assets held for sale; Property and equipment; Intangible assets; or Other assets. Three credit balance accounts might include any of the following: Accounts payable and accrued liabilities; Advance ticket sales; Non-refundable guest credits; Current portion of maintenance provisions; Current portion of long-term debt; Maintenance provisions; Long-term debt; Other liabilities; Deferred income tax; Share capital; Equity reserves; Hedge reserves; or Retained earnings.

Last revised: January 23, 2016.

Solutions Manual to accompany Fundamental Accounting Principles, 15th Canadian Edition. © 2016 McGraw-Hill Education Ltd. 2-4

• When a company sells services or goods, they will exchange their service or good

for cash. When the company sells services or goods, they earn revenue. In the account equation, Cash (Asset) increases and Revenue (Equity) increases. If the customer does not pay today, the company records an accounts receivable instead of cash. Accounts receivable holds value for the company because it is a promise from the customer to pay in the future. When the customer pays cash, the company no longer has an accounts receivable. With the accounting equation, Accounts receivable (Asset) increases and Revenue (Equity) increases.Account (1) Type of account (2) Normal Balance (3) Financial statement (4) Time period Accounts receivable Asset Debit Balance Sheet A specific point in time Revenue Equity Credit Income Statement Period of time

• Owner’s withdrawals are when a business owner takes out money that was earned

in the business for personal use. An example is when an owner needs to take out money for a personal vacation. An expense occurs when a cost is needed to run the normal operations of the business. An example is that a business needs to pay its employees for selling clothes at a retail store.Account (5) Type of account (6) Normal Balance (7) Financial statement Owner’s withdrawals Equity Debit Statement of Changes in Equity ExpenseEquity Debit Income Statement

• Debited accounts are recorded first. The credited accounts are indented.
• A transaction should first be recorded in a journal to create a complete record of the

transaction in one place. Then the transaction is posted to the ledger where entries are summarized by type, i.e., cash, accounts payable, interest expense, etc., to enable analysis by account. This arrangement also means that fewer errors will be made in the accounts.

• Accounting software is a tool that makes recording accounting transactions easier.

You are still the “brain” behind the accounting. You will need to decide when to record a transaction, how to record the transaction, how to interpret the financial statements and what business decisions to make. Knowing how to record accounting manually will help you understand the entire accounting process and what happens behind the software. There are errors in software programs. Over relying on a software program can result in large errors. When you are writing a report using the computer, you still need to know how to write paragraphs and how to explain your content. Just like accounting software, the computer is only a tool.

• Not preparing a trial balance can cause errors in the financial statements. The trial

balance helps to identify and correct errors. If the debits do not equal the credits in the trial balance, this is a clue that errors need to be corrected.