Chapter 1
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Department
Business - Marketing
Course
Business - Marketing ACC120
Professor
Lorna Martin- Scriver
Semester
Winter

Description
QUESTIONS 1. The main objective of financial reporting is to provide useful information to investors and creditors (external users) to make decisions about a business. Users may be potential investors who need to decide if they wish to invest in the business or they may be creditors deciding if they wish to lend money to the business. These users want to know if the business is running successfully and can generate cash and earn a profit. 2. Ethics is a fundamental business concept. If accountants do not have a high ethical standard, the information they produce will not have any credibility. Ethicsareimportanttostatementusersbecauseitprovidesthemcomfortthat the financial information they are using is credible and reliable. 3. a) A proprietorship is a private business with one owner who has unlimited liability for the business. The proprietorship has a limited life tied to the life of the owner. Proprietorships do not pay tax, the owner does. b) A partnership has essentially the same characteristics as a proprietorship exceptthatina partnership, thereismorethanoneowner.Apartnership need not be a private business, although it usually is. c) For corporations, the owners are one or more shareholders who enjoy limited liability. The corporation pays income taxes and can have an indefinite live since its ownership units, in the form of shares, are easily transferred to other owners. Public corporations issue publicly traded shares. That is, their shares are listed on Canadian or other stock exchanges. d) Private corporations have essentially the same characteristics as public corporations except that they do not issue publicly traded shares. 4. The users of financial information on public companies have different needs than the users of financial information on private companies. Public corporations need the opportunity to present financial information using accountingrulesthatareconsistentwiththoseusedglobally.Todothis,public companies need to follow International Financial Reporting Standards (IFRS). Doing so helps Canadian companies compete in a global market.But following this set of policies and standards is often not essential or cost effective for privatelyownedbusinesses.Theusersofprivatecompanyfinancialstatements often do not require the extensive measurements and disclosures required by IFRS and thus private companies may report under Accounting Standards for Private Enterprises (ASPE). Companies are required to disclose which Generally Accepted Accounting Principles (GAAP) they are following in the notes to their financial statements. Thus users should read the notes in order to determine which generally accepted accounting principles a business has followed. BRIEF EXERCISES BRIEF EXERCISE 1-4 (a) F (b) F (c) F (d) T (e) T BRIEF EXERCISE 1-5 Balance Sheet or Component Income Statement (a) Revenues Income Statement (b) Assets Balance Sheet (c) Owner’s Equity Balance Sheet (d) Liabilities Balance Sheet (e) Expenses Income Statement BRIEF EXERCISE 1-6 (a) $75,000 − $24,000 = $51,000 (Owner's Equity) (b) $150,000 + $91,000 = $241,000 (Assets) (c) $89,000 − $52,000 = $37,000 (Liabilities) BRIEF EXERCISE 1-10 (a) 5. Monetary unit assumption (b) 1. Cost principle (c) 4. Economic entity assumption (d) 2. Generally accepted accounting principles (e) 3. Going concern assumption EXERCISES EXERCISE 1-4 (a) Total assets (beginning of year) ................................$95,000.... Total liabilities (beginning of year).............................72,000..... Total owner's equity (beginning of year).........................$23,000 (b) Total assets (end of year)......................................$110,000....... Total owner's equity (end of year)................................37,000. Total liabilities (end of year).................................$ 73,000........ (c) Total owner's equity (end of year)...............................$37,000. Total owner's equity (beginning of year)..........................23,000 Increase in owner's equity.......................................$14,000...... Total revenues..................................................$179,000............ Total expenses...................................................150,000............ Profit..........................................................$ 29,000................... Increase in owner's equity.......................................$14,000...... Less: Profit......................................................(29,000)............... Add: Drawings ....................................................22,000.......... Investments by owner..............................................$ 7,000..... Alternatively: Owner’s equity (beginning of year) $23,000 Add: Profit
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