Chapter 02 - The Balance Sheet
Phillips et al.
Fundamentals of Financial Accounting
, 4Ce Solutions Manual Copyright McGraw-Hill Ryerson, 2015 Page 2-2
5. Debit is the left side of a T-account and credit is the right side of a T-account. A debit is an increase in assets or a decrease in liabilities or
shareholders’
 equity.  A credit is the opposite
 –
 a decrease in assets or an increase in liabilities or sha
reholders’
 equity. 6. Transaction analysis is the process of studying a transaction to determine its financial effect on the business in terms of the basic accounting equation:  Assets = Liabilities +
Shareholders’
 Equity The two principles underlying the process are: * Duality of effects: every transaction affects at least two accounts. * A=L+SE; the accounting equation must remain in balance after each transaction. 7. The accounting equalities in transaction analysis are: (a) Assets = Liabilities +
Shareholders’
 Equity (b) Debits = Credits 8. A journal entry is a method for expressing the effects of a transaction on accounts in a debits equal credits format. The title of the account(s) to be debited is (are) listed first. The title of the account(s) to be credited is (are) listed underneath the debited accounts and both account title(s) and amount(s) are indented to the right. 9. T-accounts are a simplified version of the ledger, which summarizes transaction effects for each account. T-accounts show increases on the left (debit) side for assets, which are on the left side of the accounting equation. T-accounts show increases on the right (credit) side for liabilities and
shareholders’
 equity, which are on the right side of the accounting equation. The T-account is a tool for summarizing transaction effects for each account and determining balances. 10. The cost principle requires that assets and liabilities be recorded at their srcinal cost to the company. 11. Because the customer list was not purchased by her salon (it was developed internally), her salon does not report it on the balance sheet. Knowing this, she should be sure to advise her banker that the salon has established a loyal group of customers that holds considerable value for generating future revenues (but is excluded from the balance sheet for accounting reasons). 12. Transaction analysis is expected to be relatively more important under IFRS than  ASPE. IFRS have fewer detailed rules, which increases the importance of analyzing transactions to determine their appropriate treatment. However ASPE is also principle based and therefore transaction analysis should not be ignored when using ASPE.
 
Chapter 02 - The Balance Sheet
Phillips et al.
Fundamentals of Financial Accounting
, 4Ce Solutions Manual Copyright McGraw-Hill Ryerson, 2015 Page 2-3
 Authors' Recommended Solution Time (Time in minutes)
Mini-exercises Exercises Problems Skills Development Cases* Continuing Case No. Time No. Time No. Time No. Time No. Time
1 3 1 6 CP2-1 45 1 15 1 30 2 3 2 10 CP2-2 50 2 15 3 3 3 5 CP2-3 50 3 45 4 3 4 5 PA2-1 45 4 20 5 4 5 3 PA2-2 50 5 20 6 4 6 5 PA2-3 45 6 10 7 3 7 3 PA2-4 50 7 35 8 3 8 10 PA2-5 50 9 5 9 20 PB2-1 45 10 6 10 15 PB2-2 50 11 6 11 25 PB2-3 45 12 6 12 15 PB2-4 50 13 6 13 25 PB2-5 50 14 6 14 10 15 6 15 15 16 6 16 25 17 6 18 6 19 6 20 6 21 15 22 10 23 3 24 8
* Due to the nature of cases, it is very difficult to estimate the amount of time students will need to complete them. As with any open-ended project, it is possible for students to devote a large amount of time to these assignments. While students often benefit from the extra effort, we find that some become frustrated by the perceived difficulty of the task. You can reduce student frustration and anxiety by making your expectations clear, and by offering suggestions (about how to research topics or what companies to select). The skills developed by these cases are indicated below. Case Financial  Analysis Research Ethical Reasoning Critical Thinking Technology Writing Teamwork
1 x 2 x 3 x x x x x 4 x x x 5 x x x x 6 x x 7 x x
 
Chapter 02 - The Balance Sheet
Phillips et al.
Fundamentals of Financial Accounting
, 4Ce Solutions Manual Copyright McGraw-Hill Ryerson, 2015 Page 2-4
 ANSWERS TO MINI-EXERCISES M2-1 Debit Credit  Assets
Increases Decreases
Liabilities
Decreases Increases
Stockholders’ Equity
 
Decreases Increases
M2-2 Increase Decrease  Assets
Debit Credit
Liabilities
Credit Debit
Stockholders’ Equity
 
Credit Debit
M2-3
1. Journal Entry D 2. A = L + SE; Debit = Credits C 3. Transaction A 4. Liabilities I 5. Assets F 6. Income statement, balance sheet, statement of retained earnings, and statement of cash flows B
M2-4
1. Wages payable CL 2. Accounts Payable CL 3. Accounts Receivable CA 4. Buildings NCA 5. Cash CA 6. Contributed Capital SE 7. Land NCA 8. Income taxes payable CL 9. Equipment NCA 10. Notes Payable (due in 6 months) CL 11. Retained Earnings SE 12. Supplies CA 13. Utilities Payable CL
 
Chapter 02 - The Balance Sheet
Phillips et al.
Fundamentals of Financial Accounting
, 4Ce Solutions Manual Copyright McGraw-Hill Ryerson, 2015 Page 2-5
M2-5 M2-6
Req.1 Req.2 Category Normal Balance 1. Accrued Liabilities CL Credit 2. Prepaid rent CA Debit 3. Cash CA Debit 4. Contributed Capital SE Credit 5. Long-Term Debt NCL Credit 6. Property and Equipment NCA Debit 7. Retained Earnings SE Credit 8. Accounts Payable CL Credit
M2-7
1) Yes 2) No This is a transaction of the shareholder not the company. 3) Yes 4) No This is just an exchange of promises, nothing to record at this point. 5) No This is a personal transaction of the shareholder and not of the company. 6) Yes
M2-8
1) Yes 2) Yes 3) No
 –
 This event involves only a written promise to rent the store space. No exchange of cash, goods, or services has occurred. 4) Yes 5) No Req. 1 Req. 2 Category Normal Balance 1. Accounts Receivable CA Debit 2. Short-term Bank Loan CL Credit 3. Contributed Capital SE Credit 4. Long-term Debt NCL Credit 5. Income Taxes Payable CL Credit 6. Property, Plant and Equipment NCA Debit 7. Retained Earnings SE Credit 8. Accounts Payable CL Credit 9. Cash CA Debit
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