Lesson 1: Key Question

Question 3:
For Rachlin Enterprises, the closing entries would be as follows:
The revenue account would need to be closed. This would be done by debiting
the service revenue account by 825 and crediting the Income summary account
with the same amount to reduce the revenue to zero.
The expense accounts would also need to be closed. This would be done by
debiting the total expenses of 1825 to the income summary account and
crediting each expense account to reduce them to zero.
Since the income summary account has a debit balance as a result of the above
transactions, there is a net loss in the company. Therefore, the capital account
would also need to be closed. The income summary account would be credited
and the capital account would be debited to reduce the account to zero.
Question 4:
User-Defined Expense 1 Expense is an example of an account that could be
reversed.

Lesson 2 Key Question

Question 8:
The COGS and Delivery Expense accounts would need to be closed at the end of
the fiscal period for Fancy That.

Lesson 3 Key Question

Question 9:
a.

b.

Both scandals involved the manipulation of accounting records and

falsifying costs as assets to create profits.
In each case, the top executives of the two firms were responsible and
were held accountable for forgery and accounting fraud of billions of $.
The men responsible, Mr. Ebbers for WorldCom and Mr. Drabinsky for
Livent, were both sentenced to serve prison terms for their crimes and
they were also both Canadians.
At WorldCom, the manipulations of accounting records and falsifying of
costs to enhance profits was started by Mr. Ebbers and only reached his
accountants whereas at Livent, the crime originated from the top and
trickled down to the suppliers and auditors.


c.

d.

e.

Mr Ebbers was convicted to 25 years in prison but Mr. Drabinsky was

convicted to only 5 years in prison.
The principle of conservatism switching costs from one year to the next
defiles this principle because the end result is the overstatement or
understatement of the affairs of a business.
The consistency principle switching costs from one year to the next
amounts to manipulation of figures resulting in better financial
statements.
Switching costs is against the generally accepted accounting principles
and therefore unethical.
Switching costs would lead to fraud and forgery and it is therefore a crime.
I would refer to the two cases of WorldCom and Livent on the
consequences of switching costs.
Ethical behaviour an act which is consistent with what is generally
accepted to be right or moral. It is important to act in an ethical way in the
accounting profession because the profession requires professional
judgement rather than personal beliefs. Personal beliefs may not be
necessarily ethical hence the need for professional ethics.

Lesson 4 Key Question

Question 10:
a) Step 1 Ethical issue: Whether Pat Smith, CA, should reimburse the request
by Blanchard or take the correct action.
b) Step 2 Stakeholders: Garfield College, Tom Blanchard, The headmaster
and Pat Smith
c) Step 3 Alternative courses of action:
Reimburse Tom Blanchard $200 less his request
Ignore the discrepancy and reimburse the requested amount
Report Blanchard to the school advisory board
Advise Tom to correct his expense report and resubmit it
d) Step 4 Effects/consequences of each alternative:
Reimburse Tom Blanchard $200 less his request
i.
This would end the issue quickly
ii.
Tom may not learn from this
Ignore the discrepancy and reimburse the requested amount
i.
The college would be found out in an audit
ii.
It would constitute to fraud
Report Blanchard to the school advisory board
i.
Blanchard may lose his job
ii.
The board may report Blanchard to the CRA for action
Advise Tom to correct his expense report and resubmit it
i.
Tom will learn his lesson
ii.
It would save Tom from the possibility of losing his job
e) Step 5 The decision

Advise Tom that overstating expenses is wrong and the consequences of getting
caught would mean prosecution by the CRA. Allow Tom to rectify the mistake and
resubmit a correct expense report. If he refuses to do so, Tom should be reported
to the school advisory board for them to take further action.

Lesson 5 Key question

Question 11:
a)
b)
c)
d)
e)
f)
g)
h)

i
i
iii
ii
i
ii
iv
iii

Question 12:
a)
b)
c)
d)
e)
f)

False
True
True
False
False
True

Question 13:
a)
b)
c)
d)
e)
f)

CGAs
Disgorgements
ACCA
ICAO
OSC, unethical

i.
Tax
ii.
Provincial
iii.
Social, economic, incentive
g) Contingency, losses
h)
i.
Participate
ii.
Director
iii.
$ 1 million