Understanding Financial Accounting 3rd Canadian Edition by Christopher D. Burnley solution manual
Cash in bank accounts Asset
b. Easy Peasy Ltd.
Statement of Financial Position
January 31, 2xxx
Cash $ 75,000 Deferred revenue $ 95,000
Prepaids 60,000 Bank loan payable 60,000
Ski equipment 22,000 Common shares 41,000
Vehicles 65,000 Retained earnings 26,000
Total Liabilities and
Total Assets $222,000 Shareholders’ Equity $222,000
c. Inventory refers to products that have been purchased for resale to customers. Friedrich’s business does not have any products for resale to customers, but instead it provides a service, ski lessons and excursions. Thus, the real product is not inventory but a service.
d. Friedrich’s business does not produce a product for which customers would be extended credit. Friedrich would want his customers to pay in advance. Unlike a car dealership where the company can repossess the car if the customer does not pay, it would not be possible for Friedrich to repossess a skiing excursion once it is complete. Furthermore, the cost for the service is likely not too high for customers to pay right away. Thus, Friedrich’s business is not likely to have an accounts receivable account. If Friedrich provided skiing excursions to a company for several people, it is possible that he would invoice the customer and allow them to pay after the event. In this case, Friedrich would have an account receivable.
LO 5 BT: AP Difficulty: M Time: 20 min. AACSB: None CPA: cpa-t001 CM: Reporting
AP1-15A
a. Item Classification
Loan owed to bank Liability
Supplies on hand Asset
Cash in bank accounts Asset
Common shares Shareholders’ equity
Cost of tents and rafts Asset