Question: What are cash equivalents and why are

> On January 2, 2018, Archer Company, a skateboard manufacturer, installed a computerized machine in its factory at a cost of $150,200. The machine’s useful life was estimated at four years or a total of 186,000 units with a $20,000 trade

> On January 1, 2020, Land’s End Construction purchased a used truck for $52,500. A new motor had to be installed to get the truck in good working order; the costs were $21,000 for the motor and $7,500 for the labour. The truck was also painted for $6,000.

> Paul, Frank, and Basil formed Fresh, a greenhouse and garden centre business, 10 years ago, and Paul is about to retire. Paul is not experienced in financial accounting, but knows, based on the partnership agreement, that he is entitled to one-third of p

> Mike Li is a sales manager for an electric car dealership in Alberta. Mike earns a bonus each year based on revenue generated by the number of vehicles sold in the year less related warranty expenses. The quality of electric cars sold each year seems to

> Marcia Diamond is a small business owner who handles all the books for her business. Her company just finished a year in which a large amount of borrowed funds were invested into a new building addition as well as numerous equipment and fixture additions

> In your position as controller of Flashy Inc., a video production company, you are responsible for keeping the board of directors informed about the financial activities and status of the company. At the board meeting, you present the following report: A

> Bosch and Gilbert are in the process of forming a golf course equipment maintenance company. Bosch will contribute one-third time and Gilbert will work full time. They have discussed the following alternative plans for sharing profit and losses. a. In th

> Wendy Cramer is working late on a Friday night in preparation for a meeting with her banker early Monday morning. Her business is just finishing its fourth year. In Year 1, the business experienced negative cash flows from operations. In Years 2 and 3, c

> Jack Phelps is the controller for Jayhawk Corporation. Jayhawk has a corporate policy of investing idle cash in non-strategic investments. About 18 months ago, the company had significant amounts of idle cash and invested in 16%, 10-year Delta Inc. bonds

> A few years ago, politicians needed a new headquarters building for their municipal government. The price tag for the building approached $24 million. The politicians felt that the voters were unlikely to approve a bond issue to raise money for the headq

> JenStar’s management team has decided that its income statement would be more useful if depreciation were calculated using the straight-line method instead of the double-declining balance method. This change in accounting policy adds $156,000 to income

> Jack and Bill are partners in a computer software company. They developed a word processing program that is remarkably similar to a Corel product. Jack telephones Bill at home one evening and says, “We should convert our partnership into a corporation be

> Jones Inc. needs $100,000 to finance the purchase of new equipment. The finance manager is considering two options: 1. Borrowing the funds over a five-year term and paying interest at the rate of 6% per year, or 2. Issuing 6,000 shares of $1 cumulative p

> Josh and Ben Shaw are brothers. They each have $75,000 to invest in a business together: Northern Canadian Extreme Adventures. They estimate that an additional $200,000 is required to get the business operating but have yet to determine how to get this a

> Selected information taken from the December 31, 2020, financial statements for Mesa Company is shown below for the year just ended: The accountant was not sure about how to handle a few transactions and has listed the details here. Inventory Purchased $

> Two years ago, on March 1, 2018, General Recycling Management Systems purchased five used trucks and debited the Trucks account for the total cost of $180,000. The estimated useful life and residual value per truck were determined to be five years and $5

> You are the new human resources manager and are reviewing the bonus policies as part of familiarizing yourself with the payroll system. The plant superintendent’s bonus is calculated as the return on total assets ratio for the year time

> Phung, Moier, and Lister invested $130,000, $150,000, and $120,000, respectively, into an organic farm to restaurant distribution business. During its first year, the firm earned $25,000. Required: Prepare entries to close the firm’s Income Summary accou

> A major shareholder of Systems Unlimited Inc., Phil Wang, is perplexed. The 2020 income statement showed a healthy profit of $280 thousand. Yet, when Linda Lewis, the bank manager and a friend of Phil’s, called to let him know that the

> You are the chair of the board of CT Inc., a Canadian-based multinational corporation, which has excess cash totalling $75 million. The company is interested in investing some or all of this in Delmar Corp., one of CT’s key suppliers. T

> 5-Star Adventures Inc. financed its $1,000,000 expansion by issuing on January 1, 2020, a 5%, 10-year bond dated the same day with annual interest payments to be made each December 31. The market interest rate at the time of issue was 7%. Assume that you

> CanaCo showed the following equity on its December 31, 2020, balance sheet: The shareholders of CanaCo expressed concerns to the board of directors at the recent annual meeting that the market price of their shares has not changed significantly over the

> What is the difference in how to account for land and land improvements?

> What are some examples of items to include in the cost of a property, plant, and equipment purchase?

> What is the balance sheet classification of land held for future expansion? Why is the land not classified as property, plant, and equipment?

> What characteristics of a property, plant, and equipment item make it different from other assets, such as accounts receivable or inventory?

> Refer to the financial statements for Spin Master and calculate the percentage change in non-current liabilities from December 31, 2016 to December 31, 2017.

> Refer to the financial statements for Spin Master and calculate the percentage change in revenue from December 31, 2016, to December 31, 2017.

> Zest Company is a Montreal HR firm. Its condensed income statement for the year ended November 30, 2020, is shown below. The liabilities reported on the November 30, 2020, balance sheet were: Accounts payable $ 26,230 Mortgage payable 328,698 Total lia

> What is the difference between comparative financial statements and common-size comparative statements?

> Refer to the financial statements for WestJet and calculate the percentage change in sales and marketing expenses from 2016 to 2017.

> Refer to the financial statements for WestJet and calculate the percentage change in total revenues from 2016 to 2017.

> What ratios would you calculate for the purpose of evaluating management performance?

> Why would a company’s return on total assets be different from its return on common shareholders’ equity?

> Why must the ratio of pledged assets to secured liabilities be interpreted with caution?

> Why is the capital structure of a company, as measured by debt and equity ratios, of importance to financial statement analysts?

> What information does the inventory turnover provide about a company’s short-term liquidity?

> What is the significance of the inventory of days’ sales uncollected?

> What does a relatively high accounts receivable turnover indicate about a company’s short-term liquidity?

> Sask Tractor borrowed $320,000 to purchase inventory on September 17, 2020 for 60 days at 6% interest by signing a note. On December 6, 2020, Sask Tractor sold a tractor for cash of $24,000 (cost $15,400) with a two-year parts and labour warranty. Based

> Which two ratios are the basic components in measuring a company’s operating efficiency? Which ratio summarizes these two components?

> Explain the difference between financial reporting and financial statements.

> On June 3, a company borrowed $50,000 by giving its bank a 60-day, interest-bearing note. On the June 30 statement of cash flows, where should this item be reported?

> Is depreciation an outflow of cash? Explain.

> Explain why non-cash expenses and losses are added to profit in calculating cash provided by operating activities using the indirect method.

> Refer to WestJet’s statement of cash flows. a. Which method was used to calculate net cash provided by operating activities? b. WestJet has two off-balance-sheet arrangements. What are they?

> If a company reports a profit for the year, is it possible for the company to show a net cash outflow from operating activities? Explain your answer.

> Describe the indirect method of reporting cash flows from operating activities.

> Describe the direct method of reporting cash flows from operating activities.

> Appleton Electronics Company purchases merchandise inventory from several suppliers. On October 1, 2020, Appleton Electronics purchased from Digital Wiring $40,000 of inventory on account. On November 10, 2020, Appleton Electronics sold inventory to Disc

> Fab-Form Industries completed the following transactions involving the purchase of delivery equipment. Required: Prepare journal entries to record the transactions.

> The chapter-opening vignette indicated that Calvin Su follows the cash flow of his business very closely. Why do you think it is imperative for business owners to strictly manage their cash resources?

> Explain how cost of goods sold is converted from an accrual basis to a cash basis for use in the direct method.

> Explain how sales are converted from an accrual basis to a cash basis for use in the direct method.

> When a statement of cash flows is prepared by the direct method, what are some examples of items reported as cash flows from operating activities?

> Refer to Spin Master’s statement of cash flows. What activity comprised the largest financing activity resulting in cash outflows for the year ended December 31, 2017?

> Refer to Spin Master’s balance sheet. First, find the Cash balances on December, 2016, and December 31, 2017, and calculate the change in Cash. Next, refer to Spin Master’s statement of cash flows and identify the change in Cash reported for the year end

> Refer to Indigo’s statement of cash flows. What activity comprised Indigo’s cash outflows from financing activities for the fiscal year ended 2017?

> What are some examples of items reported on a statement of cash flows as financing activities?

> A company purchases land for $100,000, paying $20,000 cash and borrowing the remainder on a long-term note payable. How should this transaction be reported on a statement of cash flows?

> What are some examples of items reported on a statement of cash flows as investing activities?

> Africa Safari is a tour business that operates from about April to October each year. The company has an outstanding reputation for the quality of its tours and as a result pre-books customers a full year in advance. Customers must pay 40% at the time of

> What is the purpose and importance of a statement of cash flows to business decision making?

> Using the equity method, dividends received are not recorded as profit. Explain why this is true.

> When share investments are accounted for using the equity method, when should investment income be recognized? What accounts are debited and credited?

> In accounting for common share investments, when should the equity method be used?

> When non-strategic debt investments are accounted for using the amortized cost method, when should interest income be recognized?

> When non-strategic investments are accounted for using the fair value method, when should investment income be recognized?

> Is the FVTPL category used when management plans to hold investments to maturity or if they plan to actively trade the debt investments?

> How is interest recognized on debt investments that are expected to be held for their contract life?

> What is the difference between an equity investment and a debt investment?

> Startup companies such as the Farmery, highlighted in the chapter-opening vignette, often have challenges raising sufficient capital. From the issuing company perspective, what are the advantages and disadvantages, including costs and key considerations

> Tara Kim is the new manager of accounting and finance for a medium-sized manufacturing company. Now that the end of the year is approaching, her problem is determining whether and how to describe some of the company’s liabilities in the financial stateme

> Under what circumstances would a company prepare consolidated financial statements?

> Identify the two key categories used to account for non-strategic investments with less than 20% ownership.

> If you know the par value of bonds, the contract rate, and the market interest rate, how can you estimate the market value of the bonds?

> What factors affect the market interest rates for bonds?

> What are the contract and market interest rates for bonds?

> Refer to the annual report for Telus presented. Where are the details regarding the composition of the $12,256,000 December 31, 2017, balance in long term debt?

> What obligation do issuing corporations have to bondholders?

> What is a bond indenture? What provisions are usually included in an indenture?

> What is the main advantage of issuing bonds instead of issuing shares to investors?

> What is the primary difference between a share and a bond?

> On November 9, 2020, Snowbot Snow Removal began to buy and resell snow blowers for $700 each. Snowbot uses the perpetual system to account for inventories. The snow blowers are covered under a warranty that requires the company to replace any non-working

> The initial ZooShare community bond offering highlighted in the chapter-opening vignette offered investors a 11.5–12.5% return. Why would the initial ZooShare bond offering provide investors with such an attractive return at such a high interest rate?

> How would a lease create an asset and a liability for the lessee?

> Refer to the annual report for Spin Master presented. Note 15 includes details that the company reports secured debt separately from unsecured debt as well as interest rates on their respective outstanding loans. Why would financial statement users be co

> Describe two alternative payment patterns for installment notes.

> Why does a company that issues bonds between interest dates collect accrued interest from the bonds’ purchasers?

> What is the cash price of a $2,000 bond that is sold at 98¼? What is the cash price of a $6,000 bond that is sold at 101½? Answer: The cash price of a $2,000 bond sold at 98 1/4 is 98.25% of $2,000, or $1,965. The cash price of a $6,000 bond priced at

> What is the difference between notes payable and bonds payable?

> The chapter-opening vignette highlighted Apple Inc.’s 7:1 stock split. What is the key reason executives at Apple would decide to provide shareholders with seven shares of stock for each common share held?

> After taking five years’ straight-line depreciation expense for an asset that was expected to have an eight year useful life, a company decided that the asset would last another six years. Is this decision a change in accounting policy? How would the fin

> Refer to the financial statements for WestJet. In both 2016 and 2017 the balance of shares issued and outstanding was reduced. What caused the balance of the account to go down? And what had shares been issued for?

> Brad’s Building Supplies entered into the following transactions involving current liabilities during 2020 and 2021: Required: Prepare journal entries to record these transactions for Brad’s Building Supplies.

> Refer to the financial statements for Spin Master. Did basic EPS increase or decrease from 2016 to 2017?

> How are earnings per share results calculated for a corporation with a simple capital structure?

> Refer to the financial statements for Indigo. The balance in share capital at April 1, 2017, was 26,351,484 shares. What is the balance as of March 31, 2018? What caused the change in share capital from 2017 to 2018?

> What effects does declaring a share dividend have on the corporation’s assets, liabilities, and total equity? What effects does the distribution of the shares have?

> What is the difference between a share dividend and a share split?