Lesson 1 - Quick Study

Question 1

You have just graduated from the finance program at a local post secondary institution. An opportunity to become the marketing manager for a medium-sized florist is available to you. You are concerned because you know that the accounting plays a major role and accounting was not your best subject. Identify at least two questions or issues for which the marketing manager would require accounting information.

Answer 1

There are a variety of questions and this list is certainly not exhaustive:

1. How much was spent on advertising last year? And/or how much is projected to be spent
   this year?
2. What is the effect of advertising on sales? And/or what is the projected effect of advertising
   on this year’s sales?
3. How much was spent on delivering flowers last year? And/or how much is projected to be
   spent this year?
4. How much will it cost to create a webpage and sell flowers online?
5. Can sales be increased by selling online? And/or what is the experience of our competitors
   in this regard?
6. When pricing flowers, how much is being charged for delivery?
7. Are there enough sales staff to answer phones/emails and/or are sales being lost because
   of insufficient staffing and/or staffing issues?

Question 2

Identify whether each of the following functions would be classified as accounting or record keeping.

a. ) Meeting with the mechanical staff to determine new machine requirements for the next year.
b. ) Data entry of sales orders received via the telephone.
c. ) Analyzing as sales report to determine if the discount policy is effective in getting customers to buy in multiple quantities.
d. ) Listing cheques received in the mail.

Answer 2

a. Accounting
b. Recordkeeping
c. Accounting
d. Recordkeeping

Question 3

Identify whether each of the following represents a business or nonbusiness organization.

a. ) Highlands united church
b. ) Royal Alexandra Hospital
c. ) Royal Bank of Canada
d. ) CDI College
e. ) Loblaw
f. ) World Vision

Answer 3

a. ) non-business
b. ) non-business
c. ) business
d. ) business
e. ) business
f. ) non-business

Question 4

Identify at least three main areas of accounting for accounting professionals. For each accounting area, identify at least three accounting -related opportunities in practice.

Answer 4

Financial accounting

• Statement preparation - Statement analysis
• Auditing
• Regulatory
• Consulting
• Planning
• Criminal investigation

Managerial accounting

• General accounting - Cost accounting
• Budgeting
• Internal auditing
• Management advisory services

Taxation

• Preparation
• Planning
• Regulatory
• Investigations - Consulting

Accounting-related

• Lenders
• Consultants - Analysts
• Traders
• Managers
• Directors
• Underwriters - Planners
• Appraisers

Question 5

Identify two possible uses for accounting information.

Answer 5

Accounting information could be used to determine if a product should be sold or if an investment should be made.

Question 6

You are a salesperson. At the end of each month, you submit an expense report for reimbursement of personal funds you spent performing business duties such as client luncheons and travel. Last month, you included in your expense report two personal dinners with your spouse. By applying the Rotary 4-way test to this situation as identified earlier in the chapter, determine whether the behaviour is ethical or not.

Answer 6

The four elements need to be addressed as follows:

1. Is it the Truth? No, personal dinners with a spouse are not business expenses so you are
   not being truthful in submitting these as part of the expense report.
2. Is it Fair to all concerned? No, it is not fair to the owner(s) of the business, to the other
   employees, or to your spouse (since they are likely not aware of the deceit).
3. Will it build goodwill and better friendships? It may build a good relationship with the
   restaurant owners where you take your spouse but it will damage goodwill between the
   employer and you as well as strain friendships with other employees.
4. Will it be beneficial to all concerned? It will benefit you, your spouse, and the restaurant
   owner but it will not benefit the business owner(s) and the other employees.

Conclusion: The behaviour in the situation described appears to be unethical based on the application of the Rotary 4-Way Test.

Question 7

Identify which GAAP most directly describes each to the following correct practices:

a. ) Tracy Regis own two business, second time around clothing and antique Accents, both of which are sole proprietorships. in having financial statements prepared for the antique store, Regis should be sure that the revenue and expense transactions of Second Time Around are excluded from the statements of Antique Accents.
b. ) In December 2013, Classic Coverings received a customer’s order to install carpet and tile in a new house that would not be ready for completion until March 2014. Classic Coverings should record the revenue for the order in March 2014, not in December 2013.
c. ) If $30,000 cash is paid to buy land, the land should be reported on the purchaser’s balance sheet as $30,000 although the purchaser was offered $35,000 the following week.

Answer 7

a. Business entity principle
b. Revenue recognition principle
c. Cost principle

Question 8

For each of the following, identify which GAAP, if any, has been violated.

1. ) A customer called and made arrangements for Jay’s Plumbing to provide $6000 of services next month. Jay, the owner, Recorded revenue of $6K this month. No cash was exchanged.
2. ) Lan was purchased for $50k. The bank appraised it for loan purposes at $68k. Therefore, the owner of the land recorded it on the balance sheet at $68k.
3. ) The owner of Dallas Pizza and Don’s Deli combines all transitions by keeping only one set of accounting records for both businesses.
4. ) The owner of Pella’s Junk Removal has become ill suddenly and is unable to continue his business. Pella’s spouse, in need of cash to finance growing personal expenses, took the business’s most recent financial statements to the bank and was granted a loan. She did not inform the bank of her husband’s inability to work.
5. ) Dale’s consulting services completed a contract with an organization located over seas. Dale included the revenue on the income statement without converting the foreign currency into Cdn Dollars.

Answer 8

1. Revenue Recognition
2. Cost
3. Business Entity
4. Going Concern
5. Monetary Unit

Question 9

For each of the following, identify which GAAP was violated by Delco Consulting. In cases where more than one GAAP applies, name the primary GAAP that was not followed.

a. ) Delco performed work for a client located in China and collected 8,450,000 RMB, the equivalent of about $1,320,000 Cdn. Delco recorded it as $8,450,000.
b. ) Delco collected $180,000 from a customer on Dec 20, 2014 for work to be done in Feb 2015. The $180,000 was recorded as revenue during 2014. Delco’s year-end is Dec 31.
c. ) Delco’s December 31, 2014 balance sheet shower total asses of $840,000 and liabilities of $1,120,00. The income statement for the past six years have shown a trend of decreasing loses.
d. ) Included in Delco’s assets was land and a building purchased for $310,000 and reported on the balance sheet at $470,000.
e. ) Delco’s owner, To Del, consistently buys personal supplies and charges them to the company.

Answer 9

a.) Monetary Unit:
Delco performed work for a client located in China and collected 8,450,000 RMB (Chinese currency), the equivalent of about $1,320,000 Canadian. Delco recorded it as 8,450,000.

b.) Revenue Recognition:
Delco collected $180,000 from a customer on December 20, 2014 for work to be done in February 2015. The $180,000 was recorded as revenue during 2014. Delco’s year end is December 31.

c.) Going Concern:
Delco’s December 31, 2014 balance sheet showed total assets of $840,000 and liabilities of $1,120,000. The income statement for the past 6 years has shown a trend of increasing losses.

d.) cost:
Included in Delco’s assets was land and building purchased for $310,000 and reported on the balance sheet at $470,000.

e.) Business Entity
Delco’s owner, Tom Del, consistently buys personal supplies and charges them to the company.

Question 10

Identify the type of business organization based on the following independent financial statement findings:

1. ) The equity section of the balance sheet has one capital account.
2. ) The owners receive dividends, a distribution of earnings, in the form of cash.
3. ) There are two capital accounts. Tara Davis, Capital, and Sheila Kelton, Capital
4. ) The one owner receives distributions of earnings in the form of withdrawals
5. ) A manager, also the owner of the business, is paid a salary that is recoded as an expense.
6. ) The equity on the balance sheet is held by shareholders.
7. ) The five owners receive distributions of earnings in the form of withdrawals.

Answer 10

Sole-Proprietorship, Partnership, Corporation

1. SP
2. C
3. P
4. SP
5. C
6. C
7. P

Question 11

Determine the missing amount for each of the following equations:

assets = liabilities + equity

a. ) $75,000 = $40,500 + ?
b. ) $300,000 = ? + $85,000
c. ) ? = $187,500 + $95,400

Answer 11

a. ) $34,500
b. ) $214,500
c. ) $282,900

Question 12

Us the accounting equation to determine:

a. ) The equity in a business that has $374,700 of assets and $252,450 of liabilities
b. ) The liabilities of a business having $150,900 of assets and $126,000 of equity.
c. ) The assets of a business having $37,650 of liabilities and $112,500 of equity.

Answer 12

a. ) $122,250
b. ) $24,900
c. ) $150,150

Question 13

Using the accounting equation provided, calculate:

1. ) Beginning capital on January 1, 2014 and
2. ) Ending Capital at December 31, 2014.

Assets = $20,000
Liabilities = $15,000

? = Beginning Capital on Jan 1, 2014
+ $3k plus owner investments during the year
+ $8k plus net income earned during the year
- $4k less owner withdrawals during the year
? = Equals ending capital on December 31, 2014.

Answer 13

1. $20,000 - $15,000 = $5,000 beginning capital on January 1, 2014
2. $5,000 + $3,000 + $8,000 - $4,000 = $12,000 ending capital on December 31, 2014

Question 14

Select the items from the following list that are likely to serve as source documents:

a. ) income statement
b. ) statement of cash flows
c. ) telephone bill
d. ) invoice of supplier
e. ) Owner’s withdrawals account
f. ) balance sheet
g. ) bank statement
h. ) sales of invoice

Answer 14

c. Telephone bill
d. Invoice from supplier
g. Bank statement
h. Sales invoice

Question 15

For each transaction described, identify which component of the accounting equation increases and / or decreases. The first one is done as an example.

a. ) a credit customer paid his account
b. ) supplies were purchased on credit
c. ) the balance owing regarding the supplies purchased in part (b) was paid
d. ) last month’s telephone bill was received today. It will be paid on the the due date, which is 10 days from now.
e. ) paid the employees their weekly wage.

Answer 15

a. ) asset increase/decrease
b. ) assets increase, liabilities increase
c. ) assets decrease, liabilities decrease
d. ) liabilities increase, equity decrease
e. ) assets decrease, equity decrease

Question 16

Match each of these items with the financial statement or statements on which is should be presented.

a. ) income statement
b. ) statement of changes in equity
c. ) balance sheet

1. ) Supplies
2. ) Supplies expense
3. ) Accounts receivable
4. ) Accounts payable
5. ) Equipment
6. ) Owner Withdrawals
7. ) Notes payable
8. ) Utilities expense
9. ) Furniture
10. ) Fees earned
11. ) Rent revenue
12. ) Salaries expense
13. ) Owner investment
14. ) Net income

Answer 16

1. ) C
2. ) A
3. ) C
4. ) C
5. ) C
6. ) B
7. ) C
8. ) A
9. ) C
10. ) A
11. ) A
12. ) A
13. ) B
14. ) A + B

Question 17

Identify each following item

a. ) asset
b. ) liability
c. ) equity
d. ) does not appear on balance sheet

1. ) Net Loss
2. ) Rent Expense
3. ) Rent Payable
4. ) Accounts receivable
5. ) Investor investment
6. ) Interest revenue
7. ) Owner, capital
8. ) Repair supplies
9. ) Notes payable
10. ) Owner withdrawal
11. ) Truck
12. ) consulting fees earned
13. ) Owner, capital
14. ) Cash

Answer 17

1. ) D
2. ) D
3. ) B
4. ) A
5. ) D
6. ) D
7. ) D
8. ) A
9. ) B
10. ) D
11. ) A
12. ) D
13. ) C
14. ) A