bat 4m chapt 1 all solutions

7/29/2019 BAT 4M Chapt 1 All Solutions

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CHAPTER 1Accounting in Action

ASSIGNMENT CLASSIFICATION TABLE

Study Objectives QuestionsBrief

Exercises ExercisesProblems

Set AProblems

Set B

1. Explain what accounting is. 1, 2

2. Identify the users andexplain the uses ofaccounting.

3, 4, 5 1 1 1

3. Demonstrate anunderstanding of why ethicsis a fundamental businessconcept.

6

4. Explain the meaning of

generally acceptedaccounting principles andthe cost principle.

7 1, 2 2,3 2,3

5. Explain the meaning of thegoing concern, monetaryunit, and economic entityassumptions.

8, 9, 10, 11 2 1, 2, 7 2, 3 2, 3

6. State and utilize the basicaccounting equation andexplain the meaning of

assets, liabilities, andowners equity.

12, 13, 14,15

3, 4, 5 3, 4, 7, 8, 9 4, 7 4, 7

7. Calculate the effect ofbusiness transactions on thebasic accounting equation.

16, 17, 18 6, 7, 8 5, 6, 10 4, 5, 6, 8, 9,10

4, 5, 6, 8, 9,10

8. Understand what the fourfinancial statements are andhow they are prepared.

19, 20, 21,22, 23

9, 10, 11,12

7, 8, 9, 10,11, 12, 13,14, 15, 16

5, 6, 7, 8, 9,10, 11

5, 6, 7, 8, 9,10, 11


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ASSIGNMENT CHARACTERISTICS TABLE

ProblemNumber Description

DifficultyLevel

TimeAllotted (min.)

1A Identify users and uses of financial statements. Simple 10-15

2A Discuss accounting assumptions and GAAP relatedto value.

Simple 10-15

3A Identify assumption or principle violated. Simple 15-20

4A Analyse transactions and calculate net income. Simple 35-45

5A Analyse transactions and prepare financialstatements.

Simple 40-50

6A Analyse transactions and prepare balance sheet. Moderate 40-50

7A Use financial statement relationships to determinemissing amounts.

Moderate 25-35

8A Prepare financial statements. Moderate 45-55

9A Determine financial statement amounts, prepare astatement of owners equity, and comment.

Moderate 45-55

10A Analyse transactions and prepare balance sheet. Moderate 35-45

11A Prepare income statement and statement of ownersequity.

Simple 35-45

1B Identify users and uses of financial statements. Simple 10-15

2B Discuss accounting assumptions and GAAP relatedto value.

Simple 10-15

3B Identify assumption or principle violated. Simple 15-20

4B Analyse transactions and calculate net income. Simple 35-45

5B Analyse transactions and prepare financialstatements.

Simple 40-50

6B Analyse transactions and prepare income statementand balance sheet.

Moderate 40-50

7B Use financial statement relationships to determinemissing amounts. Moderate

25-35

8B Prepare financial statements. Moderate 45-55

9B Determine financial statement amounts, prepare astatement of owners equity, and comment.

Moderate 45-55

10B Analyse transactions and prepare balance sheet. Moderate 35-45


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11B Prepare income statement and statement of ownersequity.

Simple 35-45


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BLOOMS TAXONOMY TABLECorrelation Chart between Blooms Taxonomy, Study Objectives and End-of-Chapter Material

Study Objective Knowledge

Comprehension

Application Analysis

Synthesis

Evaluation

1. Explain what accountingis.

Q1-1Q1-2

2. Identify the users andexplain the uses ofaccounting.

BE1-1 Q1-3Q1-4Q1-5

P1-1AP1-1B

3. Demonstrate anunderstanding of whyethics is a fundamentalbusiness concept.

Q1-6

4. Explain the meaning ofgenerally accepted

accounting principlesand the cost principle.

E1-1E1-2

Q1-7 P1-3AP1-3B

P1-2AP1-2B

5. Explain the meaning ofthe going concern,monetary unit, andeconomic entityassumptions.

Q1-9E1-7

Q1-8Q1-10E1-1E1-2

Q1-11BE1-2

P1-3AP1-3B

P1-2AP1-2B

6. State and utilize thebasic accountingequation and explain the

meaning of assets,liabilities, and ownersequity.

Q1-12Q1-14E1-7

Q1-13Q1-15

BE1-3BE1-

4BE1-5E1-3

E1-4E1-8E1-9

P1-4AP1-7AP1-4B

P1-7B

7. Calculate the effect ofbusiness transactionson the basic accountingequation.

Q1-16Q1-17BE1-6BE1-7BE1-8E1-5E1-10

P1-8A

P1-9AP1-10P1-5BP1-6BP1-8BP1-9BP1-10

Q1-18E1-7P1-4AP1-5AP1-6AP1-4B

8. Understand what thefour financial statementsare and how they areprepared.

E1-7 Q1-20Q1-23BE1-10

Q1-19Q1-21Q1-22BE1-9BE1-11BE1-1E1-8E1-9E1-10

E1-16P1-8AP1-9AP1-10P1-11P1-5BP1-6BP1-8BP1-9B

E1-13E1-15P1-5AP1-6AP1-7AP1-7B


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Study Objective Knowledge

Comprehension

Application Analysis

Synthesis

Evaluation

E1-11E1-12E1-14

P1-10P1-11

Broadening YourPerspective

BYP1-3 BYP1-1 BYP1-4 BYP1-2BYP1-5

BYP1-6


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ANSWERS TO QUESTIONS

1. Yes. Accounting is the financial information system that provides relevant financial information toevery person who owns and uses economic resources or otherwise engages in economic activity.

2. Accounting is the process of identifying, recording, and communicating the economic events of anorganization to interested users of the information. The first step of the accounting process is to

identify events that are (a) considered evidence of economic activity and (b) relevant to aparticular business enterprise. Once identified and measured, the events are recorded to providea permanent history of the financial activities of the organization. Recording consists of keeping achronological diary of these measured events in an orderly and systematic manner. Theinformation is communicated through the preparation and distribution of accounting reports, themost common of which are called financial statements. A vital element in the communicationprocess is the accountant's ability and responsibility to analyse and interpret the reportedinformation.

3. (a) Internal users are those who manage the business, and therefore are officers and otherdecision makers.

(b) To assist management, accounting provides internal reports. Examples include financial

comparisons of operating alternatives, projections of income from new sales campaigns,and forecasts of cash needs for the next year.

4. (a) Investors use the financial accounting information to evaluate a companys performance.They would look for answers to questions such as Is the company earning satisfactoryincome?

(b) Creditors use financial accounting information to evaluate a companys credit risk. They lookfor answers to question like Can the company pay its debts as they come due?

5. Bookkeeping usually involves only the recording of economic events, and is just one part of theentire accounting process. Accounting, on the other hand, involves the entire accounting process,including identification, measurement, recording, communication, and analysis.


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Questions Chapter 1 (Continued)

6. Ethics is a fundamental business concept. If accountants do not have a high ethical standard theinformation they produce will not have any credibility.

7. Ouellette Travel Agency should report the land at $75,000 on its December 31, 2002 balance

sheet. An important concept that accountants follow is the cost principle, which states that assetsshould be recorded at their cost. Cost has important advantages over other valuations: it isreliable, objective and verifiable. The answer would not change if the value of the land declined to$65,000. In addition, the market value of the land is not relevant when a company is a goingconcern. The going concern assumption assumes the company will continue in businessindefinitely using the land, not selling the land.

8. The monetary unit assumption requires that only transaction data capable of being expressed interms of money be included in the accounting records of the economic entity. An importantcorollary to the monetary unit assumption is the added assumption that the unit of measureremains sufficiently constant over time. The assumption of a stable monetary unit has beenseriously challenged during periods of high inflation (rising prices). In such cases, dollars of

different purchasing power are added together without any adjustment for the effect of inflation.

9. The economic entity assumption states that economic events can be identified with a particularunit of accountability. This assumption requires that the activities of the entity be kept separateand distinct from (1) the activities of its owners and (2) all other economic entities.

10. The three basic forms of business organizations are (1) proprietorship, (2) partnership, and (3)corporation.


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11. In a proprietorship, the business is owned by one person and the equity is termed ownersequity. Owners equity is increased by an owners investments and the revenues generated bythe business. Owners equity is decreased by an owners drawings and the expenses incurred bythe business.

In the corporate form of business organization, the owners are the shareholders and theequity is termed shareholders equity. Shareholders equity is separated into two components:share capital and retained earnings. The investments by the shareholders (owners) are calledshare capital. Retained earnings represent the accumulated earnings of the company that havenot been distributed to shareholders. Withdrawals by the shareholders decrease retainedearnings and are called dividends.

12. The basic accounting equation is Assets = Liabilities + Owner's Equity.

13. (a) Assets are economic resources owned by a business. Liabilities are creditors' claimsagainst the assets. Put more simply, liabilities are existing debts and obligations. Owner'sequity is the ownership claim on the assets.

(b) The items affecting owner's equity are invested capital, drawings, revenues, andexpenses.

14. The liabilities are (b) Accounts payable and (g) Salaries payable.

15. Yes, a business can enter into a transaction in which only the left side of the accounting equationis affected. An example would be a transaction where an increase in one asset is offset by adecrease in another asset, such as when equipment is purchased for cash (resulting in anincrease in the equipment account which is offset by a decrease in the cash account).


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16. Business transactions are the economic events of the enterprise recorded by accountantsbecause they affect the basic equation.

(a) The death of the owner of the company is not a business transaction, as it does not affectthe basic equation.

(b) Supplies purchased on account is a business transaction, because it affects the basicequation (+A; +L).

(c) A terminated employee is not a business transaction, as it does not affect the basicequation.

(d) A withdrawal of cash from the business is a business transaction, because it affects thebasic equation (-A; -OE).

17. (a) Decrease assets (cash) and decrease owner's equity (due to the expense incurred).(b) Increase assets (equipment) and decrease assets (cash).(c) Increase assets (cash) and increase owner's equity (due to the capital invested).(d) Decrease assets (cash) and decrease liabilities (accounts payable).

18. No, this treatment is not proper. While the transaction does involve a receipt of cash, it does notrepresent revenues. Revenues are the gross increase in owner's equity resulting from businessactivities entered into for the purpose of earning income. This transaction is simply an additionalinvestment of capital in the business, made by the owner.

19. Yes. Net income does appear on the income statementit is the result of subtracting expensesfrom revenues. In addition, net income appears in the statement of owner's equityit is shown asan addition to the beginning-of-period capital. Indirectly, the net income of a company is alsoincluded in the balance sheet, as it is included in the capital account which appears in the owner'sequity section of the balance sheet.

20. (a) Income statement. (d) Balance sheet.

(b) Balance sheet. (e) Balance sheet andstatement of owner's equity.

(c) Income statement. (f) Balance sheet.


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21. (a) Ending capital balance ................................................................................... $198,000Beginning capital balance ................................................................................ 168,000Net income ...................................................................................................... $ 30,000

(b) Ending capital balance ....................................................................................... $198,000Beginning capital balance ................................................................................... 0168,000Increase in capital .............................................................................................. 30,000Deduct: Portion of increase arising from investment .......................................... 18,000Net income ......................................................................................................... $ 12,000

22. (a) Total revenues ($35,000 + $70,000) .............................................................. $105,000

(b) Total expenses ($26,000 + $40,000) .............................................................. $66,000

(c) Total revenues ............................................................................................... $105,000Total expenses............................................................................................... 66,000

Net income ..................................................................................................... $ 39,000

23. The notes to the financial statements present explanatory information such as a description of theaccounting policies used and additional detail on the information in the financial statements. Theannual report includes information on financial and non-financial information, such asmanagement discussion of the companys plans.


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SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 1-1

5 (a) Owner3 (b) Marketing managers2 (c) Creditors

4 (d) Chief Financial Officer1 (e) Canada Customs and Revenue Agency

BRIEF EXERCISE 1-2

P (a) Simple to set up, founder retains control.PP (b) Shared control, increased skills and resourcesC (c) Easier to transfer ownership and raise funds, no personal liability.

BRIEF EXERCISE 1-3

(a) $80,000 $50,000 = $30,000 (Owner's Equity).

(b) $45,000 + $70,000 = $115,000 (Assets).

(c) $94,000 $62,000 = $32,000 (Liabilities).

BRIEF EXERCISE 1-4

(a) $90,000 + $240,000 = $330,000 (Total assets).

(b) $170,000 $80,000 = $90,000 (Total liabilities).

(c) $600,000 (2/3 x $600,000) = $200,000 (Owner's equity).


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BRIEF EXERCISE 1-5

(a) ($700,000 + $150,000) ($500,000 $80,000) = $430,000 (Owner's equity).

(b) ($500,000 + $100,000) + ($200,000 $70,000) = $730,000 (Assets).

(c) ($700,000 $90,000) ($200,000 + $120,000) = $290,000 (Liabilities).

BRIEF EXERCISE 1-6

Assets Liabilities Owner's Equity

(a)(b)(c)

++

+NENE

NE+ (Revenue earned)

(Expenses incurred)

(d)(e)(f)

+NE

NENENE

+ (Capital) (Drawings)NE

(both + and )

BRIEF EXERCISE 1-7

R (a) Received cash for services performedNA (b) Paid cash to purchase equipmentE (c) Paid employee salaries

BRIEF EXERCISE 1-8

E (a) Cost incurred for advertisingR (b) Commission earningsE (c) Insurance paidE (d) Amounts paid to employeesR (e) Services performedR (f) Rent receivedE (g) Utilities incurredD (h) Cash distributed to owner


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BRIEF EXERCISE 1-9

YUNG COMPANYBalance Sheet

December 31, 2002

AssetsCash ................................................................................................................................. $040,500Accounts receivable .......................................................................................................... 0071,000

Total assets ............................................................................................................. $111,500

Liabilities and Owner's EquityLiabilities

Accounts payable .................................................................................................... $080,000Owner's Equity

Kim Yung, Capital ................................................................................................... 0031,500Total liabilities and owner's equity .................................................................. $111,500

BRIEF EXERCISE 1-10

A (a) Accounts receivable OE (e) Capital investedL (b) Salaries payable L (f) Notes payable

A (c) Equipment OE (g) DrawingsA (d) Office supplies

BRIEF EXERCISE 1-11

BS Notes payable IS Fees earned

IS Advertising expense BS Interest receivableOE, BS Harrison, Capital IS Service revenue

BS Cash OE Harrison, Drawings


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SOLUTIONS TO EXERCISES

EXERCISE 1-1

3 (a) Is the rationale for why capital assets are not reported at liquidation value.[Note: Do not use the cost principle.]

4 (b) Indicates that personal and business record-keeping should be separately

maintained.2 (c) Assumes that the dollar is the measuring stick used to report on financialperformance.

1 (d) Indicates that the market value changes after purchase are not recorded in theaccounts.

EXERCISE 1-2

(a) This is a violation of the cost principle. Land was reported at its market value, when it shouldhave been recorded and reported at cost.

(b) This is a violation of the economic entity assumption. An owners personal transactions should bekept separate from those of the business.

(c) This is a violation of the monetary unit assumption. An important part of the monetary unitassumption is the stability of the monetary unit (the dollar) over time. Inflation is considered anon-issue for accounting purposes in Canada and is ignored.


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EXERCISE 1-3

(a)A Cash $ 108.6A Accounts receivable 1,674.4OE Share capital 265.4L Notes payable 480.2

A Other assets 1,064.7L Other liabilities 1,042.1A Inventories 1,396.6L Income taxes payable 28.9

A Property, plant and equipment 1,153.1OE Retained earnings 2,996.2L Accounts payable 584.6

(b) Assets = Liabilities + Shareholders Equity

$108.6 + $1,674.4 + $1,064.7 + $1,396.6 + $1,153.1 = ($480.2 + $1,042.1 + $28.9 + $584.6) +($265.4 + $2,996.2)

$5,397.4 = $2,135.8 + $3,261.6

EXERCISE 1-4

AssetsLiabilities Owner's Equity

(b) Cash(c) Cleaning equipment(d) Cleaning supplies(e) Accounts receivable

(a) Accounts payable(f) Notes payable(g) Salaries payable

(h) Ace, Capital


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EXERCISE 1-5

1. Increase in assets (cash) and increase in owner's equity (capital).2. Decrease in assets (cash) and decrease in owner's equity (rent expense).3. Increase in assets (equipment) and increase in liabilities (accounts payable).4. Increase in assets (accounts receivable) and increase in owner's equity (service revenue).5. Decrease in assets (cash) and decrease in owner's equity (drawings).

6. Increase in assets (cash) and decrease in assets (accounts receivable).7. Increase in liabilities (accounts payable) and decrease in owner's equity (advertising expense).8. Increase in assets (equipment) and decrease in assets (cash).9. Increase in assets (cash) and increase in owner's equity (service revenue).

EXERCISE 1-6

1. (c) 5. (d)2. (d) 6. (b)3. (a) 7. (e)4. (b) 8. (f)

EXERCISE 1-7

8 (a) An examination of financial statements to determine whether they are presentedin accordance with generally accepted accounting principles

5 (b) A business enterprise that raises money by issuing shares6 (c) The portion of owners equity that results from receiving investments from the

owner1 (d) Obligations to suppliers of goods7 (e) Amounts due from customers2 (f) A party to whom a business owes money

3 (g) A financial statement that reports assets, liabilities, and owners equity at aspecific date4 (h) A business that is owned by one individual


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EXERCISE 1-8

(a) Total assets (beginning of year) ........................................................................... $95,000Total liabilities (beginning of year) ........................................................................ 0 80,000Total owner's equity (beginning of year) ............................................................... $15,000

(b) Total owner's equity (end of year) ........................................................................ $40,000

Total owner's equity (beginning of year) ............................................................... 15,000Increase in owner's equity .................................................................................... $25,000

Total revenues ..................................................................................................... $215,000Total expenses ..................................................................................................... 175,000Net income ........................................................................................................... $ 40,000

Increase in owner's equity ............................................................ $025,000Less: Net income ........................................................................ $(40,000)

Add: Drawings ............................................................................ 0 24,000 (16,000)Investments .................................................................................. $ 9,000

(c) Total assets (beginning of year) ........................................................................... $125,000Total owner's equity (beginning of year) ............................................................... 95,000Total liabilities (beginning of year) ........................................................................ $ 30,000

(d) Total owner's equity (end of year) ........................................................................ $130,000Total owner's equity (beginning of year) ............................................................... 95,000Increase in owner's equity .................................................................................... $ 35,000

Total revenues ..................................................................................................... $100,000Total expenses ..................................................................................................... 85,000Net income ........................................................................................................... $ 15,000

Increase in owner's equity ............................................................ $035,000Less: Net income ........................................................................ $(15,000)

Investments ..................................................................... (25,000) (40,000)Drawings ...................................................................................... $ 5,000


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EXERCISE 1-9

(a) Owner's equity12/31/01 ($400,000 $250,000) .................................................. $150,000Owner's equity1/1/01 ........................................................................................... 0 0Increase in owner's equity ....................................................................................... 150,000Less: Owners investment ...................................................................................... 100,000

50,000

Add: Drawings ...................................................................................................... 0 15,000Net income for 2001 ................................................................................................ $ 65,000

(b) Owner's equity12/31/02 ($460,000 $320,000) .................................................. $140,000Owner's equity12/31/01see (a) ...................................................................... 150,000Increase (decrease) in owner's equity .................................................................. (10,000)Less: Investment ................................................................................................. 0 50,000Net loss for 2002 .................................................................................................. $ 60,000

(c) Owner's equity12/31/03 ($590,000 $400,000) ............................................... $190,000Owner's equity12/31/02see (b) ...................................................................... 0 140,000

Increase in owner's equity .................................................................................... 50,000Less: Investment ................................................................................................. 0 10,00040,000

Add: Drawings .................................................................................................... 20,000Net income for 2003 ............................................................................................. $ 60,000


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EXERCISE 1-11

BOURQUE & CO.Income Statement

For the Month Ended August 31, 2003

RevenuesFees earned ........................................................................................ $6,000Expenses

Salaries expense ................................................................................. $2,900Rent expense ...................................................................................... 650Utilities expense .................................................................................. 500

Total expenses .......................................................................... 4,050Net income ................................................................................................... $1,950

BOURQUE & CO.Statement of Owner's Equity


Bourque, Capital, August 1 ....................................................................... $00,000Add: Investments .................................................................................... $12,000

Net income................................................................................... 1,950 13,95013,950

Less: Drawings ........................................................................................ 2,000Bourque, Capital, August 31 ..................................................................... $11,950


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EXERCISE 1-14

(a) Camping fee revenue .............................................................................................. $160,000General store revenue............................................................................................. 40,000

Total revenue ................................................................................................ 200,000Expenses ................................................................................................................ 150,000Net income .............................................................................................................. $ 50,000

(b)DEER PARK

Balance SheetDecember 31, 2002

AssetsCash ....................................................................................................................... $020,000Supplies .................................................................................................................. 2,500Equipment ............................................................................................................... 115,500

Total assets ................................................................................................... $138,000


Notes payable ............................................................................................... $060,000Accounts payable .......................................................................................... 11,000

Total liabilities ...................................................................................... 71,000Owner's equity

Judy Cumby, Capital ($17,000 + $50,000) .................................................... 67,000Total liabilities and owner's equity ........................................................ $138,000


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EXERCISE 1-15

ATLANTIC CRUISE COMPANYIncome Statement

For the Month Ended October 31, 2003

RevenuesTicket revenue ................................................................................ $325,000Expenses

Salaries expense ............................................................................. $142,000Maintenance expense ..................................................................... 80,000Food, fuel and other operating expenses ........................................ 20,500Property tax expense ...................................................................... 10,000

Advertising expense ........................................................................ 3,500Total expenses ...................................................................... 256,000

Net income ............................................................................................... $ 69,000


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EXERCISE 1-16

LORRAINE RING, LAWYERStatement of Owner's Equity

For the Year Ended January 31, 2003

Lorraine Ring, Capital, February 1 .......................................................................... $023,000 (a)Add: Net income ................................................................................................... 155,000 (b)178,000

Less: Drawings ...................................................................................................... 80,000*Lorraine Ring, Capital, January 31 .......................................................................... $ 98,000 (c)

Supporting Calculations

(a) Assets, February 1, 2002 ........................................................................................ $085,000Liabilities, February 1, 2002 .................................................................................... 62,000Capital, February 1, 2002 ........................................................................................ $ 23,000

(b) Legal fees earned ................................................................................................... $360,000Total expenses ........................................................................................................ 205,000Net income .............................................................................................................. $155,000

(c) Assets, January 31, 2003 ........................................................................................ $168,000Liabilities, January 31, 2003 .................................................................................... 70,000Capital, January 31, 2003 ....................................................................................... $ 98,000

* This is simply the amount required to account for the difference between $178,000 and $98,000.


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PROBLEM 1-2A

MEMO

Date:

To: President, Richelieu MotorsFrom: ControllerRe: Change in Value of Company vs. Reported Income

The change in the value of the company includes items that are recognized by the basic accountingmodel and items that are not.

This is primarily due to the cost principle. For accounting purposes, assets are recorded at the cost atthe time of purchase. There is no recognition of the increase in their value. The market value of thecompany is not considered relevant, if the company intends to operate as a going concern. Additionally,the monetary unit assumption only records transactions that are quantifiable in the accounting records.

Net income is not always indicative of what a company is worth. For example, the cost of long-livedassets is amortized and allocated as an expense on the income statement, reducing net income. Thisoccurs even while assets (e.g., building) may be appreciating in value. Other items that may contributeto increased earnings potential are not recorded in the accounting process. These include intellectualproperty and knowledge assets of the people who work for the company. Many high-tech companiesreport losses, but are worth much more to potential investors than is indicated by their financialperformance. Worth is a very subjective concept, reflecting future expectations and other qualitativefactors that are not reported in the financial statements.


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PROBLEM 1-3A

1. The cost principle has been violated. Dot.com did not purchase the employees. It cannot use anestimated value to record them on the balance sheet. Also, by recording the value of its people,Dot.com Company is violating the monetary unit assumption. They are estimating and recordingthe value of the knowledge assets but at this present time, there is no method to measure this

value in monetary terms.

2. Barton violated the cost principle, which states that assets are recorded at the amount that waspaid to acquire them. It does not permit writing them up in value.

3. Wolfson violated the economic entity assumption. Assets for her personal use should be keptseparate from the company.


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PROBLEM 1-4A (Continued)

(b) Ending capital ......................................................................................................... $20,900Add: Drawings ........................................................................................................ 200

21,100Deduct: Investments .............................................................................................. 15,000

Net income .............................................................................................................. $ 6,100

OR

PEPER TRAVEL AGENCYIncome Statement

For the Month Ended April 30

Service revenue ............................................................................... $9,000Expenses

Salaries .................................................................................. $2,200

Rent ............................................................................... 400Advertising .............................................................................. 300 2,900Net income ........................................................................................ $6,100


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(b) JULIE SZO, BARRISTER & SOLICITORIncome Statement


RevenuesFees earned ................................................................................. $6,400

ExpensesSalaries expense .......................................................................... $2,500Rent expense ............................................................................... 900

Advertising expense ..................................................................... 350Utilities expense ........................................................................... 250

Total expenses ................................................................... 4,000

Net income ............................................................................................. $2,400

JULIE SZO, BARRISTER & SOLICITORStatement of Owner's Equity


Julie Szo, Capital, August 1 ....................................................................................... $6,800Add: Net income ...................................................................................................... 2,400

9,200Less: Drawings.......................................................................................................... 550Julie Szo, Capital, August 31...................................................................................... $8,650


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JULIE SZO, BARRISTER & SOLICITORBalance Sheet

August 31, 2003

Assets

Cash ....................................................................................................................... $03,000Accounts receivable ................................................................................................ 3,500Supplies on hand .................................................................................................... 500Office equipment ..................................................................................................... 6,000

Total assets ................................................................................................... $13,000

Liabilities and Owner's Equity

LiabilitiesNotes payable ............................................................................................... $02,000

Accounts payable .......................................................................................... 2,350Total liabilities ...................................................................................... 4,350

Owner's EquityJulie Szo, Capital ........................................................................................... 8,650

Total liabilities and owner's equity ........................................................ $13,000


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PROBLEM 1-7A

(a) Using the balance sheet equation:

Assets = Liabilities + Owners Equity$1,235,000 = Liabilities + $250,000

Liabilities = $985,000

(b) Using the income statement equation:

Revenues Expenses = Net Income$749,000 Expenses = $59,000Expenses = $690,000

(c) Using the statement of owner's equity equation:

$250,000 Beginning capital+ 23,000 Additional investments+ 59,000 Net income- 64,000 Drawn by owner$268,000 Ending capital

OR using the balance sheet equation:

Assets = Liabilities + Owners Equity$1,208,000 [from part (d)] = $940,000 + Owner's EquityOwner's Equity = $268,000

(d) Using the balance sheet equation:

Assets = Liabilities + Owners EquityAssets = $940,000 + ($250,000 + $23,000 $64,000 + $59,000)Assets = $1,208,000


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PROBLEM 1-8A

(a) NATURAL COSMETICS CO.Income Statement

For the Month Ended June 30, 2003

RevenuesService revenue......................................................................... $6,500

ExpensesSupplies expense ...................................................................... $1,200Gas and oil expense .................................................................. 800

Advertising expense .................................................................. 500Utilities expense ........................................................................ 300

Total expenses ................................................................ 2,800

Net income .......................................................................................... $3,700

NATURAL COSMETICS CO.Statement of Owner's Equity


Ann Okah, Capital, June 1 .................................................................. $00,000

Add: Investments ........................................................................... $27,200Net income ............................................................................ 3,700 30,900

30,900

Less: Drawings ............................................................................... 1,700

Ann Okah, Capital, June 30 ................................................................ $29,200


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(b) 1. The addition of $800 fees would increase revenue (service revenue) and net income $800in the income statement. In the balance sheet, assets (accounts receivable) and theowners capital would also be increased by $800.

2. An additional $100 of gas and oil expense would increase expenses (gas and oil expense)and decrease net income $100 in the income statement. In the balance sheet, liabilities(accounts payable) would increase and owners capital would decrease by $100.

The revised financial statements, incorporating these two changes, follow:

NATURAL COSMETICS CO.Income Statement


RevenuesService revenue ($6,500 + $800)............................................ $7,300

ExpensesSupplies expense ................................................................... $1,200Gas and oil expense ($800 + $100) ........................................ 900

Advertising expense ............................................................... 500Utilities expense ..................................................................... 300

Total expenses ............................................................. 2,900

Net income ....................................................................................... $4,400


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NATURAL COSMETICS CO.Statement of Owner's Equity


Ann Okah, Capital, June 1 ............................................................... $00,000Add: Investments ........................................................................... $27,200

Net income .......................................................................... 4,400 31,60031,600

Deduct: Drawings ........................................................................... 1,700Ann Okah, Capital, June 30 ............................................................. $29,900

NATURAL COSMETICS CO.Balance SheetJune 30, 2003

Assets

Cash ....................................................................................................................... $12,000Accounts receivable ($4,000 + $800) ...................................................................... 4,800Supplies on hand .................................................................................................... 2,400Equipment ............................................................................................................... 25,000

Total assets ................................................................................................... $44,200



Accounts payable ($1,200 + $100) ................................................................ 1,300Total liabilities ...................................................................................... 14,300

Owner's equityAnn Okah, Capital ......................................................................................... 29,900

Total liabilities and owner's equity .................................................................. $44,200


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PROBLEM 1-10A

LOONIE BIN COIN SHOPBalance SheetApril 30, 2003

Assets

Cash ................................................................................................................... (a) $ 6,000Accounts receivable ................................................................................................ 7,000Office and store supplies ......................................................................................... 4,000Land ........................................................................................................................ 36,000Office equipment ................................................................................................. (b) 69,000Store furnishings ..................................................................................................... 48,000Building ................................................................................................................... 110,000

Total assets ................................................................................................... $280,000


LiabilitiesNotes payable .......................................................................................... (c) $ 36,000

Accounts payable ..................................................................................... (d) 007,000Long-term debt payable ............................................................................ (e) 100,000

Total liabilities ................................................................................................ 143,000

Owner's equity:Capital ........................................................................................................... 137,000



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PROBLEM 1-10A (CONTINUED)

Supporting calculations:

(a) $12,000 (1) $3,000 (2) $1,000 + (4) $5,000 (5) $7,000 = $6,000

(b) $59,000 + (2) $15,000 (4) $5,000 = $69,000

(c) $22,000 + (2) $14,000 = $36,000

(d) $10,000 (1) $3,000 = $7,000

(e) $107,000 (5) $7,000 = $100,000

Note the following points:

Item 3 is not recorded, as there was no transaction.

The capital balance is unchanged because there were no transactions affecting owner's equityon April 30.


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PROBLEM 1-11A (CONTINUED)

(b) MULTI-MEDIA CONSULTING CO.Statement of Owner's Equity

For the Month Ended March 31, 2003

M. Carrier, Capital, March 1 .......................................................... $00,000

Add: Investments ......................................................................... $15,000Net income ........................................................................ 4,900 19,900

19,900Less: Drawings * .......................................................................... 900M. Carrier, Capital, March 31 ........................................................ $19,000

* (18) $500 + (22) $50 + (27) $300 + (34) $50 = $900


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1-49

PROBLEM 1-1B

(a) In making an investment, the Ontario investor is becoming a partial owner of the company.In this case the investment will be held for three years. The information that will be mostrelevant to him will be on the income statement. The income statement reports the past

performance of the company in terms of its revenue, expenses and net income. This is thebest indicator of the companys future potential.

(b) In deciding to extend credit to a new customer Bombardier would focus its attention on thebalance sheet. The terms of credit they are extending require repayment in a short period oftime. Funds to repay the credit would come from cash on hand. The balance sheet will showif the company has enough cash to meet its obligations.

(c) In deciding whether to extend a loan, the Laurentian Bank is interested in two things, theability of the company to make interest payments on an annual basis for the next five yearsand the ability to repay the principal amount at the end of five years. In order to evaluateboth of these factors the focus should be on the cash flow statement. This statement

provides information on the cash the company generates from its operating activities on anongoing basis. This will be the most important factor in determining if the company willsurvive and be able to repay the loan.


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1-50

PROBLEM 1-2B

MEMO

Date:To: President, Montiero Company

From: ControllerRe: Change in Value of Company vs. Reported Income

The change in the value of the company includes items that are recognized by the basicaccounting model and items that are not. This is primarily due to the cost principle. For accountingpurposes, assets are recorded at the cost at the time of purchase. There is no recognition of theincrease in their value. For example the companys land and buildings may be increasing in value,but this increase is not recognized on the companys books. In defence of the cost principle, itcreates information that is reliable and verifiable, thus increasing the credibility of the financialstatements. In addition, the market value of the company is not relevant, if the company intends tooperate as a going concern.


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PROBLEM 1-3B

1. Recording the impact of the Presidents death violated the cost principle and monetary unitassumption. Although the President may be very important to the company, his appointment(and death) did not trigger an accounting transaction. Disclosure of the presidents deathcould be made in the companys report but it should not be recorded in the accounting

records or on the financial statements.

2. This violates the economic entity assumption. The portion of the asset and expense relatingto Paradiss family should not be recorded in the companys records. It would be best to treatthis as a personal asset. When it is used for business purposes, the Paradis family mightconsider renting to the company, rather than having the company own it.

3. Recording the equipment at $300,000 violated the cost principle, which states that assetsare recorded at the amount that was paid to acquire them. It does not permit writing them upin value.


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PROBLEM 1-5B

(a) SMITH VETERINARY CLINIC

Cash +AccountsReceivable + Supplies +

OfficeEquipment =

NotesPayable +

AccountsPayable +

B. Smith,Capital

Bal

Sept. 1

4

8

17

19

25

30

30

$9,000

-3,100

5,900

+1,300

7,200

-800

6,400

2,500

8,900

-600

8,300

+7,000

15,300

-700

-900-300

13,400

000000

$13,400

+

+

+

+

+

+

+

+

+

$1,700

00000

1,700

-1,300

400

00000

400

3,400

3,800

00000

3,800

00000

3,800

00000

3,800

00000

$3,800

+

+

+

+

+

+

+

+

+

$600

0000

600

0000

600

0000

600

0000

600

0000

600

0000

600

0000

600

0000

$600

+

+

+

+

+

+

+

+

+

$6,000

00000

6,000

00000

6,000

2,100

8,100

00000

8,100

00000

8,100

00000

8,100

00000

8,100

00000

$8,100

=

=

=

=

=

=

=

=

=

+$7,000

7,000

00000

7,000

00000

$7,000

+

+

+

$3,600

-3,100

500

00000

500

1,300

1,800

00000

1,800

00000

1,800

00000

1,800

00000

1,800

+170

$1,970

+

+

+

+

+

+

+

+

+

$13,700

000000

13,700

000000

13,700

000000

13,700

5,900

19,600

600

19,000

000000

19,000

-700

-900300

17,100

-170

$16,930

Fees Earned

Drawings

Salaries Expense

Rent ExpenseAdvertising Exp

Utilities Expense

$25,900 = $25,900


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PROBLEM 1-6B

(a)BELL CONSULTING

Trans- Cash + Accounts + Office + Office = Notes + Accounts + Bell,

action Receivabl

e

Supplies Equipment Payable Payable Capital

May 1 +$4,000 +$4,000

2 -800 -800

3 +$500 +$500

5 -50 -50

9 +1,000 +1,000

12 -700 -700

15 +$3,000 +3,000

17 -2,500 -2,500

20 -500 -500

23 +2,000 -2,000

26 +5,000 +$5,000

29 -2,400 +$2,400

30 -150 -150

$4,900 + $1,000 + $500 + $2,400 = $5,000 + $ 0 + $3,800

$8,800 = $8,800


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1-58

PROBLEM 1-6B (Continued)

(b) BELL CONSULTINGIncome Statement

For the Month Ended May 31, 2003

RevenuesFees earned .................................................................................................. $4,000

ExpensesSalaries expense ...................................................................... $ 2,500Rent expense ........................................................................... 800

Advertising expense ................................................................. 50Utilities expense ....................................................................... 150

Total expenses .................................................................................... 3,500

Net income .............................................................................................................. $ 500


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(c)

BELL CONSULTINGBalance SheetMay 31, 2003

Assets

Cash ....................................................................................................................... $4,900Accounts receivable ................................................................................................ 1,000Office supplies ........................................................................................................ 500Office equipment ..................................................................................................... 2,400

Total assets ................................................................................................... $8,800


LiabilitiesNote payable .................................................................................................. $5,000

Owners equityJessica Bell, Capital ....................................................................................... 3,800*


*Capital = $4,000 investment $700 withdrawal + $500 net income = $3,800


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1-60

PROBLEM 1-7B

(a) Using the balance sheet equation:

Assets = Liabilities + Owners Equity$1,265,000 = Liabilities + $245,000

Liabilities = $1,020,000

(b) Using the income statement equation:

Revenues Expenses = Net Income$687,000 Expenses = $56,000Expenses = $631,000

(c) Using the statement of owner's equity equation:

$245,000 Beginning capital+ 30,000 Investments+ 56,000 Net income- 74,000 Drawn by owner$257,000 Ending capital

OR using the balance sheet equation:

Assets = Liabilities + Owners Equity$1,167,000 [from part (d)] = $910,000 + Owner's EquityOwner's Equity = $257,000

(d) Using the balance sheet equation:

Assets = Liabilities + Owners EquityAssets =$ 910,000 + $257,000Assets = $1,167,000


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1-61

PROBLEM 1-8B

(a) SPECIALTY COSMETICS CO.Income Statement

For the Month Ended September 30, 2003

RevenuesService revenue......................................................................... $5,900

ExpensesSupplies expense ...................................................................... $1,500

Advertising expense .................................................................. 600Utilities expense ........................................................................ 1,300

Total expenses ................................................................ 3,400

Net income .......................................................................................... $2,500

SPECIALTY COSMETICS CO.Statement of Owner's Equity


Emily Jackson, Capital, September 1 .................................................. $00,000

Add: Investments ............................................................................... $20,000Net income........................................................................... 2,500 22,500

22,500

Less: Drawings .............................................................................. 2,600

Emily Jackson, Capital, September 30 ................................................ $19,900


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(a) (Continued)

SPECIALTY COSMETICS CO.Balance Sheet

September 30, 2003

Assets

Cash ....................................................................................................................... $ 9,000Accounts receivable ................................................................................................ 5,000Supplies on hand .................................................................................................... 2,700Equipment ............................................................................................................... 20,000

Total assets ................................................................................................... $36,700



Accounts payable .......................................................................................... 1,800Total liabilities ...................................................................................... 16,800

Owner's equityEmily Jackson, Capital................................................................................... 19,900



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(b) 1. The addition of $900 fees would increase revenue (service revenue) and net income $900 in theincome statement. In the balance sheet, assets (accounts receivable) and the ownerscapital would also be increased by $900.

2. An additional $300 of gas and oil expense would increase expenses (gas and oil expense)

and decrease net income $300 in the income statement. In the balance sheet, liabilities(accounts payable) would increase and owners capital would decrease by $300.

The revised financial statements, incorporating these two changes, follow:

SPECIALTY COSMETICS CO.Income Statement


RevenuesService revenue ($5,900 + $900)............................................... $6,800

ExpensesSupplies expense ...................................................................... $1,500

Advertising expense .................................................................. 600Gas and oil expense .................................................................. 300Utilities expense ........................................................................ 1,300

Total expenses ................................................................ 3,700

Net income .......................................................................................... $3,100


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(b) (Continued)

SPECIALTY COSMETICS CO.Statement of Owner's Equity


Emily Jackson, Capital, September 1 .................................................. $00,000Add: Investments .......................................................................... $20,000

Net income ........................................................................... 3,100 23,10023,100

Less: Drawings .............................................................................. 2,600Emily Jackson, Capital, September 30 ................................................ $20,500

SPECIALTY COSMETICS CO.Balance Sheet

September 30, 2003

Assets

Cash ....................................................................................................................... $ 9,000Accounts receivable ($5,000 + $900) ...................................................................... 5,900Supplies on hand .................................................................................................... 2,700Equipment ............................................................................................................... 20,000

Total assets ................................................................................................... $37,600



Accounts payable ($1,800 + $300) ................................................................ 2,100Total liabilities ...................................................................................... 17,100

Owner's equityEmily Jackson, Capital................................................................................... 20,500



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PROBLEM 1-9B

(a)

MontrealCompany

CalgaryCompany

EdmontonCompany

VancouverCompany

(a) $80,000 -$50,000= $30,000

(b) $55,000 +$58,000= $113,000

(c) $30,000 + X -$25,000 + $350,000 -$320,000 = $58,000;X = $23,000

(d) $110,000 -$60,000 = $50,000

(e) $145,000 -$65,000 = $80,000

(f) $60,000 +$15,000 - X +$420,000 -$385,000 =$80,000;

X = $30,000

(g) $75,000 +$50,000 = $125,000

(h) $200,000 -$130,000 = $70,000

(i) $50,000 +$10,000 - $14,000 +X - $350,000 =$130,000;X = $434,000

(j) $170,000 -$90,000= $80,000

(k) $80,000 + $180,00= $260,000

(l) $90,000 + $15,000- $20,000 + $520,000- X = $180,000;X = $425,000

(b) CALGARY COMPANYStatement of Owner's Equity

For the Year Ended December 31, 2002

Capital, January 1 $60,000Add: Investments $15,000

Net income 35,000 50,000

110,000Less: Drawings 30,000Capital, December 31 $80,000


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(c)

MEMO

Date:

To:From: StudentRe: Preparation and Interrelationship of Financial Statements

The sequence of preparing financial statements is (1) income statement, (2) statement of owner'sequity, and (3) balance sheet. It should be noted that the balance sheet is usually presentedfirst, eventhough it is prepared last.

The interrelationship of the statement of owner's equity to the other financial statements results fromthe fact that net income from the income statement is reported in the statement of owner's equity. Theending capital calculated in the statement of owner's equity is the amount reported for owner's equityon the balance sheet.


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PROBLEM 1-10B

FRANC DOR COIN SHOPBalance SheetJune 30, 2003

Assets

Cash ................................................................................................................... (a) $ 4,000Accounts receivable ................................................................................................ 6,000Office and store supplies ......................................................................................... 6,000Inventory ................................................................................................................. 110,000Land ........................................................................................................................ 40,000Office equipment ................................................................................................. (b) 17,000Store equipment .................................................................................................. (c) 19,500Building ................................................................................................................... 120,000

Total assets ................................................................................................... $322,500


LiabilitiesNotes payable .......................................................................................... (d) $ 23,500

Accounts payable ..................................................................................... (e) 007,000Long-term debt payable ............................................................................. (f) 103,000

Total liabilities ...................................................................................... 133,500

Owner's equity

Capital ........................................................................................................... 189,000



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PROBLEM 1-11B

(a) NASH CONSULTING CO.Income Statement

For the Month Ended January 31, 2003

RevenuesFees earned ................................................................... $10,950 (A

ExpensesSalaries expense ............................................................ $1,700 (B)

Advertising expense ....................................................... 1,550 (C)Rent expense ................................................................. 800Utilities expense ............................................................. 480 (D)Property tax expense ...................................................... 150 (E)Repair expense .............................................................. 250

Total expenses ..................................................... 4,930

Net income ............................................................................. $6,020

(A) (6) $3,750 + (12) $2,300 + (20) $3,700 + (29) $1,200 = $10,950(B) (11) $1,200 + (32) $1,000 (32) $500 = $1,700(C) (8) $450 + (24) $1,100 = $1,550(D) (15) $300 + (36) $180 = $480(E) $250 (34) $100 = $150


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(b) NASH CONSULTING CO.Statement of Owner's Equity

For the Month Ended January 31, 2003

T. Nash, Capital, January 1 ........................................................... $00,000

Add: Investment .......................................................................... $12,000Net income ........................................................................ 6,020 18,020

18,020Less: Drawings ............................................................................. *1,600T. Nash, Capital, January 31 ......................................................... $16,420

* (18) $600 + (27) $400 + (32) $500 + (34) $100 = $1,600


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1-71

BYP 1-1 FINANCIAL REPORTING PROBLEM

(a) The financial statements themselves take up three pages (14-16). There are 15 notes to thefinancial statements, which occupy ten pages (17-26).

(b) Ordinarily the fiscal year-end for the Second Cup is the last Saturday in June. This is disclosed inNote 1 (page 18). In 1999 the fiscal year was extended to Wednesday, June 30 in order to reflectthe disposition of the Companys investment in Coffee People, Inc.

(c) The auditors are PricewaterhouseCoopers, Chartered Accountants. (See page 13.)

(d) Total assets as atJune 24, 2000: $18,565,000June 30, 1999: $49,584,000

(e) $11,067,000 (From a loss of $10,095,000 to net earnings of $972,000.)

(f) June 24, 2000: $1,446,000June 30, 1999: $ 822,000

(g) The percentage change in systemwide sales from 1996-2000 was a negative 25.43%.

$159,198,000 $213,488,000 = (25.43%)$213,488,000


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1-72

BYP 1-2 INTERPRETING FINANCIAL STATEMENTS

(a) For a software company such as Corel, the most important economic resources are theknowledge, skills, and creativity of its people. These human resources are not reflected in thebalance sheet.

(b) The balance sheet reflects only the results of business transactions, based upon the costprinciple. It does not attempt to show what the company's assets are currently worth.

In the case of a company which has just recently been formed, the accounting (or book) valuesrecorded on the balance sheet may be approximately the same as the economic (or market)values. For companies which have been in existence for some time, however, there may be agreat difference between the historical amounts recorded in the accounting system and thecurrent values of these items, in economic terms.

(c) There are several reasons why Corel might prepare its financial statements in US dollars. It mightbe done for regulatory reasons, in order to be listed on American stock exchanges. It might alsobe done because the company does a great deal of business in the US and wants to becompared accurately with its American competitors. Another possible reason is that CorelCorporation competes in over 70 countries worldwide, and the US dollar is a more recognizedunit of currency on a global basis.


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BYP 1-3 ACCOUNTING ON THE WEB

Due to the frequency of change with regard to information available on the world wide web, theAccounting on the Web cases are updated as required. Their suggested solutions are also updatedwhenever necessary, and can be found on-line in the Instructor Resources section of our home page[www.wiley.com/canada/weygandt2].


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BYP 1-4 COLLABORATIVE LEARNING ACTIVITY

(a) The estimate of the $2,450 loss was based on the difference between the $10,000 initiallyinvested by the owner and the remaining bank balance of $7,550 at May 31.

This is not a valid basis for determining income, because it only shows the change in cashbetween two points in time.

(b) The balance sheet at May 31 is as follows:

LONG-SHOT DRIVING RANGEBalance SheetMay 31, 2003

AssetsCash ....................................................................................................................... $07,550

Caddy shack ........................................................................................................... 4,000Equipment ............................................................................................................... 1,800Total assets ................................................................................................... $13,350


Accounts payable ($150 + $100) ................................................................... $00,250Owner's equity

P. & P. Ross, Capital ($10,000 + $3,900 - $800) ........................................... 13,100Total liabilities and owner's equity ........................................................ $13,350

As shown in the balance sheet, the owner's capital at May 31 is $13,100 (the amount required to

make Assets = Liabilities + Owner's Equity). The estimate of $3,100 of net income is thedifference between the initial investment of $10,000 and $13,100.

This was not a valid basis for determining net income because changes in owner's equitybetween two points in time may have been caused by factors unrelated to net income. Forexample, there may be drawings and/or additional capital investments by the owner.


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BYP 1-4 (Continued)

(c) Actual net income for May can be determined by adding owner's drawings to the change inowner's capital during the month, as shown below:

Owner's capital, May 31, per balance sheet ............................................................ $13,100Owner's capital, May 1 ............................................................................................ 10,000

Increase in owner's capital ...................................................................................... 3,100Add: Drawings ....................................................................................................... 800Net income .............................................................................................................. $ 3,900

(d) Fees earned can be determined by adding expenses incurred during the month to net income.May expenses were Rent, $1,000; Wages, $400; Advertising, $750; and Utilities, $100; for a totalof $2,250. Revenues earned, therefore, were $6,150 ($2,250 + $3,900).

Alternatively, since all fees are received in cash, fees earned can be calculated from an analysisof the changes in cash, as follows:

Beginning cash balance ................................................................... $10,000

Less: Cash paymentsCaddy shack ............................................................ $4,000Golf balls and clubs ................................................. 1,800Rent ......................................................................... 1,000

Advertising ............................................................... 600Wages ..................................................................... 400Drawings .................................................................. 800 8,600

Cash balance before fees ................................................................ 1,400Actual cash balance, May 31............................................................ 7,550Fees earned (cash receipts) ............................................................. $ 6,150


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1-76

BYP 1-5 COMMUNICATION ACTIVITY

Date:To: Israel Unger

From: StudentSubject: Balance Sheet Correction

I have received the balance sheet of Mount Company as of December 31, 2002. A number of items inthis balance sheet are not properly reported. They are:

1.The balance sheet should be dated as of a specific date, not for a period of time. It should bestated "December 31, 2002."

2. The bottom portion of the balance sheet should be headed "Liabilities and Owner's Equity", withsub-headings for the Liabilities section and the Owner's Equity section.

3. Assets should be reordered, in order of liquidity. Equipment should be reported below Supplieson the balance sheet. Accounts Receivable should be shown as an asset and reported betweenCash and Supplies.

4. Accounts Payable should be shown as a liability, not an asset. The Note Payable should bereported in the liability section.

5. Unger, Capital and Unger, Drawings are not liabilities. They are part of owner's equity. TheDrawings account is not reported on the balance sheet but is subtracted from Unger, Capital toarrive at owner's equity at the end of the period.


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BYP 1-5 (Continued)

A correct balance sheet is as follows:

MOUNT COMPANYBalance Sheet

December 31, 2002

AssetsCash ................................................................................................................................. $09,000

Accounts receivable .......................................................................................................... 3,000Supplies ............................................................................................................................ 2,000Equipment ........................................................................................................................ 21,500

Total assets .................................................................................................. $35,500


Note payable ........................................................................................................... $10,500Accounts payable .................................................................................................... 6,000

Total liabilities ................................................................................................ 16,500

Owner's equityUnger, Capital ......................................................................................................... 19,000



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BYP 1-6 ETHICS CASE

(a) The students should identify all of the stakeholders in the case; that is, all the parties that areaffected, either beneficially or negatively, by the action or decision described in the case. The listof stakeholders are:

Stephane PelliThe two firmsUniversity of New Brunswick

(b) The students should identify the ethical issues, dilemmas, or other considerations pertinent to thesituation described in the case. In this case the ethical issues are:

Is it proper that Stephane charged both firms for the total travel costs, rather than splittingthe actual amount of $244 between the two firms?

Is collecting $488 as reimbursement for total costs of $244 ethical behaviour?

Did Stephane deceive both firms or neither firm?

(c) Each student must answer the question for himself/herself. Would you want to start your first jobhaving deceived your employer before your first day of work? Would you be embarrassed if eitherfirm found out that you double-charged? Would your school be embarrassed if your act wasuncovered? Would you be proud to tell your instructor, or your family, that you collected yourexpenses twice?

bat 4m chapt 1 all solutions

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