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

Last revised: October 26, 2012

Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd. 2-1

SOLUTIONS MANUAL

to accompany Fundamental Accounting Principles 14 th Canadian Edition by Larson/Jensen

Prepared by:

Tilly Jensen, Athabasca University Wendy Popowich, Northern Alberta Institute of Technology Susan Hurley, Northern Alberta Institute of Technology Ruby So Koumarelas, Northern Alberta Institute of Technology

Technical checks by:

Ross Meacher Betty Young, Red River College, ANSR Source

Fundamental Accounting Principles Canadian Canadian 14th Edition Larson Solutions Manual Visit TestBankDeal.com to get complete for all chapters

Last revised: October 26, 2012

Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd. 2-2 Chapter 2 Analyzing and Recording Transactions

Chapter Opening Critical Thinking Challenge Questions* “Financial health” can be interpreted in a number of ways. It could refer to an organization’ s ability to meet long-term goals. One of the key factors in predicting long- term viability is to have an accurate understanding of the organization’s financial position. From an operational perspective, “financial health” could mean having adequate resources and systems in place to meet current objectives.

*The Chapter 2 Critical Thinking Challenge questions are asked at the beginning of the 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 on the Online Learning Centre.

Last revised: October 26, 2012

Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd. 2-3 Concept Review Questions

• 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.

• A note receivable is a document that specifies the fixed amount due to a company

on a fixed date or on demand. An account receivable is also an amount due to a company, but the amount can be increased by the 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.

• Fifteen possible expense accounts might be: Utilities Expense, Telephone Expense,

Internet Expense, Office Supplies Expense, Salaries Expense, Wages Expense, Entertainment Expense, Travel Expense, Repair Expense, Postage Expense, Printing Expense, Advertising Expense, Interest Expense, Equipment Re pair Expense, Insurance Expense, and any number of others.

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

25, 2011 balance sheet: Cash, Accounts receivable, Inventories, Prepaid expenses, Future income taxes asset, Property and equipment, or Intangible assets. Three different liability accounts would include any of the following: Accounts payable and accrued liabilities; Income taxes payable; or Deferred lease inducements and rent liability.

• Expense accounts have debit balances because they reflect decreases in equity.
• Three debit balance accounts from WestJet’s December 31, 2011 balance sheet might

include any of the following: Cash and cash equivalents; Restricted cash; Accounts receivable; Prepaid expenses, deposits and other; Inventory; 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 long-term debt; Current portion of obligations under finance leases; Maintenance provisions; Long- term debt; Obligations under finance leases; Other liabilities; Deferred income tax; Share capital; Equity reserves; or Retained earnings.

• A General Journal can be used to record any economic transaction.
• 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.

• The bookkeeper prepares a trial balance to summarize the contents of the ledger

and to determine whether equal debits and credits have been recorded. The trial balance also serves as a helpful internal document for preparing the finan cial statements.

Last revised: October 26, 2012

Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd. 2-4

QUICK STUDY

Quick Study 2-1 Answer Answer Detail Account A Asset 1. Buildings E Expenses (Equity) 2. Building Repair Expense E Expenses (Equity) 3. Wages Expense L Liability 4. Wages Payable A Asset 5. Notes Receivable L Liability 6. Notes Payable A Asset 7. Prepaid Advertising E Expenses (Equity) 8. Advertising Expense L Liability 9. Advertising Payable L Liability 10. Unearned Advertising R Revenues (Equity) 11. Advertising Fees Earned R Revenues (Equity) 12. Interest Earned E Expenses (Equity) 13. Interest Expense L Liability 14. Interest Payable R Revenues (Equity) 15. Earned Subscription Fees L Liability 16. Unearned Subscription Fees A Asset 17. Prepaid Subscription Fees A Asset 18. Supplies E Expenses (Equity) 19. Supplies Expense R Revenues (Equity) 20. Rent Revenue L Liability 21. Unearned Rent Revenue A Asset 22. Prepaid Rent L Liability 23. Rent Payable R Revenues (Equity) 24. Service Fees Earned W Owner’s Withdrawals (Equity) 25. Jan Sted, Withdrawals OE Owner’s Capital (Equity) 26. Jan Sted, Capital E Expenses (Equity) 27. Salaries Expense L Liability 28. Salaries Payable A Asset 29. Furniture A Asset 30. Equipment