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

 
LO 5  BT: C  Difficulty: M Time: 15 min.  AACSB: None  CPA: cpa-t001  CM: Reporting
 

DQ 1-19     The statement of changes in equity provides details on how each component of shareholders’ equity changed during the period.  Retained earnings, a component of shareholders’ equity, changes each period by the net income reported on the statement of income, less any dividends that were declared by the board of directors during the period.  As a result, the statement of income must be prepared first.
 
LO 5  BT: C  Difficulty: M Time: 10 min.  AACSB: None  CPA: cpa-t001  CM: Reporting
 
 
DQ1-20      The accounting equation is Assets = Liabilities + Shareholders’ Equity. Shareholders’ Equity does represent the interests of the owners or residual value left in the business after the external claims or liabilities have been paid.  This is supported by the reorganization of the accounting equation: Shareholders’ Equity = Assets – Liabilities.
 
LO 5  BT: C  Difficulty: M Time: 10 min.  AACSB: None  CPA: cpa-t001  CM: Reporting
 
 
DQ1-21      The four main financial statements contained in all annual reports are the statement of income, the statement of changes in equity, the statement of financial position, and the statement of cash flows.
 
Statement of Income:  The statement of income records the inflow of revenues and gains and the outflow of expenses and losses over the year (or specified period).  The statement helps investors evaluate the performance of the company during the period and it is useful in forecasting the future results of the company.
 
Statement of Changes in Equity:  The statement of changes in equity provides details on how each component of shareholders’ equity changed during the period. This includes any changes in share capital, and any income generated by the company less amounts distributed to shareholders as dividends.  
Statement of Financial Position:  The statement of financial position gives the financial status of the company at a particular point in time. Since it presents the details of assets, liabilities, and shareholders’ equity, it gives users a fair idea of the riskiness of the mix of assets and liabilities of the company.

DQ1-21 (Continued)
 
Statement of Cash Flows:  This statement measures the inflow and outflow of cash during a specific period of time. It is very useful in measuring the performance of the company as well as predicting future cash flows since it gives details about the inflow and outflow of cash broken down into operating, investing, and financing activities. It explains the change in cash between the beginning and the end of the period.
 
LO 5  BT: C  Difficulty: M Time: 20 min.  AACSB: None  CPA: cpa-t001  CM: Reporting
 
 
DQ1-22      The notes to the financial statements provide more detailed information on items in the financial statements and are cross-referenced. The first, second or sometimes third note to the financial statements often discusses the Summary of Significant Accounting Policies, which describes the choices made by management from among the possible choices and judgments acceptable under accounting standards.  The notes help keep the financial statements free of excessive detail, while providing meaningful information to financial statement users.
 
LO 5  BT: C  Difficulty: M Time: 20 min.  AACSB: None  CPA: cpa-t001  CM: Reporting
 
 
DQ1-23     The management discussion and analysis (MD&A) section of the annual report provides an overview of the previous year, a discussion of the risks facing the company, and some information about business plans for the future.  Many companies use this part of the report to make more extensive, detailed comments on the company and its operating results. Often the information is presented from the company's perspective.
 
LO 5  BT: C  Difficulty: M Time: 20 min.  AACSB: None  CPA: cpa-t001  CM: Reporting
 
 
 

SOLUTIONS TO APPLICATION PROBLEMS
 
 
AP1-1A    Examples of Canadian Tire’s financing transactions:
Share issuance to raise capital for purchasing property, plant & equipment
Issuance of long-term debt to raise capital
 
Examples of Canadian Tire’s investing transactions:
Purchase of buildings to house their retail stores
Purchase of shelving racks and other displays