Last revised: October 26, 2012
SOLUTIONS MANUAL
For
Fundamental Accounting Principles
14th Canadian Edition
Volume 1 (Ch 1-9)
by Larson/Jensen
All Chapters Solutions Manual Supplement files download
link at the end of this file.
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd. 1-1
,Last revised: October 26, 2012
Chapter 1 Accounting in Business
Chapter Opening Vignette Critical Thinking Challenge Questions*
1. What questions might Jake need the answers to in order to get a loan from a
bank?
How many employees does he need to hire to provide services to clients? Does
Jake pay his employees a salary or a wage? How much does he pay them? Does
he have the cash in the bank to pay his employees? Does he have rental
equipment? Does he have a vehicle? Does he have insurance? Is the building
rented or purchased? If he rents a building, did he make rental payments in
advance or does he pay monthly? If the building was purchased, did he pay cash
or does he owe money on it? If he owes money, does he pay interest? If he owns a
building, how much does he pay on property taxes and utilities? If he owns a
building, how much does he pay for repairs and maintenance? What about buying
and paying for supplies? Does he advertise? If so, how much does he pay? How
much is the business actually earning? Do customers pay in advance or do they
pay per session? Do customers pay cash or on account? What is the amount of
income tax he has to pay? Are there any outstanding loans? If so, what is the
balance outstanding, the term, the payments, and the interest rate? There are
many other questions that could be asked.
2. Who else might require accounting information from Jake’s business?
Other stakeholders that might require accounting information from Jake’s
business include Canada Revenue Agency (CRA), employees, and potential
investors.
*The Chapter 1 Critical Thinking Challenge questions are asked at the beginning of this
chapter. Students are reminded at the conclusion of the chapter to refer to the Critical
Thinking Challenge questions at the beginning of the chapter. The solutions to the
Critical Thinking Challenge questions are available here in the Solutions Manual and
accessible to students at Connect.
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd. 1-2
,Last revised: October 26, 2012
Concept Review Questions
1. Jake identifies accounting knowledge as the key to success in business.
2. Businesses offering products include Danier Leather, Bauer, NIKE, and Reebok
which produce apparel; Dell, Hewlett-Packard, and Apple which produce computer
equipment; and Tilley, Levis, and GAP which produce clothing. Service business
examples include: WestJet Airlines which provides airline services; Sympatico, AOL
Canada, and CompuServe provide information communication services; and Tilden,
Hertz, and Budget which provide vehicle rental services.
3. Business organizations can be organized in one of three forms: sole proprietorship,
partnership, or corporation. These forms have implications for legal liability,
taxation, continuity, number of owners, and legal status as follows:
Sole Proprietorship Partnership Corporation
Legal entity no no yes
Limited liability no no yes
Unlimited life no no yes
Business income taxed no no yes
One owner allowed yes no yes
4. The equity section of the balance sheet reports a Virgil Klimb, Capital account. The
presence of the owner’s capital account indicates that Vertically Inclined has been
organized as a sole proprietorship.
5. The two organizations for which accounting information is available in Appendix 1 at
the end of the book are WestJet Airlines and Danier Leather.
6. Hospitals, colleges, prisons, and bus lines are examples of organizations that can be
formed as profit-oriented businesses, government units, or nonprofit
establishments.
7. Individuals responsible for marketing activities are likely interested in information
such as sales volume, advertising costs, promotion costs, salaries of sales
personnel, and sales commissions.
8. External users and their uses of accounting information include: (a) lenders for
measuring the return of loans; (b) shareholders for assessing the acquisition of
shares; (c) members of the board of directors for overseeing management; and (d)
potential employees for judging employment opportunities. Other users are
auditors, consultants, regulators, unions, suppliers, and appraisers. Internal users
and their uses of accounting information include: (a) management for overseeing
performance, financial position, and cash flow; and (b) current employees for
generating special purpose reports to assist management.
9. The internal role of accounting is to serve the organization’s internal operating
functions by providing useful information in completing their tasks more effectively
and efficiently. By providing this information, accounting helps the organization
reach its overall goals.
10. Managerial accounting tasks performed by both private and government
accountants include general accounting, cost accounting, budgeting, auditing, and
management consulting.
11. Management consulting services offered by public accounting professionals include
designing and installing accounting systems, establishing internal controls, advice
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd. 1-3
, Last revised: October 26, 2012
on budgeting, guidance in information technology, and constructing employee
benefit plans.
12. In addition to preparing tax returns, tax accountants help companies plan future
transactions to minimize the amount of tax to be paid.
13. The independent auditor for Danier Leather is PricewaterhouseCoopers LLP.
14. The purpose of accounting is to provide decision makers with information helping
them make better decisions. Examples include information for people making
investments, loans and similar decisions.
15. Accounting professionals deal with a variety of information about their employers
and clients that is not generally available to the public. Ethical issues arise
concerning the possibility that accounting professionals might personally benefit by
using confidential information. There is also the possibility that their employers and
clients might be harmed if certain information is not kept confidential.
16. An income statement user must know what time period is covered to judge whether
the company’s performance is satisfactory. For example, a statement user would not
be able to assess whether the amounts of revenue and net income are satisfactory
without knowing whether they were earned over a week, a month, or a year.
17. The revenue recognition principle provides guidance that managers and auditors
need for knowing when to recognize revenue. For example, if revenue is recognized
too early, the income statement reports income earlier than it should and the
business looks more profitable than it really is. On the other hand, if the revenue is
not recognized on time, the income statement shows lower amounts of revenue and
net income than it should and the business looks less profitable than it really is.
Basically, this principle requires revenue to be recognized when it is earned and can
be measured reliably. The amount of revenue should equal the value of the assets
received from the customers.
18. The four financial statements are: the income statement, the balance sheet, the
statement of changes in equity, and the statement of cash flows.
19. An income statement reports on the business’s performance during the period. It
shows whether the business earned a net income (or net loss). The statement does
not simply report the amount of net income or loss but lists the types and amounts
of the revenues and expenses.
20. A revenue is an inflow of assets received in exchange for goods or services
provided to customers as part of the major or central operations of the business. A
revenue also may occur as a decrease in liabilities as when a service or product is
delivered having been paid for in advance.
21. A business’s equity is increased by investments into the business made by the
owner and by net income. It is decreased by withdrawals made by the owner and by
a net loss, which is the excess of expenses over revenues.
22. The balance sheet reports on the financial position of a business at a specific point
in time. It is often called the statement of financial position. It provides information
that helps users understand a company’s financial status. The balance sheet lists
the types and dollar amounts of assets, liabilities, and equity of the business.
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd. 1-4
