CH1

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1-42 CHAPTER 1 Accounting in Action Self-Study Questions Answers are at the end of the chapter. 1. (LO 1) K The main objective of the financial statements is to pro- vide useful information to a. government in deciding if the company is respecting tax laws b. increase the value of the company c. investors and creditors that is useful when they are making decisions about the business d. management that is useful when they are making decisions about the business 2. (LO 1) K Which of the following statements about users of accounting information is incorrect? a. Management is an internal user. b. Taxing authorities are external users. c. Present creditors are external users. d. Regulatory authorities are internal users. 3. (LO 2) K The three types of business organization forms are: a. proprietorships, small businesses, and partnerships. b. proprietorships, partnerships, and corporations. c. proprietorships, partnerships, and large businesses. d. financial, manufacturing, and service companies. 4. (LO 3) K Which of the following statements about International Financial Reporting Standards (IFRS) is correct? a. All Canadian enterprises must follow IFRS. b. Under IFRS, companies that operate in more than one coun- try must produce separate financial statements for each of those countries. c. All Canadian publicly accountable enterprises must use IFRS. d. Canadian private enterprises are not allowed to use IFRS. They must use ASPE. 5. (LO 3) C Which of the following statements about the going con- cern assumption is correct? a. The going concern assumption is the assumption that the re- porting entity will continue to operate in the future. b. Under the going concern assumption, all of the business’s as- sets must be reported at their fair value. c. The financial statements must report whether or not a com- pany is a going concern. d. The going concern assumption is not followed under ASPE. 6. (LO 3) K Which of the following best describes when an event should be recognized in the accounting records? a. An event should be recognized in the accounting records if there is a change in assets, liabilities, or owner’s equity and the change can be measured in monetary terms. b. An event should be recognized in the accounting records if it involves an interaction between the company and another external entity. c. Where there is uncertainty about a future event occurring or not, it should not be recognized. d. Accountants use tradition to determine which events to recognize. 7. (LO 4) AP As at December 31, its year end, Bruske Company has assets of $12,500; revenues of $10,000; expenses of $5,500; beginning owner’s capital of $8,000; and drawings of $1,500. What are the liabili- ties for Bruske Company as at December 31? a. $1,500 b. $2,500 c. $500 d. $3,500 8. (LO 5) AP Performing services on account will have the following effects on the elements of the basic accounting equation: a. increase assets and decrease owner’s equity. b. increase assets and increase owner’s equity. c. increase assets and increase liabilities. d. increase liabilities and increase owner’s equity. 9. (LO 5) AP Bing Company pays $700 for store rent for the month. The basic analysis of this transaction on the accounting records is: a. the asset Cash is increased by $700 and the expense Rent Expense is increased by $700. b. the asset Cash is decreased by $700 and the expense Rent Expense is increased by $700. c. the asset Cash is decreased by $700 and the liability Rent Payable is increased by $700. d. the asset Cash is increased by $700 and the liability Rent Payable is decreased by $700. 10. (LO 6) C Which of the following statements is true? a. An income statement presents the revenues, expenses, and changes in owner’s equity for a specific period of time. b. The income statement shows information as at a specific point in time; the balance sheet shows information for a spec- ified time period. c. The statement of cash flows summarizes cash inflows (re- ceipts) and outflows (payments) as at a specific point in time. d. The income statement shows information for a specified time period; the balance sheet shows information as at a specific point in time. Timeliness An enhancing qualitative characteristic that accounting information has if information is made available to decision-makers before it loses its capacity to influence decisions. (p. 1-14) Understandability An enhancing qualitative characteristic that requires information to be presented in a clear and concise fashion, so that reasonably informed users of that information can interpret it and comprehend its meaning. (p. 1-14) Unearned revenue The liability created when a customer pays in advance of being provided with a service or product. (p. 1-20) Unlimited liability The principle that the owners of a business are per- sonally liable (responsible) for all debts of the business. (p. 1-9) Verifiability An enhancing qualitative characteristic that information has if independent observers, using the same methods, obtain similar results. (p. 1-14) c01AccountinginAction.indd 42 8/9/21 5:44 PM

Brief Exercises 1-43 When the financial results of real companies are used in the end-of-chapter material, the company’s name is shown in red. Brief Exercises BE1.1 (LO 1) K A list of decisions made by different users of accounting information follows: 1. Decide whether the company pays fair salaries. 2. Decide whether the company can pay its obligations. 3. Decide whether a marketing proposal will be cost-effective. 4. Decide whether the company’s profit will permit an increase in drawings. 5. Decide how the company should finance its operations. The different users are identified in the table that follows. (a) Insert the number (1–5) of the kind of decision described above that each user would likely make. (b) Indicate whether the user is internal or external. User (a) Kind of Decision (b) Internal or External User Owner Marketing manager Creditor Chief financial officer Labour union BE1.2 (LO 2) C Match each of the following forms of business organization with the correct set of char- acteristics: proprietorship (PP), partnership (P), or corporation (C). a. _______ Shared control; combined skills and resources b. _______ Easier to transfer ownership and raise funds; no personal liability; entity pays income tax c. _______ Simple to set up; owner pays income tax Identify users of accounting information. Identify forms of business organization. Questions 1. (LO 1) C “Accounting is ingrained in our society and it is vital to our economic system.” Do you agree? Explain. 2. (LO 1) C Distinguish between internal and external users of ac- counting information. Include in your answer what kinds of questions both internal and external users might want answered. 3. (LO 1) K What is the main objective of financial reporting? 4. (LO 2) C Explain the differences between the following forms of business organization: (a) proprietorship, (b) partnership, and (c) corporation. 5. (LO 3) C Why is ethics important to the accounting profession? To statement users? 6. (LO 3) K Why are there two sets of accounting standards for profit- oriented enterprises in Canada? 7. (LO 3) K What is the reporting entity concept? 8. (LO 3) C Describe the fundamental qualitative characteristics of relevance and faithful representation. 9. (LO 3) C What is the difference between historical cost and fair value measurements? 10. (LO 3) C What criteria must be fulfilled for an event to be recog- nized in the accounting records? Give two examples of events that would not be recognized. 11. (LO 3) C Explain the monetary unit concept. 12. (LO 4) K What is the accounting equation and what is its purpose? 13. (LO 4) K (a) Define assets, liabilities, and owner’s equity. (b) What causes an increase or decrease in owner’s equity? 14. (LO 4) K What is the difference between Accounts Payable and Accounts Receivable? 15. (LO 4) C How is profit or loss determined? 16. (LO 4) K List the types of accounts that are reported on (a) the balance sheet and (b) the income statement. 17. (LO 5) C Can a business have a transaction in which only the left (assets) side of the accounting equation is affected? If yes, give an example. 18. (LO 5) AP Alessandro Bega withdrew $8,000 from his business, Bega Pharmacy, which is organized as a proprietorship. Bega’s ac- countant recorded this withdrawal as an increase in an expense and a decrease in cash. Is this treatment correct? Why or why not? 19. (LO 6) K In what order should the financial statements be pre- pared? Why? 20. (LO 6) C James is puzzled as he reads Aritzia Inc.’s financial statements. He notices that the numbers have all been rounded to the nearest thousand. He thought financial statements were supposed to be accurate and he is now wondering what happened to the rest of the money. Respond to James’s concern. c01AccountinginAction.indd 43 8/9/21 5:44 PM

1-44 CHAPTER 1 Accounting in Action BE1.3 (LO 3) AN Describe an ethical dilemma that each of the following individuals might encounter: a. A student in an introductory accounting course b. A production supervisor c. A banker BE1.4 (LO 3) C Indicate whether each of the following statements is true or false by placing a T or an F in the blank at the start of each statement. a. _______ Relevance is an enhancing qualitative characteristic. b. _______ Timeliness is enhanced when a business uses the same accounting methods from year to year. c. _______ Understandability is an enhancing qualitative characteristic that requires accounting infor- mation to be clear and concise. d. _______ Information is verifiable if two independent people, using similar methods, achieve similar results. e. _______ Information is neutral when it is unbiased. BE1.5 (LO 3) C Indicate whether each of the following statements is true or false by placing a T or an F in the blank at the start of each statement. a. _______ Canadian publicly accountable enterprises have the choice to report under IFRS or ASPE. b. _______ All private enterprises must follow ASPE. c. _______ Companies are required to include a note in their financial statements stating if they are using IFRS or ASPE. d. _______ Using IFRS may help Canadian public companies attract investors from around the globe. BE1.6 (LO 3) C Match each of the following terms with the best description below: 1. Historical cost 2. Revenue recognition 3. Going concern assumption 4. Reporting entity concept 5. Monetary unit concept a. _______ Transactions are recorded in terms of units of money. b. _______ Transactions are recorded based on the actual amount received or paid. c. _______ Indicates that personal and business record keeping should be kept separate. d. _______ Performance obligation has been satisfied. e. _______ Businesses are expected to continue operating indefinitely. BE1.7 (LO 4) C Match the following elements with the best description below and indicate if the element is reported on the balance sheet (BS) or income statement (IS). 1. Assets 4. Revenues 2. Liabilities 5. Expenses 3. Owner’s equity 6. Profit Description Element Balance Sheet or Income Statement a. The increase in assets, or decrease in lia- bilities, resulting from business activities carried out to earn profit. b. Resources controlled by a business that have the potential to produce economic benefits. c. The owner’s claim on the residual assets of the company. d. Present obligations that are expected to result in an outflow of economic resources as a result of a past transaction. e. The cost of resources consumed or services used in the company’s business activities. Discuss ethical issues. Identify application of concepts. Identify application of IFRS and ASPE. Identify GAAP concepts. Identify the elements of the financial statements. c01AccountinginAction.indd 44 8/9/21 5:44 PM

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Brief Exercises 1-45 BE1.8 (LO 4) AP Presented below is the accounting equation. Determine the missing amounts: Assets = Liabilities + Owner’s Equity $75,000 $24,000 (a) (b) $150,000 $91,000 $89,000 (c) $52,000 BE1.9 (LO 4) AP Use the accounting equation to answer each of the following questions: a. The liabilities of Weber Company are $120,000 and the owner’s equity is $232,000. What is the amount of Weber Company’s total assets? b. The total assets of King Company are $190,000 and its owner’s equity is $91,000. What is the amount of its total liabilities? c. The total assets of Smith Company are $800,000 and its liabilities are equal to one-half of its total assets. What is the amount of Smith Company’s owner’s equity? BE1.10 (LO 4) AP Video Butler Company is owned by Rachel Butler. The company had total assets of $850,000 and total liabilities of $550,000 at the beginning of the year. Answer each of the following independent questions: a. During the year, total assets increased by $130,000 and total liabilities decreased by $80,000. What is the amount of owner’s equity at the end of the year? b. Total liabilities decreased by $95,000 during the year. The company incurred a loss of $40,000. R. Butler made an additional investment of $100,000 and made no withdrawals. What is the amount of total assets at the end of the year? c. Total assets increased by $45,000 and total liabilities decreased by $50,000. There were no additional owner’s investments, and R. Butler withdrew $40,000. What is the amount of profit or loss for the year? BE1.11 (LO 4) K Indicate whether each of the following accounts is an asset (A), liability (L), or part of owner’s equity (OE). _______ 1. Accounts receivable _______ 4. Supplies _______ 2. Salaries payable _______ 5. Owner’s capital _______ 3. Equipment _______ 6. Notes payable BE1.12 (LO 5) AP Presented below are nine business transactions. Indicate whether the transactions increased ( + ), decreased ( − ), or had no effect (NE) on each element of the accounting equation. a. Purchased $250 of supplies on account. b. Performed $500 of services on account. c. Paid $300 of operating expenses. d. Paid $250 cash on account for the supplies purchased in item (a) above. e. Invested $1,000 cash in the business. f. Owner withdrew $400 cash. g. Hired an employee to start working the following month. h. Received $500 from a customer who had been billed previously in item (b) above. i. Purchased $450 of equipment in exchange for a note payable. Use the following format, in which the first one has been done for you as an example: Owner’s Equity Transaction Assets Liabilities Capital Drawings Revenues Expenses a + $250 + $250 NE NE NE NE BE1.13 (LO 5) AP Match the following basic transaction analysis with the best description of the eco- nomic event. 1. Cash is increased by $9,000 and the owner’s equity account M. Vijayakumar, Capital is increased by $9,000. 2. Cash is decreased by $6,000 and the asset account Prepaid Rent is increased. 3. Supplies is increased by $1,000 and the liability account Accounts Payable is increased by $1,000. 4. Accounts Receivable is increased by $900 and the revenue account Service Revenue is increased by $900. Solve accounting equation. Solve accounting equation. Solve accounting equation. Solution Walkthrough Videos walk students through the approach and solution to selected questions. Identify assets, liabilities, and owner’s equity. Determine effects of transactions on accounting equation. Match basic transaction analysis with transaction description. c01AccountinginAction.indd 45 8/9/21 5:44 PM

1-46 CHAPTER 1 Accounting in Action Description Transaction Analysis a. Cash paid in advance for rent. _______ b. Owner invests cash in the business. _______ c. Supplies are purchased on account. _______ d. Company provides service on account. _______ BE1.14 (LO 4, 5) AP Classify each of the following as owner’s investments (I), drawings (D), revenue (R), expenses (E), or as having no effect on owner’s equity (NE): a. _______ Advertising expense b. _______ Commission fees earned c. _______ Cash received from the company’s owner d. _______ Amounts paid to employees e. _______ Services performed on account f. _______ Utilities incurred g. _______ Cash distributed to company owner BE1.15 (LO 4, 6) AP Video Presented below is information from the statements of owner’s equity for Kerkan Consulting for the first three years of operation. Determine the missing amounts: 2022 2023 2024 J. Kerkan, capital, January 1 $ 0 $68,000 $ (c) Investment in the year 50,000 0 20,000 Profit (loss) for the year 25,000 (b) 17,000 Drawings in the year (a) 33,000 12,000 J. Kerkan, capital, December 31 68,000 65,000 (d) BE1.16 (LO 6) AP Prairie Company is owned and operated by Natasha Woods. In alphabetical order below are the financial statement accounts for Prairie Company. Using the appropriate accounts, prepare an income statement for the month ended October 31, 2024. Accounts payable $90,000 N. Woods, capital, October 1, 2024 $36,000 Accounts receivable 77,500 N. Woods, drawings 6,000 Advertising expense 3,600 Rent expense 2,600 Cash 59,300 Service revenue 23,000 BE1.17 (LO 6) AP Refer to the data in BE1.16. Using these data and the information from Prairie’s in- come statement, prepare a statement of owner’s equity. BE1.18 (LO 6) AP Refer to the data in BE1.16. Using these data and the information from Prairie’s state- ment of owner’s equity prepared in BE1.17, prepare a balance sheet for Prairie Company. Determine effects of transactions on owner’s equity. Determine missing amounts in owner’s equity. Prepare an income statement. Prepare a statement of owner’s equity. Prepare a balance sheet. Exercises E1.1 (LO 1) C 1. The following are users of financial information: _______ Customers ______ Store manager _______ Canada Revenue Agency ______ Supplier _______ Labour unions ______ Chief Financial Officer _______ Marketing manager ______ Loan officer 2. The following questions could be asked by an internal user or an external user. _______ Can the company afford to give our members a pay raise? _______ How does the company’s profitability compare with other companies in the industry? _______ Do we need to borrow money in the near future? _______ What does it cost to manufacture each unit produced? _______ Has the company paid all income tax amounts owing? _______ Which product should we emphasize? Identify users of accounting information. c01AccountinginAction.indd 46 8/9/21 5:44 PM

Exercises 1-47 Instructions a. In part 1, identify the users as being either external users (E) or internal users (I). b. In part 2, identify each of the questions as being more likely asked by an internal user (I) or an external user (E). E1.2 (LO 1) C lululemon athletica inc. , a public company, is known around the world for its clothing and accessories. It has more than 400 stores in 17 countries. Instructions a. Identify two internal users of lululemon’s accounting information. Write a question that each user might try to answer by using accounting information. b. Identify two external users of lululemon’s accounting information. Write a question that each user might try to answer by using accounting information. E1.3 (LO 2, 3) C Video Listed below are several statements regarding different forms of business organization. Instructions For each statement, indicate if that statement is true or false for each of the forms of business organization by placing a T or an F in each column. Publicly Traded Proprietorship Partnership Corporation a. Owners have limited liability. _______ _______ _______ b. Records of the business are combined with the personal records of the owner or owners. _______ _______ _______ c. Required to follow IFRS. _______ _______ _______ d. Pays income taxes on its profits. _______ _______ _______ e. Owners are called “shareholders.” _______ _______ _______ f. Will have more than one owner. _______ _______ _______ g. Has a limited life. _______ _______ _______ h. Has a separate legal existence from its owners. _______ _______ _______ E1.4 (LO 3) C Below is a list of accounting concepts: 1. Relevance 2. Faithful representation 3. Comparability 4. Verifiability 5. Neutrality 6. Understandability Instructions Match each concept with the best description that follows: a. ______ An economic event is reported so it represents what actually happened. b. ______ Users find the information in the financial statements helps them to make decisions. c. ______ The accounting information shows the profit of a business without consideration of what the owner may want to report. d. ______ Financial statements make sense to business people. e. ______ Henry is able to confirm the information presented in the financial statements. f. ______ Très Chic Boutique uses the same accounting methods as other similar boutiques. E1.5 (LO 1, 3, 5) K Here are some terms from the chapter: 1. Accounts payable 7. Assets 2. Expenses 8. Corporation 3. Creditor 9. Unearned revenue 4. International Financial Reporting 10. Generally accepted accounting Standards (IFRS) principles (GAAP) 5. Prepaid expense 11. Accounts receivable 6. Profit 12. Owner’s equity Identify users and uses of accounting information. Relate concepts to forms of business organization. Match accounting concepts with descriptions. Match words with descriptions. c01AccountinginAction.indd 47 8/9/21 5:44 PM

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1-48 CHAPTER 1 Accounting in Action Instructions Match each term with the best description that follows: a. _______ A company that raises money by issuing shares b. _______ An accepted set of accounting standards that includes broad principles, procedures, and concepts c. _______ Obligations to suppliers of goods d. _______ Amounts due from customers e. _______ Owner’s claims against the company’s residual resources f. _______ Payment of cash for costs incurred in advance of being used g. _______ A party that a company owes money to h. _______ Resources owned by a business that have the potential to provide economic benefit i. _______ The set of accounting standards that all publicly traded enterprises in Canada must follow j. _______ Results when revenues exceed expenses k. _______ The cost of assets consumed or services used in a company’s ordinary business activities l. _______ A liability arising when a customer pays in advance of receiving service E1.6 (LO 4) AP Below is a partially completed income statement and statement of owner’s equity for Gary Dickson Engineering Company. Consulting revenue $18,000 Expenses Advertising expense $ 400 Rent expense (a) Utilities expense 900 Salaries expense 3,500 6,800 Profit (loss) $ (b) G. Dickson, capital, August 1 $ 5,000 Add: Investment (e) Profit (c) 21,200 26,200 Less: Drawings (d) G. Dickson, capital, July 31 $21,700 Instructions Fill in the missing amounts. E1.7 (LO 4) AP Video Shane Cooke began a business, Cooke Company, on January 1, 2024, with an investment of $100,000. The company had the following assets and liabilities on the dates indicated: December 31 Total Assets Total Liabilities 2024 $370,000 $210,000 2025 440,000 290,000 2026 525,000 355,000 Instructions Use the accounting equation and the change in owner’s equity during the year to calculate the profit (or loss) for: a. 2024, assuming Shane Cooke’s drawings were $50,000 for the year. b. 2025, assuming Shane Cooke made an additional investment of $40,000 and had no drawings in 2025. c. 2026, assuming Shane Cooke made an additional investment of $10,000 and his drawings were $60,000 for the year. E1.8 (LO 5) C Below are some accounts found in the financial statements of Petra Zizler, Orthodontist. (a) (b) 1. Accounts payable _______ _______ 2. Accounts receivable _______ _______ 3. Cash _______ _______ Determine missing amounts. Calculate profit (or loss). Classify accounts. L BS c01AccountinginAction.indd 48 8/9/21 5:44 PM

Exercises 1-49 (a) (b) 4. Equipment _______ _______ 5. Interest payable _______ _______ 6. Interest revenue _______ _______ 7. Interest expense _______ _______ 8. Investment by the owner _______ _______ 9. Service revenue _______ _______ 10. Prepaid rent _______ _______ 11. P. Zizler, capital (opening balance) _______ _______ 12. P. Zizler, drawings _______ _______ 13. Salaries expense _______ _______ 14. Supplies _______ _______ 15. Supplies expense _______ _______ 16. Unearned revenue _______ _______ Instructions Indicate: a. whether each of the above accounts is an asset (A), liability (L), or part of owner’s equity (OE); and b. which financial statement—income statement (IS), statement of owner’s equity (OE), or balance sheet (BS)—it would be reported on. The first one has been done for you as an example. E1.9 (LO 3, 5, 6) C James Company, a proprietorship, had the following selected business transactions during the year: 1. Land with a cost of $415,000 was recorded at its fair value of $465,000. 2. A lease agreement to rent equipment from an equipment supplier starting next year was signed. The rent is $500 per month and the lease is for two years. Payments are due at the start of each month. Nothing was recorded in James Company’s accounting records when the lease was signed. 3. James paid the rent for an apartment for the owner’s personal use and charged it to Rent Expense. 4. James prepaid for a one-year insurance policy for $1,200. The amount was charged to Insurance Expense. 5. James included a note in its financial statements stating the company is a going concern. 6. James included a note in its financial statements stating the company is following ASPE. Instructions a. In each situation, identify whether the accounting treatment is correct or not, and why. b. If it is incorrect, state what should have been done. E1.10 (LO 3, 5) C Video The following is a list of independent events: 1. A company pays $10,000 cash to purchase equipment at a bankruptcy sale. The equipment’s fair value is $15,000. 2. A Canadian company purchases equipment from a company in the United States and pays US$5,000 cash. It cost the company $5,200 Canadian to purchase the U.S. dollars from its bank. 3. A company provides $4,000 of services to a customer on account. 4. A company hires a new chief executive officer, who will bring significant economic benefit to the company. The company agrees to pay the new executive officer $500,000 per year. 5. A company signs a contract to provide $10,000 of services to a customer. The customer pays the company $4,000 cash at the time the contract is signed. The performance obligation required by the company has not been completed. Instructions a. Should the transaction be recorded in the accounting records? Explain why or why not. b. If the transaction should be recorded, indicate the amount. Explain. E1.11 (LO 5) C A list of effects on the accounting equation follows. 1. Increases an asset and increases a liability. 2. Increases an asset and increases owner’s equity. Identify GAAP. Determine events to be recognized. Give examples of transactions. c01AccountinginAction.indd 49 8/9/21 5:44 PM

1-50 CHAPTER 1 Accounting in Action 3. Decreases an asset and decreases a liability. 4. Decreases owner’s equity and decreases an asset. 5. Increases a liability and decreases owner’s equity. 6. Increases one asset and decreases another asset. Instructions For each effect, give an example of a transaction that would cause it. E1.12 (LO 5) AP Video At the beginning of March, Brister Software Company had Cash of $12,000, Accounts Receivable of $18,000, Accounts Payable of $4,000, and G. Brister, Capital of $26,000. During the month of March, the following transactions occurred: 1. Purchased equipment for $23,000 from Digital Equipment. Paid $3,000 cash and signed a note payable for the balance. 2. Received $12,000 from customers for contracts billed in February. 3. Paid $3,000 for March rent of office space. 4. Paid $2,500 of the amounts owed to suppliers at the beginning of March. 5. Provided software services to Kwon Construction Company for $7,000 cash. 6. Paid BC Hydro $1,000 for energy used in March. 7. G. Brister withdrew $5,000 cash from the business. 8. Paid Digital Equipment $2,100 on account of the note payable issued for the equipment pur- chased in transaction 1. Of this, $100 was for interest expense. 9. Hired an employee to start working in April. 10. Incurred advertising expense on account for March, $1,500. Instructions Prepare a tabular analysis of the above transactions, as shown in Illustration 1.26 in the text. The first row should contain the amounts the company had at the beginning of March. E1.13 (LO 4, 5) AP Video A tabular summary of the transactions for Star & Co., an accounting firm, for its first month of operations, July 2024, follows: Analyze effects of transactions for existing company. Analyze transactions. Calculate profit and increase in owner’s equity. Cash + Accounts Receivable + Prepaid Insurance + Equipment = Accounts Payable + B. Star, Capital − B. Star, Drawings + Revenues − Expenses 1 $18,000 $6,000 $24,000 2 −4,000 8,000 $ 4,000 3 −750 $750 4 3,500 $4,800 $8,300 5 −2,000 − 2,000 6 −3,300 − 3,300 7 −800 − $800 Rent 8 1,350 −1,350 9 −2,700 − 2,700 Salaries 10 420 − 420 Utilities Instructions a. Describe each transaction that occurred in the month. b. Calculate the amount of profit for the month. c. Calculate the increase in owner’s equity for the month. E1.14 (LO 6) AP An analysis of transactions for Star & Co. for July 2024 was presented in E1.13. Instructions Prepare an income statement and statement of owner’s equity for July and a balance sheet at July 31. Prepare financial statements. c01AccountinginAction.indd 50 8/9/21 5:44 PM

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Problems: Set A 1-51 E1.15 (LO 6) AP Atlantic Cruise Co. is owned by Irina Temelkova. The following information is an al- phabetical listing of financial statement accounts for the company for the year ended May 31, 2024: Accounts payable $ 47,750 Interest expense $ 20,960 Accounts receivable 42,950 Investments by owner 5,847 Advertising expense 3,640 Maintenance expense 82,870 Building 122,570 Notes payable 379,000 Cash 20,080 Other expenses 66,500 Equipment 553,300 Prepaid insurance 1,283 I. Temelkova, capital, June 1, 2023 311,182 Revenue 350,640 I. Temelkova, drawings 33,950 Salaries expense 126,950 Insurance expense 2,566 Supplies 16,800 Instructions Prepare an income statement and a statement of owner’s equity for the year. E1.16 (LO 6) AP Refer to the financial information in E1.15 for Atlantic Cruise Co. at May 31, 2024. Instructions Prepare the balance sheet. E1.17 (LO 6) AP Video Judy Cumby is the sole owner of Deer Park Campground near Gros Morne National Park. Judy has gathered the following financial information for the year ended March 31, 2024: Revenues—camping fees $150,000 Revenues—general store $ 40,000 Operating expenses 150,000 Cash on hand 9,400 Supplies on hand 2,500 Original cost of equipment 110,000 Fair value of equipment 125,000 Notes payable 70,000 Accounts payable 11,500 J. Cumby, capital, April 1, 2023 17,000 Accounts receivable 21,000 J. Cumby, drawings 5,000 Camping fees collected for April 10,000 Insurance paid for in advance for April to June 2024 600 Instructions a. Calculate Deer Park’s profit for the year. b. Calculate Judy’s owner’s equity as at March 31, 2024. c. Prepare a balance sheet at March 31, 2024. Prepare income statement and statement of owner’s equity. Prepare balance sheet. Calculate profit and owner’s equity and prepare balance sheet. P1.1A (LO 1) S Specific financial decisions often depend more on one type of accounting information than another. Consider the following independent, hypothetical situations: 1. Pierson Industries is thinking about extending credit to a new customer. The terms of credit would require the customer to pay within 45 days of receipt of the goods. 2. Dean Gunnerson owns Toys and Sports Co., a manufacturer of quality toys and sports equip- ment. The company manufactures a line of mountain bikes and a line of treadmills. Dean wants to know which line is more profitable. 3. The president of Hi-tech Adventure is trying to determine whether the company has enough cash to buy additional equipment. 4. Standen Bank is thinking about extending a loan to a small company. The company would be required to make interest payments at the end of each year for five years, and to repay the loan at the end of the fifth year. Instructions a. Identify the type of user of accounting information in each situation and indicate if they are external or internal. b. For each situation, state whether the user making the decision would depend mostly on information about (1) the business’s economic resources and claims to the resources, or (2) the economic perform- ance of the business. Justify your choice. Identify users and uses of accounting information. Taking It Further is an extra question at the end of each problem designed to challenge you to think beyond the basic concepts covered in the problem and to provide written explanations. Your instructor may assign problems with or without this extra element. Problems: Set A c01AccountinginAction.indd 51 8/9/21 5:44 PM

1-52 CHAPTER 1 Accounting in Action Taking It Further Why is it important to users of financial statements to know that the statements have been prepared by individuals who have high standards of ethical behaviour? P1.2A (LO 2, 3) AP Four independent situations follow: 1. Tom Courtney, a student looking for summer employment, started a dog-walking service. He picks up the dog while its owner is at work and returns it after a walk. 2. Joseph Counsell and Sabra Surkis each own a bike shop. They have decided to combine their busi- nesses and try to expand their operations to include snowboards. They expect that in the coming year they will need funds to expand their operations. 3. Three chemistry professors have formed a business that uses bacteria to clean up toxic waste sites. Each has contributed an equal amount of cash and knowledge to the venture. The use of bacteria in this situation is experimental, and legal obligations could result. 4. Abdur Rahim has run a successful but small organic food store for over five years. The increased sales at his store have made him believe the time is right to open a chain of organic food stores across the country. Of course, this will require a substantial investment for inventory and equip- ment, as well as for employees and other resources. Abdur has minimal personal savings. Instructions a. In each case, explain what form of organization the business is likely to take: proprietorship, part- nership, or corporation. Give reasons for your choice. b. In each case, indicate what accounting standards, IFRS or ASPE, the business is likely to use in its financial statements. Give reasons for your choice. Taking It Further Frequently, individuals start a business as a proprietorship and later incorporate the business. What are some of the advantages of doing this? P1.3A (LO 4) AP The following selected data are for Carducci Importers for its first three years of operations: 2022 2023 2024 January 1: Total assets $ 40,000 $ (f) $ (j) Total liabilities 0 50,000 (k) Total owner’s equity (a) 75,000 (l) December 31: Total assets (b) 140,000 172,000 Total liabilities 50,000 (g) 65,000 Total owner’s equity (c) 97,000 (m) Changes during year in owner’s equity: Investments by owner during the year 7,000 0 (n) Drawings by owner during the year 15,000 (h) 36,000 Profit or loss for the year (d) 40,000 (o) Total revenues for the year 132,000 (i) 157,000 Total expenses for the year (e) 95,000 126,000 Instructions Determine the missing amounts. Taking It Further What information does the owner of a company need in order to decide whether they are able to withdraw cash from the business? P1.4A (LO 4) AP Listed in alphabetical order, the following selected accounts (in thousands) were taken from Parker Information Technology Company’s December 31, 2024, financial statements: 1. ____ ____ Accounts payable $ 810 7. ____ ____ Rent expense $4,800 2. ____ ____ Accounts receivable 900 8. ____ ____ S. Parker, capital, Jan. 1 6,600 3. ____ ____ Cash 3,500 9. ____ ____ S. Parker, drawings 3,900 4. ____ ____ Consulting revenue 15,730 10. ____ ____ Salaries expense 3,200 5. ____ ____ Equipment 5,700 11. ____ ____ Utilities expense 350 6. ____ ____ Interest expense 790 Instructions a. In each case, identify on the blank line in the first column whether the account is an asset (A), lia- bility (L), capital (C), drawings (D), revenue (R), or expense (E) element. The first one has been done for you as an example. Determine forms of business organization and type of accounting standards. Determine missing amounts. Classify accounts and prepare accounting equation. L BS c01AccountinginAction.indd 52 8/9/21 5:44 PM

Problems: Set A 1-53 b. Indicate on the blank line in the second column which financial statement—income statement (IS), statement of owner’s equity (OE), or balance sheet (BS)—each account would be reported on. The first one has been done for you as an example. c. Calculate the company’s profit or loss for the year ended December 31, 2024. Taking It Further Is it important for Parker Information Technology Company to keep track of its dif- ferent types of expenses as separate accounts? Explain. P1.5A (LO 3, 5) C Four independent situations follow: 1. Human Solutions Incorporated believes its people are its most significant asset. It estimates and records their value on its balance sheet. 2. Sharon Barton, president and owner of Barton Industries, has instructed the accountant to re- port the company’s land and buildings at their current value of $500,000 instead of their cost of $350,000. “Reporting the land and buildings at $500,000 will make it easier to get a loan from the bank next month,” Sharon states. 3. Will Viceira, owner of Music To You Company, bought an electric guitar for his personal use. He paid for the guitar with company funds and increased the Equipment account. 4. West Spirit Oil Corp. is a very small oil and gas company that is listed on the Toronto Stock Ex- change. The president asked each of the shareholders to approve using ASPE instead of IFRS to reduce expenses for accounting services. He received unanimous approval and has advised the company accountant to prepare the 2024 financial statements accordingly. Instructions a. For each of the above situations, determine if the accounting treatment of the situation is correct or incorrect. Explain why. b. If the accounting treatment is incorrect, explain what should be done. Taking It Further Why is it important for companies to follow generally accepted accounting principles when preparing their financial statements? P1.6A (LO 4, 5, 6) AP Frank Petronick decided to start an accounting practice after graduation from university. The following is a list of events that occurred concerning Frank’s practice during June 2024, the first month of operations. June 1 After shopping around, Frank found an office to lease and signed a lease agreement. The lease calls for a payment of $1,050 rent per month. 4 Borrowed $3,900 from his grandmother to assist in starting up his new business. 4 Deposited the $3,900 plus $530 of his own cash in a new bank account at the Bank of Montreal under the name Petronick Accounting Services. 6 Paid the landlord the first month’s rent. 8 Purchased furniture for $3,160 on account. 11 Moved into the office and obtained the first assignment from a client to prepare year-end financial statements for $1,865. 15 Performed the work on the assignment and sent an invoice to the client for $1,865. 15 Paid half of the amount of the June 8 purchase of furniture. 18 Purchased supplies on account for $344. 26 Paid for internet services, $49 cash. 28 Collected $900 of the June 15 billing to the client. 30 Withdrew cash from the business of $128 for personal expenses. Instructions a. Prepare a tabular analysis of the effects of the above transactions on the accounting equation. b. From an analysis of the owner’s equity, calculate the account balance in F. Petronick, Capital, at June 30. Taking It Further Assume that on June 30 there was $144 of supplies on hand and $200 of supplies had been used during June. What amount should be reported as an asset, Supplies, on the June 30 balance sheet? What amount should be reported as Supplies Expense? P1.7A (LO 3, 4, 5, 6) AP The following events concern Anita LeTourneau, a Manitoba law school grad- uate, for March 2024: 1. On March 4, she spent $20 on a lottery ticket. 2. On March 7, she won $250,000 in the lottery and immediately quit her job as a junior lawyer. Assess accounting treatment. Analyze transactions and calculate owner’s equity. Analyze transactions and prepare balance sheet. c01AccountinginAction.indd 53 8/9/21 5:44 PM

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1-54 CHAPTER 1 Accounting in Action 3. On March 10, she decided to open her own law practice, and deposited $50,000 of her winnings in a business chequing account, LeTourneau Legal Services. 4. On March 14, she purchased a new luxury condominium with a down payment of $150,000 from her personal funds plus a home mortgage of $200,000. 5. On March 15, Anita signed a rental agreement for her law office space for $2,500 a month, start- ing March 15. She paid the first month’s rent, as it is due on the 15th of each month. 6. On March 19, she hired a receptionist. He will be paid $500 a week and will begin working on March 24. 7. On March 20, she purchased equipment for her law practice from a company that had just declared bankruptcy. The equipment was worth at least $15,000 but Anita was able to buy it for only $10,000. 8. On March 21, she purchased $400 of supplies on account. 9. On March 24, she purchased an additional $6,500 of equipment for her law practice for $3,000 plus a $3,500 note payable due in six months. 10. On March 31, she had performed $3,500 of legal services on account. 11. On March 31, she received $2,500 cash for legal services to be provided in April. 12. On March 31, she paid her receptionist $500 for the week. 13. On March 31, she paid $400 for the supplies purchased on account on March 21. Instructions a. Prepare a tabular analysis of the effects of the above transactions on the accounting equation. b. Calculate profit and owner’s equity for the month ended March 31. c. Prepare a balance sheet at March 31. Taking It Further How should Anita determine which transactions should be recorded and which ones should not be recorded? P1.8A (LO 4, 5, 6) AP Izabela Jach opened a medical office under the name Izabela Jach, MD, on August 1, 2024. On August 31, the balance sheet showed Cash $3,000; Accounts Receivable $1,500; Supplies $600; Equipment $7,500; Accounts Payable $5,500; Note Payable $3,000; and I. Jach, Capital, $4,100. During September, the following transactions occurred: Sept. 4 Collected $800 of accounts receivable. 5 Provided services of $10,500, of which $7,700 was collected from patients and the remainder was on account. 7 Paid $2,900 on accounts payable. 12 Purchased additional equipment for $2,300, paying $800 cash and leaving the balance on account. 15 Paid salaries, $2,800; rent for September, $1,900; and advertising expenses, $275. 18 Collected the balance of the accounts receivable from August 31. 20 Withdrew $1,000 for personal use. 26 Borrowed $3,000 from the Bank of Montreal on a note payable. 28 Signed a contract to provide medical services, not covered under the government health plan, to employees of CRS Corp. in October for $5,700. CRS Corp. will pay the amount owing after the medical services have been provided. 29 Received the telephone bill for September, $325. 30 Billed the government $10,000 for services provided to patients in September. Instructions a. Beginning with the August 31 balances, prepare a tabular analysis of the effects of the September transactions on the accounting equation. b. Prepare an income statement and statement of owner’s equity for September, and a balance sheet at September 30. Taking It Further What are the differences between purchasing an item on account and signing a note payable for the amount owing? P1.9A (LO 6) AP Pavlov’s Home Renovations was started in 2008 by Jim Pavlov. Jim operates the business from an office in his home. Listed below, in alphabetical order, are the company’s assets and liabilities as at December 31, 2024, and the revenues, expenses, and drawings for the year ended December 31, 2024: Analyze transactions and prepare financial statements. Prepare financial statements. c01AccountinginAction.indd 54 8/9/21 5:44 PM

Problems: Set A 1-55 Accounts payable $ 7,850 Operating expenses $ 3,545 Accounts receivable 10,080 Prepaid insurance 1,685 Cash 8,250 Salaries expense 88,230 Equipment 29,400 Service revenue 153,750 Insurance expense 3,375 Supplies 595 Interest expense 1,195 Supplies expense 20,095 J. Pavlov, drawings 44,800 Unearned revenue 15,000 Notes payable 30,800 Vehicles 42,000 Jim’s capital at the beginning of 2024 was $45,850. He made no investments during the year. Instructions Prepare an income statement, statement of owner’s equity, and balance sheet. Taking It Further Why is it necessary to prepare the income statement first, then the statement of own- er’s equity, and the balance sheet last? P1.10A (LO 6) AN Here are incomplete financial statements for Lee Company: LEE COMPANY Balance Sheet February 29, 2024 Assets Liabilities and Owner’s Equity Cash $ 9,500 Liabilities Accounts receivable 5,300 Notes payable $26,000 Land (a) Accounts payable (c) Building and equipment 41,500 Total liabilities 43,800 M. Lee, Capital (d) Total assets $ (b) Total liabilities and owner’s equity $91,300 LEE COMPANY Income Statement Year Ended February 29, 2024 Revenues Service revenue $95,000 Expenses Salaries expense $32,000 Other expenses (e) Supplies expense 1,500 Total expenses 59,500 Profit for the year (f) LEE COMPANY Statement of Owner’s Equity Year Ended February 29, 2024 M. Lee, capital, March 1, 2023 $22,000 Add: Investments (g) Profit for the year (h) 62,500 Less: M. Lee, drawings (i) M. Lee, capital, February 29, 2024 (j) Instructions a. Calculate the missing amounts (a) to (j). b. Write a memo explaining (1) the sequence for preparing the financial statements, and (2) the inter- relationships between the income statement, statement of owner’s equity, and balance sheet. Taking It Further Why isn’t the balance sheet dated the same way as the income statement and state- ment of owner’s equity: “Year Ended February 29, 2024”? Determine missing amounts, and comment. c01AccountinginAction.indd 55 8/9/21 5:44 PM

1-56 CHAPTER 1 Accounting in Action P1.11A (LO 3, 4, 5, 6) AP The balance sheet of Reflections Book Shop at April 30, 2024, is as follows: REFLECTIONS BOOK SHOP Balance Sheet April 30, 2024 Assets Liabilities and Owner’s Equity Building $110,000 Accounts payable $ 15,000 Accounts receivable 37,000 Equipment 58,000 C. Dryfuss, capital 85,000 Supplies 1,000 Cash 10,000 “Plug” 338,000 Land 50,000 Notes payable 120,000 $412,000 $412,000 Charles Dryfuss, the owner of the book shop, admits that he is not an accountant. In fact, he couldn’t get the balance sheet to balance without “plugging” the numbers (making up numbers to give the desired result). He gives you the following additional information: 1. A professional real estate appraiser estimated the value of the land at $50,000. The actual cost of the land was $36,000. 2. Accounts receivable include amounts due from customers in China for 35,000 yuan, which is about $5,000 Canadian. Dryfuss didn’t know how to convert the currency for reporting purposes so he added the 35,000 yuan to the $2,000 due from Canadian customers. He thought it more important to know how much he was owed by each customer in the currency they would likely pay him with anyway. 3. Dryfuss reasons that equipment is a liability because it will cost him money in the future to maintain these items. 4. Dryfuss reasons that the note payable must be an asset because getting the loan was good for the business. If he had not obtained the loan, he would not have been able to purchase the land and buildings. 5. Dryfuss believes that his capital account is also an asset. He has invested in the business, and investments are assets; therefore his capital account is an asset. Instructions a. Identify any corrections that should be made to the balance sheet, and explain why by referring to the appropriate accounting principle, assumption, or concept. b. Prepare a corrected balance sheet for Reflections Book Shop at April 30. ( Hint: The capital account may need to be adjusted in order to balance.) Taking It Further Explain to Dryfuss why all transactions affect at least two financial statement elements. Discuss errors and prepare corrected balance sheet. P1.1B (LO 1) S Specific financial decisions often depend more on one type of accounting information than another. Consider the following independent, hypothetical situations: 1. Samuel Colt owns a company called Organics To You, which operates a chain of 20 organic food stores across Canada. Samuel wants to determine which brand of pasta is the most profitable for the store. 2. The Backroads Company is considering extending credit to a new customer—Europe Tours Com- pany. The terms of credit would require the customer to pay within 45 days of receipt of the goods. 3. The senior partner of Accountants R Us is trying to determine if the partnership is gen- erating enough cash to increase the partners’ drawings and still ensure the partnership has enough cash to expand its operations. Instructions a. Identify the type of user(s) of accounting information in each situation and indicate if they are external or internal. b. For each situation, state whether the user making the decision would depend mostly on information about (1) the business’s economic resources and claims to the resources, or (2) the economic perfor- mance of the business. Justify your choice. Identify users and uses of accounting information. Problems: Set B c01AccountinginAction.indd 56 8/9/21 5:44 PM

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Problems: Set B 1-57 Taking It Further Why is it important to users of financial statements to know that the statements have been prepared by individuals who have high standards of ethical behaviour? P1.2B (LO 2, 3) AP Four independent situations follow: 1. Three computer science students have formed a business to develop a new social media applica- tion (app) for the internet. Each has contributed an equal amount of cash and knowledge to the venture. While their app looks promising, they are concerned about the legal liabilities that their business might confront. 2. Shamira Hatami, a student looking for summer employment, opened a small cupcake shop out of her summer vacation home. 3. Robert Steven and Tom Cheng each own a snowboard manufacturing business and have now decided to combine their businesses. They expect that in the next year they will need funds to expand their operations. 4. Darcy Becker, Ellen Leboeuf, and Meg Dwyer recently graduated with marketing degrees. Friends since childhood, they have decided to start a consulting business that focuses on branding strat- egies for small and medium-sized businesses. Instructions a. In each case, explain what form of organization the business is likely to take: proprietorship, part- nership, or corporation. Give reasons for your choice. b. In each case, indicate what accounting standards, IFRS or ASPE, the business is likely to use in its financial statements. Give reasons for your choice. Taking It Further What are the advantages of two individuals first forming a partnership to run a busi- ness, and later incorporating? P1.3B (LO 4) AP The following selected data are for Alexei Imports for its first three years of operations. 2022 2023 2024 January 1: Total assets (a) $75,000 $127,000 Total liabilities 0 (e) (k) Total owner’s equity 60,000 (f) (l) December 31: Total assets 75,000 (g) 170,000 Total liabilities (b) 45,000 (m) Total owner’s equity 45,000 (h) 100,000 Changes during year in owner’s equity: Investments by owner during the year 5,000 (i) 0 Drawings by owner during the year 0 10,000 (n) Profit or loss for the year (c) 35,000 30,000 Total revenues for the year (d) (j) 160,000 Total expenses for the year 120,000 95,000 (o) Instructions Determine the missing amounts. Taking It Further What information does the owner of a company need in order to decide whether they need to invest additional cash in the business? P1.4B (LO 4) AP Listed in alphabetical order, the following selected accounts (in thousands) were taken from Paradise Mountain Family Resort’s December 31, 2024, financial statements: 1. _____ _____ Accounts payable $ 195 10. _____ _____ Operating expenses $ 871 2. _____ _____ Accounts receivable 160 11. _____ _____ Other assets 615 3. _____ _____ Cash 120 12. _____ _____ Other liabilities 396 4. _____ _____ Equipment 600 13. _____ _____ Other revenue 52 5. _____ _____ Insurance expense 15 14. _____ _____ Rent revenues 1,295 6. _____ _____ Interest expense 45 15. _____ _____ Salaries payable 125 7. _____ _____ Land 1,495 16. _____ _____ T. Yuen, capital, January 1 934 8. _____ _____ Notes payable 950 17. _____ _____ T. Yuen, drawings 20 9. _____ _____ Prepaid insurance 30 18. _____ _____ Unearned rent revenue 24 Determine forms of business organization and types of accounting standards. Determine missing amounts. Classify accounts and prepare accounting equation. L BS c01AccountinginAction.indd 57 8/9/21 5:44 PM

1-58 CHAPTER 1 Accounting in Action Instructions a. In each case, identify on the blank line, in the first column whether the account is an asset (A), liability (L), capital (C), drawings (D), revenue (R), or expense (E) element. The first one has been done for you as an example. b. Indicate on the blank line in the second column which financial statement—income statement (IS), statement of owner’s equity (OE), or balance sheet (BS)—each account would be reported on. The first one has been done for you as an example. c. Calculate the company’s profit or loss for the year ended December 31, 2024. Taking It Further Is it important for Paradise Mountain Family Resort to keep track of its different types of expenses as separate accounts? Explain. P1.5B (LO 3, 5) C Three independent situations follow: 1. In preparing its financial statements, Karim Company estimated and recorded the impact of the recent death of its president. 2. Because of a “flood sale,” equipment worth $300,000 was purchased by Montigny Company for only $200,000. The equipment was recorded at $300,000 on Montigny’s books. 3. Vertical Lines Company was on the verge of filing for bankruptcy, but a turnaround in the economy has resulted in the company being very healthy financially. The company president insists that the accountant put a note in the financial statements that states the company is a real going concern now. Instructions a. For each of the above situations, determine if the accounting treatment of the situation is correct or incorrect. Explain why. b. If the accounting treatment is incorrect, explain what should be done. Taking It Further Why is it important for companies to follow generally accepted accounting principles when preparing their financial statements? P1.6B (LO 4, 5, 6) AP Kensington Bike Repair Shop was started on April 1 by L. Depres. A summary of the April transactions follows: April 1 Invested $21,000 to start the repair shop. 2 Purchased equipment for $9,000, paying $3,000 cash and signing a note payable for the balance. 5 Paid rent for the month, $1,050. 7 Purchased $975 of supplies on account. 9 Received $3,200 in cash from customers for repair services. 16 Provided repair services on account to customers, $2,900. 26 Collected $1,200 on account for services billed on April 16. 27 Paid for supplies purchased on April 7. 28 Paid $290 for advertising. 29 Withdrew $1,300 for personal use. 30 Received April utility bill, $200. 30 Paid part-time employee salaries, $1,400. 30 Billed a customer $750 for repair services. 30 Received an advance from a customer for repairs to be performed in May, $2,100. Instructions a. Prepare a tabular analysis of the effects of the above transactions on the accounting equation. b. From an analysis of the owner’s equity, calculate the account balance in L. Depres, Capital at April 30. Taking It Further Assume that on April 30 there was $500 of supplies on hand and $475 of supplies had been used during April. What amount should be reported as an asset, Supplies, on the April 30 balance sheet? What amount should be reported as Supplies Expense? P1.7B (LO 3, 4, 5, 6) AP Lynn Barry started her own consulting firm, Barry Consulting, on June 1, 2024. The following transactions occurred during the month of June: June 1 Sold her shares in Big Country Airlines for $7,000, which she deposited in her personal bank account. 1 Transferred $6,000 from her personal account to a business account in the name of Barry Consulting. Assess accounting treatment. Analyze transactions and calculate owner’s equity. Analyze transactions and prepare balance sheet. c01AccountinginAction.indd 58 8/9/21 5:44 PM

Problems: Set B 1-59 June 2 Paid $900 for office rent for the month. 3 Purchased $545 of supplies on account. 5 Paid $95 to advertise in the County News . 9 Received $3,275 for services provided. 12 Withdrew $600 for personal use. 15 Performed $5,000 of services on account. 17 Paid $1,800 for employee salaries. 21 Received $3,000 for services provided on account on June 15. 22 Paid for the supplies purchased on account on June 3. 25 Signed a contract to provide consulting services to a client for $5,500. Services will be performed and paid for in July. 26 Borrowed $5,500 from the bank and signed a note payable. 29 Used part of the cash borrowed from the bank on June 26 to purchase equipment for $2,150. 30 Paid $150 for telephone service for the month. 30 Received $2,500 from client for consulting to be provided in July. Instructions a. Prepare a tabular analysis of the effects of the above transactions on the accounting equation. b. Calculate profit and owner’s equity for the month ended June 30. c. Prepare a balance sheet at June 30. Taking It Further How should Lynn determine which transactions should be recorded and which ones should not be recorded? P1.8B (LO 4, 5, 6) AP Fraser Baker opened Baker’s Media Consulting in Winnipeg on September 1, 2024. On September 30, the balance sheet showed Cash $5,700; Accounts Receivable $2,100; Supplies $350; Equipment $7,600; Accounts Payable $4,300; and F. Baker, Capital $11,450. During October, the following transactions occurred: Oct. 1 Paid $3,800 of the accounts payable. 1 Paid $900 rent for October. 4 Collected $1,550 of the accounts receivable. 5 Hired a part-time office assistant at $80 per day to start work the following week. 8 Purchased additional equipment for $4,000, paying $500 cash and signing a note payable for the balance. 14 Performed $900 of consulting work on account. 15 Paid $300 for advertising. 18 Collected $400 from customers who received services on October 14. 20 Paid $500 for family dinner celebrating Fraser’s son’s university graduation. 25 Borrowed $8,000 from the Manitoba Bank on a note payable. 26 Sent a statement reminding a customer that he still owed the company money from September. 28 Earned revenue of $5,400, of which $3,100 was paid in cash and the balance was due in November. 29 Paid the part-time office assistant $720 for working nine days in October. 29 Received $2,800 cash for consulting work to be performed in November. 30 Received the telephone bill for the month, $205. 30 Withdrew $1,200 cash for personal expenses. Instructions a. Beginning with the September 30 balances, prepare a tabular analysis of the effects of the October transactions on the accounting equation. b. Prepare an income statement and statement of owner’s equity for October, and a balance sheet at October 31. Taking It Further Fraser is confused about the accounting treatment of the October 20 transaction. Explain the reason for this treatment. P1.9B (LO 6) AP Judy Johansen operates an interior design business, Johansen Designs. Listed below, in alphabetical order, are the company’s assets and liabilities as at December 31, 2024, and the revenues, expenses, and drawings for the year ended December 31, 2024: Analyze transactions and prepare financial statements. Prepare financial statements. c01AccountinginAction.indd 59 8/9/21 5:44 PM

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