Ch 10/11/13 Liabilities/Equity/CashFlowStmt

Question 1

Sales Taxes (5%)
entries record for
$10000 Purchase

Answer 1

Dr Inventory 10000
Dr Sales Tax 500
Receivable
Cr Cash 10500

Question 2

Sales Taxes (13%)
entries record for
$10000 Sales

Answer 2

Dr Cash 11300
Cr Sales 10000
Cr Sales Tax 1300
Payable

Question 3

Employee’s Portion
of Payroll entries

Answer 3

Dr Salaries Expense
Cr Salaries Payable
Cr CPP / EI Payable
Cr I/Tax / UnitedWay / UnionDues Payable

Question 4

Employer’s Portion
of Payroll entries

Answer 4

Dr Employee Benefit Expense
Cr CPP Payable
Cr EI Payable (1.4x Employee Contribution)
Cr Workers’ Comp. / Health Ins. Payable

Question 5

Employer’s Remit
of Payroll entries

Answer 5

Dr CPP Payable
Dr EI Payable
Dr I/Tax / UnitedWay / UnionDues Payable
Dr Workers’ Comp. / Health Ins. Payable
Cr Cash

Question 6

Property Tax

Entries on Billed Date (Mar 1) & Pay Date (Jun 1)

Answer 6

Billed Date
Dr Prop Tax Expense 2mo
Cr Prop Tax Payable 2mo
(accrue 1/1-3/1)

Pay Date
Dr Drop Tax Expense 3mo
(3/1-6/1)
Dr Prop Tax Payable 2mo
Dr Prepaid Prop Tax 7mo
(6/1-12/31)
Cr Cash 12mo

Question 7

Liabilities
NOT CERTAIN
whom / when / what to settle

Answer 7

Uncertain Liabilities

Including:
Provisions &
Contingent Liabilities

Question 8

Provisions
recorded when

Answer 8

(負債準備)
1. Present Obligation is must
2. $ Outflow to settle is Probable
3. Amount can be Estimated

E.g. Refund Liabilities /
Warranties /
Damages Arising /
Potential Fines

Question 9

Contingent Liabilities
(dependent)

Answer 9

(或有負債)
1. Outcome NOT Probable, or
2. Outcome NOT Determinable, or
3. Estimate of Outcome NOT Made

E.g. Class Action Lawsuits 集體訴訟

Question 10

Uncertain Liability which’s Possibility of $ Outflow is Remote

Answer 10

No Record / Note needed

Question 11

Examples of
Non-Current Liabilities

Answer 11

Bank Loan Payable
Bond Payable
Deferred Income Taxes
Employees Future Benefits
Lease Liability
Mortgage Payable
Pension Liability

Question 12

A short-term liability when a company’s cash account overdrawn (within line of credit) is

Answer 12

Bank Indebtedness

Question 13

Dividends declared by

Answer 13

the Board of Directors

Question 14

Rights of Common Shareholders

Answer 14

1. Vote (e.g. Board of Directors election)
2. Share earnings thru Dividends
3. Share assets upon Liquidation

Question 15

Measure of Fair Value of a company’s Total Equity

Answer 15

Market Capitalization 市值
= # of Shares * Share Price (at given date)

Question 16

Share Capital

Answer 16

= Common Shares + Preferred Shares

Question 17

CBCA requires
Two-Part Solvency Test
before Dividend Declaration

Answer 17

1. Sufficient Fund AFTER Dividend paid
2. Net Realizable Assets > Total Liabilities + Share Capital

Question 18

Cash Dividend

Debit / Credit ?
(A.J.E.)

Answer 18

Declaration Date
Dr Dividend Declared
Cr Dividend Payable

Record Date
Entitle Payees

Payment Date
Dr Dividend Payable
Cr Cash

Question 19

Stock Dividend
(Capitalizing R/E)

Debit / Credit ?
(A.J.E.)

Answer 19

Declaration Date
Dr Dividend Declared
Cr Stock Dividend Distributable (S/E)

Record Date
Entitle Payees

Distribution Date
Dr Stock Dividend Distributable (S/E)
Cr Common Shares

Question 20

2-for-1 Stock Split

Debit / Credit ?
(A.J.E.)

Answer 20

Memo: # of Common Share increased (doubled)

Question 21

Par Value of shares

Answer 21

股票面額
Shares have predetermined value.
Normally shares don’t have.

Question 22

Legal Capital

Answer 22

法定資本
= Proceeds received from issuing share

Must be retained in business to protect creditors. Cannot be distributed to shareholders (unless shares return to company or cancelled)

Question 23

Normal Course Issuer Bid

Answer 23

股份回購
= Repurchase of Shares

Repurchased shares must be retired (cancelled) and restored to the status of authorized but not issued.

Question 24

Account of
Contributed Surplus

Answer 24

資本盈餘
（回購溢價）
Shareholders’ Equity
(normal credit balance)

Question 25

J.E. when **Repurchase < Average Cost** *(8000<10000)*

Answer 25

Dr. Common Shares 10000 Cr. Contributed Surplus 2000 Cr. Cash 8000

Question 26

J.E. when **Repurchase > Average Cost** *(14000<10000, 1500 in Contributed Surplus)*

Answer 26

Dr. Common Shares 10000 Dr. Contributed Surplus 1500 Dr. Retained Earnings 2500 Cr. Cash 14000

Question 27

Shares issued for **NonCash Consideration** (e.g. land) which value **IS / ISN'T** determined Value of Entries =

Answer 27

Fair Value of the **Consideration Received** / Value of Issued Share (**Consideration Given Up**)

Question 28

Types of **Dividend Rates** of Preferred Shares

Answer 28

1. **Resettable** Reset every 5 yrs, relative to Canada Gov Bonds 2. **Fixed** 3. **Floating** Relative to Canada Gov T-Bill

Question 29

Types of **Dividend Preferences** of Preferred Shares

Answer 29

1. **Cumulative** Preferred shareholders dividends must be paid both **current yr** and **any unpaid prior yrs** No dividends paid to common shareholders until paid all ***dividends in arrears*** (pref div ***not declared*** in a period) 2. **Noncumulative** If dividends not declared in the yr, **no dividends** will be distributed. Most Canadian preferred shares are noncumulative

Question 30

Liquidation Preference

Answer 30

優先清算權 Creditor > Preferred Shareholder > Common Shareholder (all remaining balance)

Question 31

Other Preferred Shares 1) Redeemable (Callable) 2) Retractable 3) Convertible

Answer 31

1) Corporate can buy back at specific dates & prices (In Canada mostly Redeemable) 2) Shareholder can ask company to repurchase at specific dates & prices 3) Can be exchanged for common shares at specific ratio

Question 32

Price Volatility factors for 1) Preferred Shares 2) Common Shares

Answer 32

1) Rate of **Dividends** Paid 2) **Profitability**

Question 33

Preferred Shares & Liabilities (Bonds) Similarities & Major Difference

Answer 33

Similarities: 1) Fixed Rates for Returns (div & pmt) 2) Inverse relationship with Interest Rates Changes 3) Have Credit Ratings 4) Could convert into Common Shares Major Difference: Preferred Shares have **NO Contractual Obligation** for company while Bonds have

Question 34

Preferred & Common Shares Similarities & Differences

Answer 34

Similarities: 1) Dividends 2) No legal requirement to declare dividends Differences: 1) Voting rights 2) Dividend preference 3) Liquidation preference 4) Volatility of market price

Question 35

**Convert Bonds Payable into Common Shares** 1) Classification 2) Report in Stmt of Cash Flows

Answer 35

1) Non-Cash Investing & Financing 2) Notes

Question 36

**Investments** that are - Short-term (cash in 90 days) - Highly liquid - Insignificant risks

Answer 36

**Cash Equivalents** e.g. Term deposit / Bank Indebtedness (liability) / Bank overdrafts (on operating lines of credit, liability)

Question 37

3 Activities in Cash Flows Stmt

Answer 37

1. Operating - Current Assets - Current Liabilities **(including held-for-tradings)** *(revenue & expense)* 2. Investing Long-lived Assets *(spending for future $)* 3. Financing - Long-term Liabilities - Equity - Current Liabilities not related to Operating (Div Pyb, Current Portion of Loans/Mtg, Notes Pyb for lending..) *(raising $)*

Question 38

Non-Cash Investing & Financing activities

Answer 38

1. Issue **Shares** for **Assets/Liabilities** 2. Convert **Debt** to **Equity** 3. Exchange **PPE** 4. Acquisition of **Assets** by **Liabilities** Not reported but disclosed in NOTES

Question 39

Formats of Cash Flows Stmt

Answer 39

1. Indirect Method Starts by ***Net Income*** then ***adjusts to cash*** basis (Mostly used as provides working capital) 2. Direct Method No Net Income but lists ***cash rev / exp*** Both Permissable → Same result

Question 40

Steps in Preparing Cash Flows Stmt

Answer 40

1. Prepare Operating Activities Section 2. Prepare Investing Activities Section 3. Prepare Financing Activities Section 4. Complete Cash Flows Stmt

Question 41

**Borrow $ on Operating Line of Credit** 1) Classification 2) Report in Stmt of Cash Flows

Answer 41

1) Operating 2) Not reported (cash equivalent) *(current liability)*

Question 42

Adjustments to Convert **Net Income** to **Net Cash Provided (Used) by Operating Activities**

Answer 42

1. Add back **NonCash Expenses** (depreciation exp, depletion exp) 2. Add **Loss** / Deduct **Gain** (loss on disposal, impairment loss) 3. - / + in **Current Asset** accts & + / - in **Current Liability** accts ($ collected/paid?)

Question 43

NonCash Current Asset accts which affect Operating Cash Flows

Answer 43

Accts Receivable / Prepaid Expenses / Inventory When **+ / -** Cash Flows Stmt **- / +**

Question 44

NonCash Current Liability accts which affect Operating Cash Flows

Answer 44

Accts Payable / Payables / Deferred Rev When **+ / -** Cash Flows Stmt **+ / -**

Question 45

Trading Investments 1) Activities when held-for-trading 2) Activities when NOT held-for-trading 3) = Cash Equivalent?

Answer 45

1) Operating 2) Investing 3) No → Risky

Question 46

Lending $ on short-term notes receivable to generate interest Classification in Cash Flows Stmt

Answer 46

Short-term notes: Investing Interest Receivable: Operating (This is an exception for notes)

Question 47

**Disposal of Equipment** Classification in Cash Flows Stmt

Answer 47

Cash for Disposal: Investing Loss / Gain: Operating