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

Shareholders’ Equity = Assets – Liabilities
There are two major shareholders’ equity accounts: share capital and retained earnings. Share capital represents the amount that investors originally paid for the shares that the company issued.  Retained earnings consist of the cumulative earnings of the company less the dividends distributed to shareholders.
 
LO 5  BT: C  Difficulty: M Time: 20 min.  AACSB: None  CPA: cpa-t001  CM: Reporting
 
 

 
DQ 1-12   Operating activities relate to the day-to-day activities of a company. This includes generating revenues and incurring expenses, which are the most crucial activities in relation to the long-term sustainability of a company.  Investing activities occur on a more sporadic basis and include the purchase or disposal of property, plant, and equipment as well as the purchase and resale of shares in other companies.
 
LO 4  BT: C  Difficulty: M Time: 10 min.  AACSB: None  CPA: cpa-t001  CM: Reporting
 
DQ 1-13    
                  Operating activities relate to the day-to-day activities of a company. This includes generating revenue and incurring expenses, which are the most crucial to the long-term sustainability of a company.  Financing activities are those actions taken by a company to obtain the funding necessary to purchase assets such as buildings and equipment and investments.  Financing activities also include the repayment of loan principal and payment of dividends.  Financing activities are required in order to start a business.  Without financing, most businesses would not be able to begin to engage in operating activities. Financing needs generally continue throughout the life of a company as it grows and expands.
 
LO 4  BT: C  Difficulty: M Time: 10 min.  AACSB: None  CPA: cpa-t001  CM: Reporting
 
 
DQ1-14      Costs relating to hiring and training a company’s employees are considered an operating activity. The employees will perform and maintain operations so all costs related to them will be operating activities.  Investing activities are related to the purchase or sale of property, plant, and equipment and shares in other companies.
 
LO 4  BT: C  Difficulty: M Time: 5 min.  AACSB: None  CPA: cpa-t001  CM: Reporting
 
 
DQ1-15      We would normally expect a company to have an overall inflow of cash from its operating activities.  Unless a company is successful at generating positive cash inflows from its operations, it will ultimately run out of cash. Financing sources will dry up because the company will be unable to attract new investors or lenders.  Eventually it will have to sell the property, plant, and equipment it uses to generate revenue.
 
LO 4  BT: C  Difficulty: M Time: 10 min.  AACSB: None  CPA: cpa-t001  CM: Reporting

DQ1-16      We would normally expect a company to have an overall cash outflow from its investing activities.  These activities include the purchase of property, plant, and equipment that are purchased to generate operating revenue. Cash inflows from investing activities require the sale of investments or property, plant and equipment.  Companies that are financially healthy and growing typically spend more cash on acquiring new assets than the proceeds they generate from selling the property, plant and equipment they have finished using.
 
LO 4  BT: C  Difficulty: M Time: 5 min.  AACSB: None  CPA: cpa-t001  CM: Reporting
 
DQ1-17      The statement of income describes the results of the operating activities from the beginning of the current period to its end. Net income is defined as revenues less expenses. Revenues are cash or resources that flow into the company from operating activities. Expenses are cash or resources that flow out of company from operating activities. Investing and financing activities are typically depicted on statement of financial position.
 
LO 4  BT: C  Difficulty: H Time: 10 min.  AACSB: None  CPA: cpa-t001  CM: Reporting
 
DQ1-18      The purpose of the statement of income is to measure the company’s performance by the results of its operating activities for a month, a quarter, or a year. The sum of these operating activities is known as the company’s profit, which is revenue less expenses. The purpose of a statement of cash flows is to present the cash related to the three categories of business activities and its objective is to enable financial statement users to assess the company’s inflows and outflows relative to each of these activities.  The statement of income allows users to assess how well management has operated its business and if it is profitable where as the statement of cash flows allows users to assess how well management has managed its cash and whether they will have enough cash in the future to run the business effectively.