Understanding Financial Accounting 3rd Canadian Edition by Christopher D. Burnley solution manual

 
 
LO 2  BT: C  Difficulty: M Time: 20 min.  AACSB: None  CPA: cpa-t001  CM: Reporting
 

WORK IN PROGRESS
 
WIP1-1
 
Correct elements:
To determine if the dividends have been paid, we could review the statement of financial position, if they have been paid there will be no dividends payable account balance, if they still need to be paid there will be a dividends payable account in current liabilities. We could also look at the statement of cash flows to see if there are any dividend payments reported on under cash flows from financing activities.
 
Incorrect elements:
Dividends declared are not found on the statement of income. Instead, they are found on the statement of changes in equity.
The amount of dividends declared are not equal to the company’s earnings per share (EPS). EPS is based on the net income, preferred dividends and the number of shares outstanding, whereas dividends declared is an amount determined by the Board of Directors, based on the profit for the year, cash available for the year and the strategic and operational goals of the organization. It would be very unusual for a company to distribute all of its earnings as dividends. Normally at least some portion of earnings is used to pay down liabilities or is reinvested in the company to purchase new property, plant, and equipment or other growth activities.
 
LO 5  BT: C  Difficulty: M Time: 20 min.  AACSB: None  CPA: cpa-t001  CM: Reporting
 
 

WIP1-2
 
Correct elements:
Dividends can be viewed as extra, or surplus cash flow as company boards do not declare dividends unless the company does not require these funds.
 
Incorrect elements:
A company will not declare a dividend if they do not have cash to do so (cash available in their cash account) not an overall positive cash flow.
A company will also not declare dividends unless they are profitable or have retained earnings from prior periods.
To determine the amount of a dividend the company declared during the year, you should look at the statement of changes in shareholders’ equity for the year.
 
LO 5  BT: C  Difficulty: H Time: 20 min.  AACSB: None  CPA: cpa-t001  CM: Reporting
 
WIP1-3
 
Correct elements:
The statement of income tells users how much profit the company makes after expenses.
 
Incorrect elements:
The statement of income does not show dividends declared deducted from revenues earned during the period.
The dividends declared appear in the statement of changes in equity for the period, as a deduction from retained earnings.
 
LO 5  BT: C  Difficulty: E Time: 10 min.  AACSB: None  CPA: cpa-t001  CM: Reporting
 

 
WIP1-4
 
Incorrect elements:
Shareholders’ equity is comprised of share capital (the amount of cash (or value of asset/service) received when a company issued the shares to the initial shareholders) and retained earnings (the net profits of the company from inception, less any dividends declared over the life of the company). The market price of the shares is not reflected in the shareholders’ equity section of the company’s statement of financial position.
 
LO 5  BT: C  Difficulty: M Time: 15 min.  AACSB: None  CPA: cpa-t001  CM: Reporting
 
 
WIP1-5
 
Correct elements:
Shareholders’ equity is comprised of two parts. The first part is the amounts contributed by the shareholders and the second is the company’s subsequent net earnings (net of dividends declared).
If the company reports a profit, the retained earnings (part of shareholders’ equity) will increase.
 
Incorrect elements:
The increase to retained earnings for the year is made up of the profit for the year less of any dividends declared by the company during the year.  Profit less dividends declared = the increase or decrease in retained earnings in shareholders’ equity.
Shareholders’ equity is reduced by dividends declared, not dividends paid.
 
LO 5  BT: C  Difficulty: H Time: 20 min.  AACSB: None  CPA: cpa-t001  CM: Reporting
 

 
WIP1-6
 
          Employees are human resources available to help companies earn a profit in exchange for a wage or salary. They are not owned and controlled by the company and nor are they recorded as assets on the statement of financial position. Consequently, the cost of hiring and training employees is not an asset but is an expense recorded on the income statement.