Lesson%201%20Solutions

Lesson%201%20Solutions - Suggested Solutions for ACCT 351...

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Suggested Solutions for ACCT 351 Adapted from Beechy, T. H., & Conrod, J. E. D. (2005). Solutions manual to accompany intermediate accounting, volume 1 (3 rd Can. ed.). Toronto: McGraw-Hill Ryerson. Reproduced with permission. Page 1 of 7 Lesson 1, Chapter 1 Assignment 1-1 (text, p. 31) F 1. The presence of restrictive bond covenants, specifying minimum times-interest- earned ratios, means that an organization will have a tendency to pick discretionary accounting policies that minimize income. F 2. External decision makers have direct access to the information generated by the internal operations of a company. F 3. All generally accepted accounting principles are the result of a designated rule- making body. F 4. The primary objective of financial accounting is to report on stewardship. T 5. Company earnings goals are often tailored to a smooth pattern of earnings growth. F 6. GAAP must be followed for all financial accounting reports. T 7. The presence of a control block can have an impact on a company’s choice of accounting policies. T 8. GAAP includes practices that have evolved and gained acceptance over time, even when not codified in writing. T 9. IASB standards must be followed by countries that do not develop their own standards in order to facilitate access to international capital markets. F 10. The EIC provides technical guidance to the AcSB on matters of broad importance and scope.
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Page 2 of 7 Assignment 1-6 (text, pp. 32–33) 1. Debt/equity ratio improves Income and equity improve Times-interest-earned ratio improves Income improves* 2. Debt/equity ratio declines Income and equity decline Times-interest-earned ratio declines Income declines* 3. Debt/equity ratio improves marginally Lower discount amortization, lower debt compared to effective interest method Times-interest-earned ratio improves Income increases, interest expense decreases* 4. Debt/equity ratio declines Debt increases Times-interest-earned ratio unaffected** 5. Debt/equity ratio declines Income and equity decline; warranty liability increases Times-interest-earned ratio declines Income declines* 6. Debt/equity ratio improves Income and equity improve Times-interest-earned ratio improves Income improves* *Income effect is in the first or early years; later the difference would reverse and the effect would be the opposite. **Technically, the times-interest-earned ratio will worsen, because dividends on shares are reclassified from the retained earnings statement to the income statement as “interest.” However, this response is beyond the coverage of Chapter 1. Assignment 1-15
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This note was uploaded on 09/22/2009 for the course ACCOUNTING ACCT-351 taught by Professor Charko during the Fall '09 term at Humber.

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Lesson%201%20Solutions - Suggested Solutions for ACCT 351...

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