,SOLUTION MANUAL FOR Financial Accounting, 9e
Canadian Kimmel
Notes
1- The file is chapter after chapter.
2- We have shown you few pages sample.
3- The file contains all Appendix and Excel sheet
if it exists.
4- We have all what you need, we make update
at every time. There are many new editions
waiting you.
5- If you think you purchased the wrong file You
can contact us at every time, we can replace it
with true one.
Our email:
, Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley Financial Accounting, Ninth Canadian Edition
CHAPTER 1
THE PURPOSE AND USE OF FINANCIAL
STATEMENTS
LEARNING OBJECTIVES
1. Identify the uses and users of accounting information.
2. Describe the primary forms of business organization.
3. Explain the three main types of business activity.
4. Describe the purpose and content of each of the financial statements.
SUMMARY OF QUESTIONS BY LEARNING OBJECTIVES
AND BLOOM’S TAXONOMY
Item LO BT Item LO BT Item LO BT Item LO BT Item LO BT
Questions
1. 1 K 7. 2 C 13. 3 C 19. 4 K 25. 4 C
2. 1 C 8. 2 C 14. 3 C 20. 4 K 26. 4 C
3. 1 K 9. 2 C 15. 3 C 21. 4 AP 27. 4 K
4. 1 C 10. 2 C 16. 3 C 22. 4 C 28. 4 C
5. 1 C 11. 2 C 17. 3 C 23. 4 K 29. 4 C
6. 1 C 12. 2 K 18. 3 C 24. 4 C 30. 4 C
Brief Exercises
1. 1 C 4. 3 C 7. 4 AP 10. 4 C
2. 1 C 5. 3 C 8. 4 K 11. 4 AN
3. 2 K 6. 4 AP 9. 4 K
Exercises
1. 1 C 4. 3 C 7. 4 AN 10. 4 AP 13. 4 AP
2. 2 C 5. 4 K 8. 4 AN 11. 4 AP 14. 4 AN
3. 3 K 6. 4 AP 9. 4 AP 12. 4 AP
Problems: Set A and B
1. 1 C 3. 3 C 5. 4 AP 7. 4 AP 9. 4 AN
2. 2 C 4. 4 K 6. 4 AN 8. 4 AN 10. 4 AN
Cases
1. 3,4 C 3. 3,4 AN 5. 3,4 AN 7. 4 AN 9 1,3 C
2. 1 C 4. 3,4 AN 6. 1 C 8. 1 E
Solutions Manual 1-1 Chapter 1
Copyright © 2023 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.
, Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley Financial Accounting, Ninth 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
Difficulty: Level of difficulty
S Simple
M Moderate
C Complex
Time: Estimated time to prepare in minutes
AACSB Association to Advance Collegiate Schools of Business
Communication Communication
Ethics Ethics
Analytic Analytic
Tech. Technology
Diversity Diversity
Reflec. Thinking Reflective Thinking
CPA CM CPA Canada Competency
cpa-e001 Ethics Professional and Ethical Behaviour
cpa-e002 PS and DM Problem-Solving and Decision-Making
cpa-e003 Comm. Communication
cpa-e004 Self-Mgt. Self-Management
cpa-e005 Team & Lead Teamwork and Leadership
cpa-t001 Reporting Financial Reporting
cpa-t002 Stat. & Gov. Strategy and Governance
cpa-t003 Mgt. Accounting Management Accounting
cpa-t004 Audit Audit and Assurance
cpa-t005 Finance Finance
cpa-t006 Tax Taxation
Solutions Manual 1-2 Chapter 1
Copyright © 2023 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.
, Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley Financial Accounting, Ninth Canadian Edition
ANSWERS TO QUESTIONS
1. Accounting is the information system that identifies and records the
economic events of an organization, and then communicates them to a
wide variety of interested users.
LO 1 BT: K Difficulty: S TIME: 3 min. AACSB: None CPA: cpa-t001 CM: Reporting
2. (a) Internal users of accounting information work for the company and
include finance directors, marketing managers, human resource
personnel, production supervisors, and company officers. Internal
users have access to company information that is not available to
external users.
(b) Some external users may be individuals who are employees of the
company but are not directly involved in managing the company. As
a result, they do not have access to much information. External users
of accounting information generally do not work for the company. The
primary external users are investors and creditors. Other external
users include labour unions, customers, the Canada Revenue
Agency (CRA), and securities commissions.
LO 1 BT: C Difficulty: M TIME: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
3. Internal users may want the following questions answered:
Is there enough cash to purchase a new piece of equipment?
What price should we sell our product for to cover costs and to
maximize net income?
How many employees can we afford to hire this year?
Which product line is the most profitable?
How much of a pay raise can the company afford to give me?
External users may want the following questions answered:
Is the company earning enough to give me my required return on
investment?
Will the company be able to repay its debts as the debts come due?
Will the company stay in business long enough to service the products
I buy from it?
LO 1 BT: K Difficulty: M TIME: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
Solutions Manual 1-3 Chapter 1
Copyright © 2023 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.
, Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley Financial Accounting, Ninth Canadian Edition
4. Primary users of accounting information include investors and creditors.
These external users need to make decisions concerning their ongoing
business relationship with the company. They need to be able to assess
the company’s performance and financial health because they intend to
start, continue, or discontinue having transactions with the company. Other
decision makers who have specific needs for certain financial information,
such as the amount of taxes paid by the company, are not considered
primary users.
LO 1 BT: C Difficulty: M TIME: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
5. Decision makers rely on financial statement information and expect the
accounting information to have been prepared ethically. Without the
expectation of ethical behaviour, the information presented in the financial
statements would have no credibility for the users of the accounting
information. Without credibility, financial statement information would be
useless to financial statement users.
LO 1 BT: C Difficulty: M TIME: 5 min. AACSB: None Ethics CPA: cpa-t001 CM: Reporting and Ethics
6. Descriptive data analytic provides information about what happened. On
the other hand, predictive data analytics helps the organization look into
the future and gives some visibility into what is likely to happen. Predictive
data analytics is of the most use to management
LO 1 BT: C Difficulty: M TIME: 5 min. AACSB: None Ethics CPA: cpa-t001 CM: Reporting and Ethics
7. (a) Proprietorship: Proprietorships are easier to form (and dissolve) than other
types of business organizations. They are not taxed as separate entities;
rather, the proprietor pays personal income tax on the company’s net
income. Depending on the circumstances, this may be an advantage or
disadvantage.
Disadvantages of a proprietorship include unlimited liability (proprietors
are personally liable for all debts of the business) and difficulty in obtaining
financing compared to other forms of organization. In addition, the life of
the proprietorship is limited as it is dependent on the willingness and
capability of the proprietor to continue operations.
Solutions Manual 1-4 Chapter 1
Copyright © 2023 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.
, Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley Financial Accounting, Ninth Canadian Edition
7. (continued)
(b) Partnership: Partnerships are easier to form (and dissolve) than a
corporation, although not as easy as a proprietorship. Similar to
proprietorships, partnerships are not taxed as separate entities. Instead,
the partners pay personal income tax on their share of income. Depending
on the circumstances, this may be an advantage or disadvantage.
Disadvantages of partnerships include unlimited liability (partners are
jointly and severally liable for all debts of the business) and difficulty in
obtaining financing compared to corporations. In addition, the life of a
partnership can be limited depending on the terms of the partnership
agreement and actions of the other partners.
(c) Private corporation: Advantages of a private corporation include limited
liability (shareholders not being personally liable for corporate debts),
indefinite life, and transferability of ownership. In many cases, depending
on the size of the corporation, a creditor such as a bank will ask for a
personal guarantee which will void the limited liability advantage. In
addition, transferability of ownership may be limited since shares are not
publicly traded.
Disadvantages of a private corporation include increased government
regulations and paperwork. The fact that corporations are taxed as a
separate legal entity may be an advantage or a disadvantage. Corporations
often receive more favourable income tax treatment than other forms of
business organizations. As mentioned above, depending on the size of the
corporation, many of the advantages of the corporate form are not available
to a small private corporation.
(d) Public corporation: The advantages of a public corporation include limited
liability, indefinite life, and transferability of ownership. These features
make it easier for publicly traded corporations to raise financing compared
to other forms of business organizations. Corporations often receive more
favourable income tax treatment than other forms of business
organizations.
Disadvantages include increased government regulations and paperwork.
In addition, because the shares of public companies are listed and traded
on Canadian or other exchanges such as the Toronto Stock Exchange
(TSX), these corporations are required to distribute their financial
statements to investors, creditors and other interested parties, and the
general public. This requirement involves greater costs to the corporation.
LO 2 BT: C Difficulty: M TIME: 20 min. AACSB: None CPA: cpa-t001, cpa-t006 CM: Reporting and Tax
Solutions Manual 1-5 Chapter 1
Copyright © 2023 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.
, Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley Financial Accounting, Ninth Canadian Edition
8. While both public and private corporations enjoy many of the same
advantages and disadvantages, one key difference is that public
corporations list their shares for sale to the public on Canadian or other
stock exchanges. In contrast, while private corporations issue shares, they
do not make them available to the general public or trade them on public
stock exchanges.
Private corporations may also not enjoy the advantages of limited liability
and ease of transfer of ownership that public corporations generally
experience because of their size and distribution of shares.
LO 2 BT: C Difficulty: M TIME: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
9. Shareholders who invest in public corporations do not have any personal
involvement in the management of the company. While the shareholders
legally own the corporation, they manage it indirectly through a board of
directors they elect. The board, in turn, sets the broad strategic objectives
for the company and hires the company's officers, such as the CEO, to
execute policy and perform the daily management functions.
LO 2 BT: C Difficulty: M TIME: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
10. (a) Public corporations must apply International Financial Reporting
Standards (IFRS). Private corporations can apply either IFRS or
Accounting Standards for Private Enterprises (ASPE).
(b) The information needs of users of public corporations and private
corporations are different. Users of financial information of public
corporations require more extensive disclosure. They may also
benefit from the enhanced comparability to global companies
provided by international standards. Since private corporations tend
to be smaller with easier access to company information, their users
do not require as extensive reporting.
LO 2 BT: C Difficulty: M TIME: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
11. A private company that has plans to grow significantly in the near future,
and that wishes to have access to large amounts of capital obtained from
external investors will want to go public. In order to go public, the company
would be required to have several years of past financial statements
prepared using IFRS. In addition, some businesses choose to follow IFRS
to be able to compare their performance with businesses in the same
industry that are public and whose financial information is readily available.
LO 2 BT: C Difficulty: C TIME: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting
Solutions Manual 1-6 Chapter 1
Copyright © 2023 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.
, Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley Financial Accounting, Ninth Canadian Edition
12. The reporting entity concept means that economic activity of any business
organization or economic entity is kept separate and distinct from the
activities of the owner and all other economic entities. In the case of
corporations such as The North West Company Inc., it also means that
economic activities of related corporations that are owned or controlled by
one corporation are consolidated. The results of these individual
companies are also reported separately as separate economic entities.
LO 2 BT: K Difficulty: M TIME: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
13. (a) Assets are what the company owns such as cash and equipment.
(b) A liability is an amount the company owes such as accounts payable
and income tax payable.
(c) Shareholders’ equity represents the residual interest (assets less
liabilities) of a company at a point in time and includes share capital
and retained earnings, in addition to other possible components.
(d) Revenues are increases in a company’s economic resources from
operating activities such as the sale of a product.
(e) Expenses are the cost of assets that are consumed or services that
are used in the process of generating revenues. Examples include
cost of goods sold, rent expense, and salaries expense.
LO 3 BT: C Difficulty: M TIME: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting
14. Operating activities are the activities that the organization undertakes to
earn net income. They include the day-to-day activities that generate
revenues and cause expenses to be incurred. In order to earn net income,
a company must first purchase resources they need to operate. The
purchase of these resources (assets) is considered to be an investing
activity. Finally, the company must have sufficient funds to purchase assets
and to operate. While some of the necessary cash will be generated from
operations, often the company needs to raise external funds by either
issuing shares or borrowing money. Financing activities involve the
activities undertaken by the company to raise cash externally.
LO 3 BT: C Difficulty: M TIME: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting
Solutions Manual 1-7 Chapter 1
Copyright © 2023 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.
, Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley Financial Accounting, Ninth Canadian Edition
15. (a) Two examples of operating activities are revenue generated from
providing auto repair services (an inflow of cash) and the expenses
related to paying employee salaries (an outflow of cash).
(b) Two examples of investing activities are the purchase of property,
plant, and equipment, such as a building (an outflow of cash), and the
sale of a long-term investment (an inflow of cash).
(c) Two examples of financing activities for a corporation are borrowing
money (debt), which is an inflow of cash, and declaring and paying
dividends (equity), an outflow of cash
LO 3 BT: C Difficulty: M TIME: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting
16. After lending money to a company, a bank would monitor the dividend
paying practices of that company to ensure that the funds that were lent
are not being used to pay larger than normal dividends. When the loan was
requested, the company would have described the purpose of the loan.
Examples include the purchase of some equipment or the refinancing of
existing debt. Some banks specify in the loan agreement that the funds
cannot be used to pay dividends to ensure that the cash is put to work in
the business and not distributed to shareholders.
LO 3 BT: C Difficulty: M TIME: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
17. I agree. Net income is the result of the revenues less the expenses of a
business for a specified period of time. It is the final amount appearing on
the statement of income. The statement of changes in equity lists all the
transactions that change equity accounts. Retained earnings is increased
by net income. Therefore, net income appears as an addition to retained
earnings on the statement of changes in equity.
LO 3 BT: C Difficulty: M TIME: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
18. Retained earnings is an account that reports that sum of all the net income
for the business less any dividends that have been declared since its
inception. The sources of increases and decreases in retained earnings
is reported on the statement of changes in equity. The statement shows
the beginning balance in retained earnings plus the net income for the year
or less the net loss for the year, followed by a deduction for the dividends
that were declared during the year. The final result is the ending balance
in retained earnings, which also appears on the statement of financial
position.
LO 3 BT: C Difficulty: M TIME: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
Solutions Manual 1-8 Chapter 1
Copyright © 2023 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.
Canadian Kimmel
Notes
1- The file is chapter after chapter.
2- We have shown you few pages sample.
3- The file contains all Appendix and Excel sheet
if it exists.
4- We have all what you need, we make update
at every time. There are many new editions
waiting you.
5- If you think you purchased the wrong file You
can contact us at every time, we can replace it
with true one.
Our email:
, Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley Financial Accounting, Ninth Canadian Edition
CHAPTER 1
THE PURPOSE AND USE OF FINANCIAL
STATEMENTS
LEARNING OBJECTIVES
1. Identify the uses and users of accounting information.
2. Describe the primary forms of business organization.
3. Explain the three main types of business activity.
4. Describe the purpose and content of each of the financial statements.
SUMMARY OF QUESTIONS BY LEARNING OBJECTIVES
AND BLOOM’S TAXONOMY
Item LO BT Item LO BT Item LO BT Item LO BT Item LO BT
Questions
1. 1 K 7. 2 C 13. 3 C 19. 4 K 25. 4 C
2. 1 C 8. 2 C 14. 3 C 20. 4 K 26. 4 C
3. 1 K 9. 2 C 15. 3 C 21. 4 AP 27. 4 K
4. 1 C 10. 2 C 16. 3 C 22. 4 C 28. 4 C
5. 1 C 11. 2 C 17. 3 C 23. 4 K 29. 4 C
6. 1 C 12. 2 K 18. 3 C 24. 4 C 30. 4 C
Brief Exercises
1. 1 C 4. 3 C 7. 4 AP 10. 4 C
2. 1 C 5. 3 C 8. 4 K 11. 4 AN
3. 2 K 6. 4 AP 9. 4 K
Exercises
1. 1 C 4. 3 C 7. 4 AN 10. 4 AP 13. 4 AP
2. 2 C 5. 4 K 8. 4 AN 11. 4 AP 14. 4 AN
3. 3 K 6. 4 AP 9. 4 AP 12. 4 AP
Problems: Set A and B
1. 1 C 3. 3 C 5. 4 AP 7. 4 AP 9. 4 AN
2. 2 C 4. 4 K 6. 4 AN 8. 4 AN 10. 4 AN
Cases
1. 3,4 C 3. 3,4 AN 5. 3,4 AN 7. 4 AN 9 1,3 C
2. 1 C 4. 3,4 AN 6. 1 C 8. 1 E
Solutions Manual 1-1 Chapter 1
Copyright © 2023 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.
, Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley Financial Accounting, Ninth 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
Difficulty: Level of difficulty
S Simple
M Moderate
C Complex
Time: Estimated time to prepare in minutes
AACSB Association to Advance Collegiate Schools of Business
Communication Communication
Ethics Ethics
Analytic Analytic
Tech. Technology
Diversity Diversity
Reflec. Thinking Reflective Thinking
CPA CM CPA Canada Competency
cpa-e001 Ethics Professional and Ethical Behaviour
cpa-e002 PS and DM Problem-Solving and Decision-Making
cpa-e003 Comm. Communication
cpa-e004 Self-Mgt. Self-Management
cpa-e005 Team & Lead Teamwork and Leadership
cpa-t001 Reporting Financial Reporting
cpa-t002 Stat. & Gov. Strategy and Governance
cpa-t003 Mgt. Accounting Management Accounting
cpa-t004 Audit Audit and Assurance
cpa-t005 Finance Finance
cpa-t006 Tax Taxation
Solutions Manual 1-2 Chapter 1
Copyright © 2023 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.
, Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley Financial Accounting, Ninth Canadian Edition
ANSWERS TO QUESTIONS
1. Accounting is the information system that identifies and records the
economic events of an organization, and then communicates them to a
wide variety of interested users.
LO 1 BT: K Difficulty: S TIME: 3 min. AACSB: None CPA: cpa-t001 CM: Reporting
2. (a) Internal users of accounting information work for the company and
include finance directors, marketing managers, human resource
personnel, production supervisors, and company officers. Internal
users have access to company information that is not available to
external users.
(b) Some external users may be individuals who are employees of the
company but are not directly involved in managing the company. As
a result, they do not have access to much information. External users
of accounting information generally do not work for the company. The
primary external users are investors and creditors. Other external
users include labour unions, customers, the Canada Revenue
Agency (CRA), and securities commissions.
LO 1 BT: C Difficulty: M TIME: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
3. Internal users may want the following questions answered:
Is there enough cash to purchase a new piece of equipment?
What price should we sell our product for to cover costs and to
maximize net income?
How many employees can we afford to hire this year?
Which product line is the most profitable?
How much of a pay raise can the company afford to give me?
External users may want the following questions answered:
Is the company earning enough to give me my required return on
investment?
Will the company be able to repay its debts as the debts come due?
Will the company stay in business long enough to service the products
I buy from it?
LO 1 BT: K Difficulty: M TIME: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
Solutions Manual 1-3 Chapter 1
Copyright © 2023 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.
, Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley Financial Accounting, Ninth Canadian Edition
4. Primary users of accounting information include investors and creditors.
These external users need to make decisions concerning their ongoing
business relationship with the company. They need to be able to assess
the company’s performance and financial health because they intend to
start, continue, or discontinue having transactions with the company. Other
decision makers who have specific needs for certain financial information,
such as the amount of taxes paid by the company, are not considered
primary users.
LO 1 BT: C Difficulty: M TIME: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
5. Decision makers rely on financial statement information and expect the
accounting information to have been prepared ethically. Without the
expectation of ethical behaviour, the information presented in the financial
statements would have no credibility for the users of the accounting
information. Without credibility, financial statement information would be
useless to financial statement users.
LO 1 BT: C Difficulty: M TIME: 5 min. AACSB: None Ethics CPA: cpa-t001 CM: Reporting and Ethics
6. Descriptive data analytic provides information about what happened. On
the other hand, predictive data analytics helps the organization look into
the future and gives some visibility into what is likely to happen. Predictive
data analytics is of the most use to management
LO 1 BT: C Difficulty: M TIME: 5 min. AACSB: None Ethics CPA: cpa-t001 CM: Reporting and Ethics
7. (a) Proprietorship: Proprietorships are easier to form (and dissolve) than other
types of business organizations. They are not taxed as separate entities;
rather, the proprietor pays personal income tax on the company’s net
income. Depending on the circumstances, this may be an advantage or
disadvantage.
Disadvantages of a proprietorship include unlimited liability (proprietors
are personally liable for all debts of the business) and difficulty in obtaining
financing compared to other forms of organization. In addition, the life of
the proprietorship is limited as it is dependent on the willingness and
capability of the proprietor to continue operations.
Solutions Manual 1-4 Chapter 1
Copyright © 2023 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.
, Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley Financial Accounting, Ninth Canadian Edition
7. (continued)
(b) Partnership: Partnerships are easier to form (and dissolve) than a
corporation, although not as easy as a proprietorship. Similar to
proprietorships, partnerships are not taxed as separate entities. Instead,
the partners pay personal income tax on their share of income. Depending
on the circumstances, this may be an advantage or disadvantage.
Disadvantages of partnerships include unlimited liability (partners are
jointly and severally liable for all debts of the business) and difficulty in
obtaining financing compared to corporations. In addition, the life of a
partnership can be limited depending on the terms of the partnership
agreement and actions of the other partners.
(c) Private corporation: Advantages of a private corporation include limited
liability (shareholders not being personally liable for corporate debts),
indefinite life, and transferability of ownership. In many cases, depending
on the size of the corporation, a creditor such as a bank will ask for a
personal guarantee which will void the limited liability advantage. In
addition, transferability of ownership may be limited since shares are not
publicly traded.
Disadvantages of a private corporation include increased government
regulations and paperwork. The fact that corporations are taxed as a
separate legal entity may be an advantage or a disadvantage. Corporations
often receive more favourable income tax treatment than other forms of
business organizations. As mentioned above, depending on the size of the
corporation, many of the advantages of the corporate form are not available
to a small private corporation.
(d) Public corporation: The advantages of a public corporation include limited
liability, indefinite life, and transferability of ownership. These features
make it easier for publicly traded corporations to raise financing compared
to other forms of business organizations. Corporations often receive more
favourable income tax treatment than other forms of business
organizations.
Disadvantages include increased government regulations and paperwork.
In addition, because the shares of public companies are listed and traded
on Canadian or other exchanges such as the Toronto Stock Exchange
(TSX), these corporations are required to distribute their financial
statements to investors, creditors and other interested parties, and the
general public. This requirement involves greater costs to the corporation.
LO 2 BT: C Difficulty: M TIME: 20 min. AACSB: None CPA: cpa-t001, cpa-t006 CM: Reporting and Tax
Solutions Manual 1-5 Chapter 1
Copyright © 2023 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.
, Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley Financial Accounting, Ninth Canadian Edition
8. While both public and private corporations enjoy many of the same
advantages and disadvantages, one key difference is that public
corporations list their shares for sale to the public on Canadian or other
stock exchanges. In contrast, while private corporations issue shares, they
do not make them available to the general public or trade them on public
stock exchanges.
Private corporations may also not enjoy the advantages of limited liability
and ease of transfer of ownership that public corporations generally
experience because of their size and distribution of shares.
LO 2 BT: C Difficulty: M TIME: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
9. Shareholders who invest in public corporations do not have any personal
involvement in the management of the company. While the shareholders
legally own the corporation, they manage it indirectly through a board of
directors they elect. The board, in turn, sets the broad strategic objectives
for the company and hires the company's officers, such as the CEO, to
execute policy and perform the daily management functions.
LO 2 BT: C Difficulty: M TIME: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
10. (a) Public corporations must apply International Financial Reporting
Standards (IFRS). Private corporations can apply either IFRS or
Accounting Standards for Private Enterprises (ASPE).
(b) The information needs of users of public corporations and private
corporations are different. Users of financial information of public
corporations require more extensive disclosure. They may also
benefit from the enhanced comparability to global companies
provided by international standards. Since private corporations tend
to be smaller with easier access to company information, their users
do not require as extensive reporting.
LO 2 BT: C Difficulty: M TIME: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
11. A private company that has plans to grow significantly in the near future,
and that wishes to have access to large amounts of capital obtained from
external investors will want to go public. In order to go public, the company
would be required to have several years of past financial statements
prepared using IFRS. In addition, some businesses choose to follow IFRS
to be able to compare their performance with businesses in the same
industry that are public and whose financial information is readily available.
LO 2 BT: C Difficulty: C TIME: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting
Solutions Manual 1-6 Chapter 1
Copyright © 2023 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.
, Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley Financial Accounting, Ninth Canadian Edition
12. The reporting entity concept means that economic activity of any business
organization or economic entity is kept separate and distinct from the
activities of the owner and all other economic entities. In the case of
corporations such as The North West Company Inc., it also means that
economic activities of related corporations that are owned or controlled by
one corporation are consolidated. The results of these individual
companies are also reported separately as separate economic entities.
LO 2 BT: K Difficulty: M TIME: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
13. (a) Assets are what the company owns such as cash and equipment.
(b) A liability is an amount the company owes such as accounts payable
and income tax payable.
(c) Shareholders’ equity represents the residual interest (assets less
liabilities) of a company at a point in time and includes share capital
and retained earnings, in addition to other possible components.
(d) Revenues are increases in a company’s economic resources from
operating activities such as the sale of a product.
(e) Expenses are the cost of assets that are consumed or services that
are used in the process of generating revenues. Examples include
cost of goods sold, rent expense, and salaries expense.
LO 3 BT: C Difficulty: M TIME: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting
14. Operating activities are the activities that the organization undertakes to
earn net income. They include the day-to-day activities that generate
revenues and cause expenses to be incurred. In order to earn net income,
a company must first purchase resources they need to operate. The
purchase of these resources (assets) is considered to be an investing
activity. Finally, the company must have sufficient funds to purchase assets
and to operate. While some of the necessary cash will be generated from
operations, often the company needs to raise external funds by either
issuing shares or borrowing money. Financing activities involve the
activities undertaken by the company to raise cash externally.
LO 3 BT: C Difficulty: M TIME: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting
Solutions Manual 1-7 Chapter 1
Copyright © 2023 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.
, Kimmel, Weygandt, Kieso, Trenholm, Irvine, Burnley Financial Accounting, Ninth Canadian Edition
15. (a) Two examples of operating activities are revenue generated from
providing auto repair services (an inflow of cash) and the expenses
related to paying employee salaries (an outflow of cash).
(b) Two examples of investing activities are the purchase of property,
plant, and equipment, such as a building (an outflow of cash), and the
sale of a long-term investment (an inflow of cash).
(c) Two examples of financing activities for a corporation are borrowing
money (debt), which is an inflow of cash, and declaring and paying
dividends (equity), an outflow of cash
LO 3 BT: C Difficulty: M TIME: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting
16. After lending money to a company, a bank would monitor the dividend
paying practices of that company to ensure that the funds that were lent
are not being used to pay larger than normal dividends. When the loan was
requested, the company would have described the purpose of the loan.
Examples include the purchase of some equipment or the refinancing of
existing debt. Some banks specify in the loan agreement that the funds
cannot be used to pay dividends to ensure that the cash is put to work in
the business and not distributed to shareholders.
LO 3 BT: C Difficulty: M TIME: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
17. I agree. Net income is the result of the revenues less the expenses of a
business for a specified period of time. It is the final amount appearing on
the statement of income. The statement of changes in equity lists all the
transactions that change equity accounts. Retained earnings is increased
by net income. Therefore, net income appears as an addition to retained
earnings on the statement of changes in equity.
LO 3 BT: C Difficulty: M TIME: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
18. Retained earnings is an account that reports that sum of all the net income
for the business less any dividends that have been declared since its
inception. The sources of increases and decreases in retained earnings
is reported on the statement of changes in equity. The statement shows
the beginning balance in retained earnings plus the net income for the year
or less the net loss for the year, followed by a deduction for the dividends
that were declared during the year. The final result is the ending balance
in retained earnings, which also appears on the statement of financial
position.
LO 3 BT: C Difficulty: M TIME: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
Solutions Manual 1-8 Chapter 1
Copyright © 2023 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.
