financial accounting tools for business decision making solutions 7e chapter 03

Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley Financial Accounting, Seventh Canadian Edition CHAPTER THE ACCOUNTING INFORMATION SYSTEM LEARNING OBJECTIVES Analyze the effect of transactions on the accounting equation Explain how accounts, debits, and credits are used to record transactions Journalize transactions in the general journal Post transactions to the general ledger Prepare a trial balance SUMMARY OF QUESTIONS BY LEARNING OBJECTIVES AND BLOOM’S TAXONOMY Item LO 1 BT Item LO C C C C 2 3 BT Item LO BT Item LO Questions C C C C 10 11 12 3,4 3,4 4 C C K K BT Item LO BT 13 14 15 16 5 K C C C 17 1,3,4,5 C 13 AN Brief Exercises 1 C AP AP 10 AP AN 1,2 AN AP 11 AP AP AP AN 12 AP Exercises 1 AN 1,2 AN 10 4,5 AP 13 AP AN AP 1,2,3,4 AN AP 11 AP 14 AP K AP AN 12 AP 15 AN AP Problems: Set A and B 1 AN K 3,4 AP 10 AN 1,2,3 AN 3,4,5 AP 11 AP AP AP 3,4,5 AP 12 AN Accounting Cycle Review 3,4,5 AP 3,4,5 AP Cases 1 AP 3,4,5 E 5 S AN AN 3,4,5 AN Solutions Manual 3-1 Chapter Copyright © 2017 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley Financial Accounting, Seventh Canadian Edition Legend: The following abbreviations will appear throughout the solutions manual file LO Learning objective BT Bloom's Taxonomy K Knowledge C Comprehension AP Application AN Analysis S Synthesis E Evaluation Level of difficulty S Simple M Moderate C Complex Estimated time to prepare in minutes Association to Advance Collegiate Schools of Business Communication Communication Ethics Ethics Analytic Analytic Technology Tech Diversity Diversity Reflective Thinking Reflec Thinking CPA Canada Competency Ethics Professional and Ethical Behaviour PS and DM Problem-Solving and Decision-Making Comm Communication Self-Mgt Self-Management Team & Lead Teamwork and Leadership Reporting Financial Reporting Stat & Gov Strategy and Governance Mgt Accounting Management Accounting Audit Audit and Assurance Finance Finance Tax Taxation Difficulty: Time: AACSB CPA CM cpa-e001 cpa-e002 cpa-e003 cpa-e004 cpa-e005 cpa-t001 cpa-t002 cpa-t003 cpa-t004 cpa-t005 cpa-t006 Solutions Manual 3-2 Chapter Copyright © 2017 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley Financial Accounting, Seventh Canadian Edition ANSWERS TO QUESTIONS (a) (b) Only events that cause a change in an asset, liability, or shareholders’ equity account are recorded as accounting transactions Other events, such as the agreement to provide a service, not immediately impact an asset, liability, or shareholder’s equity account and, therefore, are not considered an accounting transaction Examples of events that would not be recorded include hiring employees, signing a lease, and placing an order to purchase services LO BT: C Difficulty: M Time: AACSB: None CPA: cpa-t001 CM: Reporting Accounting transactions that affect the accounting equation (assets = liabilities + shareholders’ equity) should be recorded (a) (b) (c) (d) (e) Winning an award is not an accounting transaction, as it does not affect the accounting equation The award did not involve the receipt of an asset, such as cash Supplies purchased on account is an accounting transaction because it affects the accounting equation (assets are increased because supplies were received and liabilities are increased because accounts payable were incurred) A shareholder dying is not an accounting transaction, as it does not affect the accounting equation Declaring and paying a cash dividend to shareholders is an accounting transaction as it does affect the accounting equation (shareholders’ equity is decreased and assets (cash) are decreased) The agreement to provide legal services to the company is not an accounting transaction as it does not affect the accounting equation No expense has been incurred yet and no liabilities have been affected as yet Once the lawyer begins providing services and an amount is paid or owed, then a transaction would be recorded LO BT: C Difficulty: C Time: AACSB: None CPA: cpa-t001 CM: Reporting Solutions Manual 3-3 Chapter Copyright © 2017 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley Financial Accounting, Seventh Canadian Edition Yes, a company can enter into a transaction in which only the left (assets) side of the accounting equation is affected An example would be a transaction where an increase in one asset is offset by a decrease in another asset A decrease in the Accounts Receivable account which is offset by an increase in the Cash account is a specific example (that is, a customer paying for goods previously purchased on account) LO BT: C Difficulty: S Time: AACSB: None CPA: cpa-t001 CM: Reporting The structure of the accounting equation matches the debit-credit rules in accounting Assets are shown on the left-hand side of the accounting equation and debits are shown on the left-hand side of the accounting equation and T accounts Because of this, asset accounts have normal debit balances Liabilities and shareholders’ equity are shown on the right-hand side of the accounting equation and credits are shown on the right-hand side of the accounting equation and T accounts Liabilities and shareholders’ equity accounts (such as share capital and retained earnings) have normal credit balances Following the debit-credit rules will ensure that the accounting equation will be consistently applied LO BT: C Difficulty: M Time: AACSB: None CPA: cpa-t001 CM: Reporting Shareholders' equity consists of different components, and they not all move in the same direction Shareholders’ equity is usually comprised of share capital (which is increased by credits) and retained earnings Retained earnings can be further subdivided into revenues and expenses and dividends declared which are then added to opening retained earnings in the case of revenues, and deducted from opening retained earnings in the case of expenses and dividends Revenues are increased by credits while expenses and dividends declared are increased by debits LO BT: C Difficulty: M Time: AACSB: None CPA: cpa-t001 CM: Reporting Solutions Manual 3-4 Chapter Copyright © 2017 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley Financial Accounting, Seventh Canadian Edition Emily is likely relating the term debit and credit to the normal balances of accounts Since assets have normal debit balances and, from a personal standpoint, acquiring and possessing assets is viewed in a positive light, it might follow in Emily’s mind that debits are favourable On the other hand, liabilities have a normal credit balance and might be viewed by Emily in a negative light because debt is unfavourable from a personal standpoint However, Emily is incorrect Debits mean nothing more than the left side of accounts and credits the right side of the accounts Neither is favourable or unfavourable LO BT: C Difficulty: M Time: AACSB: None CPA: cpa-t001 CM: Reporting (a) (b) A general journal is a book of original entry, in which transactions are recorded in chronological order The general journal facilitates the recording process by documenting the debit and credit effects on specific accounts The general journal discloses the complete effect of a transaction in one place, including an explanation and, where applicable, identification of the source document The general journal provides a chronological record of transactions and it helps to prevent and locate errors, because the debit and credit amounts for each entry can be quickly compared LO BT: C Difficulty: M Time: AACSB: None CPA: cpa-t001 CM: Reporting While the account title choices suggested by Meghan provide details of the type of truck the company purchased, the title of the account used to record the purchase should be more generic to include all types of trucks and other vehicles that can be owned and used by the business Ambiguous or multiple account titles with similar names can lead to incorrect financial reporting The name of the account often used by companies for purchases of this nature is Vehicles LO BT: C Difficulty: M Time: AACSB: None CPA: cpa-t001 CM: Reporting Solutions Manual 3-5 Chapter Copyright © 2017 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley Financial Accounting, Seventh Canadian Edition This would not be efficient because the journal provides a record that shows both “sides” of the transaction along with a description of the transaction This information is vital to the understanding of the event A general ledger is not intended to be used to capture the recording of transactions, but to tabulate the effects of transactions in separate accounts The balances arrived at in the ledger are then used to communicate information to the users of the financial statements If one attempted to omit the use of journal entries, one could not retrace the transactions as they originated in the journal One would only see one side of a transaction at a time by looking at an account in the ledger It would become very confusing and unruly to try to keep track of transactions LO 3,4 BT: C Difficulty: M Time: AACSB: None CPA: cpa-t001 CM: Reporting 10 Posting should be done on a timely basis, at least monthly, so that account balances can be monitored and reconciled This ensures that any errors are identified as soon as possible LO 3,4 BT: C Difficulty: S Time: AACSB: None CPA: cpa-t001 CM: Reporting 11 (a) (b) The general ledger is the entire group of accounts maintained by a company, including all the asset, liability, and shareholders' equity accounts, including the share capital, retained earnings, dividends declared, revenue, and expense accounts The general ledger is often arranged in the order in which accounts are presented in the financial statements, beginning with the statement of financial position accounts The asset accounts come first, followed by liability accounts, and then shareholders’ equity accounts, including the share capital, retained earnings, dividends declared, revenue, and expense accounts LO BT: K Difficulty: S Time: AACSB: None CPA: cpa-t001 CM: Reporting Solutions Manual 3-6 Chapter Copyright © 2017 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley 12 (a) (b) Financial Accounting, Seventh Canadian Edition The chart of accounts is a list of a company’s accounts The chart of accounts is important, particularly for a company that has a large number of accounts, because it helps organize the accounts and identify their location in the general ledger Numbering the accounts helps identify and sort the accounts LO BT: K Difficulty: S Time: AACSB: None CPA: cpa-t001 CM: Reporting 13 Cash, Accounts Receivable, Supplies, Prepaid Insurance, Accounts Payable, Unearned Revenue, Common Shares, Dividends Declared, Service Revenue, Salaries Expense, and Income Tax Expense LO BT: K Difficulty: S Time: AACSB: Analytic CPA: cpa-t001 CM: Reporting 14 (a) (b) A trial balance is a list of accounts and their balances at a point in time The primary purpose of a trial balance is to prove the mathematical equality of debits and credits after all journalized transactions have been posted A trial balance also facilitates the discovery of errors in journalizing and posting In addition, it is useful in preparing financial statements While it does not matter in what order the accounts are listed in the trial balance, it is usual for the accounts in the trial balance to be listed in the same order as they are listed in the general ledger (asset accounts, liability accounts, and shareholders’ equity accounts, including the share capital, retained earnings, dividends declared, revenue, and expense accounts) This makes it easier to compare the trial balance accounts to the general ledger accounts, as well as to prepare the financial statements from the trial balance LO BT: C Difficulty: S Time: AACSB: None CPA: cpa-t001 CM: Reporting Solutions Manual 3-7 Chapter Copyright © 2017 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley 15 Financial Accounting, Seventh Canadian Edition The retained earnings account in the unadjusted trial balance shows the beginning balance of the period (which is the same as the ending balance of the prior period) as it has not yet been updated for the effect that the revenues, expenses, and dividends declared have on retained earnings for the current accounting period (Note to instructors: This chapter only includes references to an unadjusted and pre-closing trial balance; the post-closing trial balance is not introduced until Chapter 4.) LO BT: C Difficulty: M Time: AACSB: None CPA: cpa-t001 CM: Reporting 16 Claire, here are some tips to help you find the $100 difference in the trial balance columns assuming it is a single error: If the difference between the debit and credit totals is an amount such as $1, $100, or $1,000, re-add the trial balance columns and recalculate the account balances If the amount of the difference can be evenly divided by two, (which it is in this case) scan the trial balance to see if a balance equal to half the error has been entered in the wrong column If the amount of the difference can be evenly divided by nine, (which it is not in this case) retrace the account balances on the trial balance to see whether they have been incorrectly copied from the ledger For example, if a balance was $12 but was listed as $21, a $9 error has been made Reversing the order of numbers is called a transposition error A slide, which is adding or deducting one or several zeros in a figure, has the same effect If the amount of the difference cannot be evenly divided by two or nine, scan the ledger to see whether an account balance in the amount of the error has been omitted from the trial balance Scan the journal to see whether a posting in the amount of the error has been omitted When all else fails, all of the transactions should be carefully traced through the process again LO BT: C Difficulty: M Time: 10 AACSB: Analytic CPA: cpa-t001 CM: Reporting Solutions Manual 3-8 Chapter Copyright © 2017 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley 17 Financial Accounting, Seventh Canadian Edition The first four steps in the accounting cycle are: (a) (1) Analyze the business transactions and determine their effects on the accounting equation and also determine when and how to record the transactions (2) Journalize the transactions in the general journal to record the effects of the transactions on the accounts involved in the transactions (3) Post to the general ledger accounts to provide an accumulation of the effect of several journalized transactions in the individual accounts (4) Prepare a trial balance to prove that the sum of the debit account balances equals the sum of the credit account balances after posting (b) It does matter in which order the steps of the accounting cycle are completed Each step performed has been designed in the sequence with the understanding that the previous step has been performed Failing to so would result in incomplete and inaccurate financial information LO 1,3,4,5 BT: C Difficulty: M Time: AACSB: None CPA: cpa-t001 CM: Reporting Solutions Manual 3-9 Chapter Copyright © 2017 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley Financial Accounting, Seventh Canadian Edition SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE 3-1 (a) (b) Assets (+) (-) NE NE (+) NE = Liabilities NE NE NE NE NE + Shareholders’ Equity NE NE NE (+) NE Items and are accounting transactions that should be recorded in the accounting records Each of these transactions have an impact on the accounting equation as shown in part (a) Items 2, 3, and should not be recorded in the accounting equation They not yet impact the accounting equation LO BT: C Difficulty: S Time: AACSB: None CPA: cpa-t001 CM: Reporting Solutions Manual 3-10 Chapter Copyright © 2017 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley Financial Accounting, Seventh Canadian Edition CT3-3 (CONTINUED) (c) BOB'S REPAIRS LTD Income Statement Year Ended August 31, 2018 Service revenue Expenses Salaries expense Rent expense Office expense Income before income tax Income tax expense Net income $229,400 $120,000 42,000 36,400 198,400 31,000 6,200 $ 24,800 [Revenues – Expenses = Net income or (loss)] BOB'S REPAIRS LTD Statement of Changes in Equity Year Ended August 31, 2018 Balance, September Issued common shares Net income Dividends declared Balance, August 31 Common Shares $ 10,000 00 0000 $10,000 Retained Earnings $ 24,800 (1,000) $23,800 Total Equity $ 10,000 24,800 (1,000) $33,800 Solutions Manual 3-150 Chapter Copyright © 2017 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley Financial Accounting, Seventh Canadian Edition CT3-3 (CONTINUED) (c) (continued) BOB'S REPAIRS LTD Statement of Financial Position August 31, 2018 Current assets Cash Accounts receivable Prepaid rent Total assets Current liabilities Accounts payable Income tax payable Unearned revenue Total liabilities Shareholders' equity Common shares Retained earnings Total shareholders’ equity Total liabilities and shareholders’ equity (d) $ 3,100 39,400 3,500 $46,000 $4,000 6,200 2,000 $12,200 $10,000 23,800 33,800 $46,000 Five of the cash transactions relate to operating activities: Cash collected from customers Payments to the landlord Salaries paid Payments for office expenses Customer advances Total effect on cash flow $190,000 (45,500) (120,000) (32,400) 2,000 $ (5,900) Solutions Manual 3-151 Chapter Copyright © 2017 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley Financial Accounting, Seventh Canadian Edition CT3-3 (CONTINUED) Uncle Bob would not be pleased to find out that operating cash flows were not positive This can often happen during the first year that a company operates The other two cash transactions not shown above are financing activities: the issue of common shares for $10,000 and the declaration and payment of dividends for $1,000 The net increase to cash of $9,000 allowed the company to have a positive cash balance $3,100 (−$5,900 + $9,000) at the end of the year (e) The bank would want collateral for any loan given to the company Usually such collateral consists of property, plant, or equipment and this company has none of these It may be possible to secure a loan with accounts receivable but the company did not have this type of asset when it was first formed (f) No, the company does not have enough cash to pay the income tax The company would have to collect some accounts receivable if it hoped to pay the income tax (g) The government levies income tax on corporations, which are considered legal entities, separate from their shareholders Uncle Bob would pay income tax only on the dividends he received from the company LO 3,4,5 BT: E Difficulty: M Time: 55 AACSB: Analytic CPA: cpa-t001 CM: Reporting Solutions Manual 3-152 Chapter Copyright © 2017 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley CT3-4 (a) Financial Accounting, Seventh Canadian Edition STUDENT VIEW CASE On September 1, 2018, my personal equity would be as follows: Cash Cell phone Total assets Less: student loan Personal equity, Sept 1, 2018 (b) $21,000 200 21,200 (9,000) $12,200 Errors in the trial balance: • The cash amount should be the amount in the bank account at December 15 • The computer was recorded at $100 rather than the actual cost of $1,000 • The damage deposit of $400 for the residence has been omitted • The travel costs are $450, not $540 Solutions Manual 3-153 Chapter Copyright © 2017 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley Financial Accounting, Seventh Canadian Edition CT3-4 (CONTINUED) (b) (continued) Personal Trial Balance December 15, 2018 Debit Cash $ 7,400 Clothes 1,500 Cell phone 200 Computer 1,000 Damage deposit on residence 400 Student loan Personal equity Residence and meal plan fees ($1,100 per month) 4,400 Tuition for September to December 3,500 Textbooks 600 Personal costs (personal items, entertainment, eating out) 1,500 Cellphone costs 250 Travel to go home at Christmas 450 $21,200 Credit $ 9,000 12,200 $21,200 (Total of debit account balances = Total of credit account balances) (c) Expenses Clothes Residence and meal plan fees ($1,100 per month) Tuition for September to December Textbooks Personal costs (personal items, entertainment, eating out) Cellphone costs Travel to go home at Christmas Total expenses September to December Personal equity, September Total expenses Personal equity, December 15 By December 31, 2018, the personal equity is nil $ 1,500 4,400 3,500 600 1,500 250 450 $12,200 $12,200 (12,200) $ Solutions Manual 3-154 Chapter Copyright © 2017 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley Financial Accounting, Seventh Canadian Edition CT3-4 (CONTINUED) (d) Balance of cash December 15, 2018 Assumed expenses for second term same as first Shortfall in cash (e) Personal expenses in the first term are far too high Some expenses that can be reduced in the second term include personal costs for entertainment and eating out If half as much is spent in the second term, $750 can be saved In addition, clothes expenses could be reduced to $300, saving another $1,200 Travel to go home can be eliminated Finally, if the residence room is kept in good condition and with no damages, $400 for the damage deposit will be returned in cash (f) $ 7,400 (12,200) $ 4,800 Personal expenses savings Reduced clothing costs Travel costs Return of residence damage deposit Additional cash made available $ 750 1,200 450 400 $2,800 Cash shortfall Additional cash from spending changes Ask parents for extra cash $4,800 2,800 $2,000 LO BT: AN Difficulty: M Time: 40 AACSB: Analytic CPA: cpa-t001 CM: Reporting Solutions Manual 3-155 Chapter Copyright © 2017 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley CT3-5 Financial Accounting, Seventh Canadian Edition ETHICS CASE Note to instructors: All of the material supplementing this group activity, including a suggested solution, can be found in the Collaborative Learning section of the Instructor Resource site accompanying this textbook as well as in the Prepare and Present section of WileyPLUS (a) Ron, here are some tips to help you find the $810 error in the trial balance assuming it is a single error: If the error is an amount such as $1, $100, or $1,000, re-add the trial balance columns and recalculate the account balances This tip does not apply in this case because the difference between the debit and credit columns is $810 If the error can be evenly divided by two (which it can be in this case $810 ÷ = $405), scan the trial balance to see if a balance equal to half the error has been entered in the wrong column If the error can be evenly divided by nine (which it can be in this case $810 ÷ = $90), retrace the account balances on the trial balance to see whether they have been incorrectly copied from the ledger For example, if a balance was $12 but was listed as $21, a $9 error has been made Reversing the order of numbers is called a transposition error A slide, which is adding or deducting one or several zeros in a figure, has the same effect If the error cannot be evenly divided by two or nine, scan the ledger to see whether an account balance in the amount of the error has been omitted from the trial balance Scan the journal to see whether a posting in the amount of the error has been omitted Note that these suggestions will not always work, especially if there is more than one error and sometimes, the only way to find an error is to retrace all of the work carefully Solutions Manual 3-156 Chapter Copyright © 2017 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley Financial Accounting, Seventh Canadian Edition CT3-5 (CONTINUED) (b) The stakeholders in this situation are: Ron Hollister The other students in the group who will be graded for Ron’s work The other students in the class The professor The College or University attended by Ron Future employers of the graduates of the school (c) By adding $810 to the Salaries Expense account, the account total has been deliberately misstated By not locating the error causing the imbalance, some other account or accounts may also be misstated by a net amount of $810 Ron did not advise his fellow team members of the action he has taken to avoid detection While his motivation was most likely to meet the deadline for handing in the assignment, he also “hoped no one would notice the difference” so he made this change with deliberate intent It was inappropriate not to offer the other group members an opportunity to find the error in one or more of their parts of the assignment, or to take action without advising them The entire group will be affected by Ron’s actions and had no means of agreeing to the strategy taken to address the problem As an aside, it is important for students to agree as a group on “behavioural norms” ahead of time to help reduce the likelihood of unintended consequences affecting one or more of the group The adding of the $810 to the Salaries Expense account is not by itself unethical in a classroom situation but it does not adhere to the qualitative characteristic of faithful representation of the numbers The professor would obviously catch this error and grade the assignment accordingly However, Ron’s failure to inform other group members that he was changing amounts that they had prepared would be considered by many to be both inappropriate and unethical Solutions Manual 3-157 Chapter Copyright © 2017 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley Financial Accounting, Seventh Canadian Edition CT3-5 (CONTINUED) (c) (continued) Although the assignment will not affect external users of a real financial report, it is important to understand that if this had been a real life situation, Ron’s actions—both the changing of an account balance and the failure to inform—would be considered to be unethical because financial information was intentionally altered and done deliberately to mislead users [See also the answer to part (e).] While Ron is not likely in breach of any rule or directive issued by the school concerning academic integrity, the professor and the other group members will not agree with the strategy used by Ron They will wonder if this is the type of action Ron would take while at a future job Such actions would then affect others who are not part of the school community and the reputation of the school would be diminished This in turn could affect society’s opinion of the past and future graduates of the school (d) Ron's alternatives are: Discuss the situation with the teammates and reach a consensus that it is better to miss the deadline but find the error causing the imbalance and suffer the corresponding penalty for submitting the assignment late Discuss the situation with teammates and reach a consensus to tell the professor of the imbalance and ask for an extension of time or suffer the consequences Discuss the situation with teammates and potentially get their assistance to locate the error causing the imbalance as a team effort so that the assignment can still submitted by the deadline Solutions Manual 3-158 Chapter Copyright © 2017 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley Financial Accounting, Seventh Canadian Edition CT3-5 (CONTINUED) (c) (continued) (e) External users of the financial information prepared by Ron could potentially be affected by the errors that remain undetected It is highly likely that another account may also be wrong on the financial statements The consequences are more far reaching and so the behaviour is more serious Deliberate deception for this purpose would be viewed as unethical LO BT: S Difficulty: M Time: 20 AACSB: Analytic and Ethics CPA: cpa-t001, cpa-e001 CM: Reporting and Ethics Solutions Manual 3-159 Chapter Copyright © 2017 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley CT3-6 Financial Accounting, Seventh Canadian Edition SERIAL CASE (a) June Supplies 2,500 Accounts Payable 2,500 14 Equipment 2,520 Cash 2,520 16 Cash 1,000 Unearned Revenue 1,000 19 Cash .300 Unearned Revenue .100 Sales 400 21 Accounts Receivable 2,040 Sales 2,040 27 Utilities Expense 200 Accounts Payable 200 29 No entry, not a transaction 30 Salaries Expense 3,250 Cash 3,250 30 Accounts Receivable 2,550 Sales 2,550 Solutions Manual 3-160 Chapter Copyright © 2017 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley Financial Accounting, Seventh Canadian Edition CT3-6 (CONTINUED) (b) June Bal 16 19 Bal Cash 39,004 June 1,000 30 300 34,534 42,520 3,250 Accounts Receivable June Bal 5,900 21 2,040 30 2,550 Bal 10,490 June Bal 14 Bal Equipment 42,000 2,520 44,520 Accumulated Depreciation—Equipment June Bal 14,000 June Bal Vehicles 52,500 Accounts Payable June Bal 27 Bal 3,540 2,500 200 6,240 Unearned Revenue 100 June Bal 16 Bal 100 1,000 1,000 Land June Bal 100,000 Bank Loan Payable June Bal 22,500 Buildings June Bal 165,000 Mortgage Payable June Bal 53,200 June Bal Inventory 16,250 June Bal Bal Supplies 1,875 2,500 4,375 June Bal Prepaid Insurance 12,000 Accumulated Depreciation—Buildings June Bal 137,500 June 19 Common Shares June Bal 300 Solutions Manual 3-161 Chapter Copyright © 2017 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley Financial Accounting, Seventh Canadian Edition CT3-6 (CONTINUED) (b) (continued) Retained Earnings June Bal 146,788 June Bal Dividends Declared 30,000 Rent Revenue June Bal Sales June Bal 19 21 30 Bal June Bal Cost of Goods Sold 102,386 June Bal 30 Bal Salaries Expense 387,532 3,250 390,782 June Bal Office Expense 18,000 June Bal 27 Bal Utilities Expense 12,000 200 12,200 6,000 633,768 400 2,040 2,550 638,758 Advertising Expense June Bal 9,000 Property Tax Expense June Bal 5,950 June Bal Interest Expense 5,299 Income Tax Expense June Bal 13,000 Solutions Manual 3-162 Chapter Copyright © 2017 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley Financial Accounting, Seventh Canadian Edition CT3-6 (CONTINUED) (c) ANTHONY BUSINESS COMPANY LTD Trial Balance June 30, 2017 Cash Accounts receivable Inventory Supplies Prepaid insurance Land Buildings Accumulated depreciation—buildings Equipment Accumulated depreciation—equipment Vehicles Accounts payable Unearned revenue Bank loan payable Mortgage payable Common shares Retained earnings Dividends declared Rent revenue Sales Cost of goods sold Salaries expense Office expense Utilities expense Advertising expense Property tax expense Interest expense Income tax expense Totals Debit $ 34,534 10,490 16,250 4,375 12,000 100,000 165,000 Credit $ 137,500 44,520 14,000 52,500 6,240 1,000 22,500 53,200 300 146,788 30,000 6,000 638,758 102,386 390,782 18,000 12,200 9,000 5,950 5,299 13,000 $1,026,286 00 $1,026,286 (Liabilities, common shares, retained earnings, and revenue (sales) accounts have credit balances) LO 3,4,5 BT: AN Difficulty: M Time: 60 AACSB: Analytic CPA: cpa-t001 CM: Reporting Solutions Manual 3-163 Chapter Copyright © 2017 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley Financial Accounting, Seventh Canadian Edition Legal Notice Copyright © 2017 by John Wiley & Sons Canada, Ltd or related companies All rights reserved The data contained in these files are protected by copyright This manual is furnished under licence and may be used only in accordance with the terms of such licence The material provided herein may not be downloaded, reproduced, stored in a retrieval system, modified, made available on a network, used to create derivative works, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise without the prior written permission of John Wiley & Sons Canada, Ltd (MMXVII vi F2) Solutions Manual 3-164 Chapter Copyright © 2017 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited ... payable Revenues (c) Financial Statement Statement of Financial Position Statement of Financial Position Statement of Financial Position Statement of Financial Position Statement of Financial Position... Burnley 17 Financial Accounting, Seventh Canadian Edition The first four steps in the accounting cycle are: (a) (1) Analyze the business transactions and determine their effects on the accounting. .. and Decision- Making Comm Communication Self-Mgt Self-Management Team & Lead Teamwork and Leadership Reporting Financial Reporting Stat & Gov Strategy and Governance Mgt Accounting Management Accounting