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SECOND CANADIAN EDITION
CORNERSTONES
of FINANCIAL
ACCOUNTING
RICH JONES MOWEN HANSEN JONES TASSONE

BRIEF CONTENTS
Key Features xviii
New to This Edition xix
Superior Supplements xx
Acknowledgments and Thanks xxi
About the Authors xxii
CHAPTER 1 Financial Statements and Decision Making 2

CHAPTER 2 The Accounting Information System and Financial Statements 62
CHAPTER 3 Accrual Accounting and Financial Statements 128
INTEGRATIVE CASE 1 194
CHAPTER 4 Internal Control and Cash 196
CHAPTER 5 Reporting and Analyzing Sales Revenue and Receivables 250
CHAPTER 6 Reporting and Analyzing Inventory and Cost of Goods Sold 308
CHAPTER 7 Reporting and Analyzing Property, Plant, and Equipment; Intangibles;
and Natural Resources 380
CHAPTER 8 Reporting and Analyzing Current Liabilities 446
CHAPTER 9 Reporting and Analyzing Noncurrent Liabilities 500
CHAPTER 10 Reporting and Analyzing Shareholders’ Equity 564
CHAPTER 11 Reporting and Analyzing the Statement of Cash Flows 624
CHAPTER 12 Reporting and Analyzing Investments 696
CHAPTER 13 Analysis and Interpretation of Financial Statements 724
APPENDIX 1 Time Value of Money 808
ONLINE APPENDICES
APPENDIX 2 Financial Statement Information: Canadian Tire Corporation, Limited
(available online at http://www.nelson.com/student)
APPENDIX 3 Financial Statement Information: Rogers Communications Inc.
(available online at http://www.nelson.com/student)
Glossary 833
Check Figures 843
Index 848
NEL
Copyright 2017 Nelson Education Ltd. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content
may be suppressed from the eBook and/or eChapter(s). Nelson Education reserves the right to remove additional content at any time if subsequent rights restrictions require it.
CONTENTS
Key Features xviii Statement of Cash Flows 26

New to This Edition xix Elements 26
Superior Supplements xx Use of the Statement of Cash Flows 27
Acknowledgments and Thanks xxi
Relationships among the Four Financial Statements 27
About the Authors xxii
Use of Financial Statements by Management 27
CHAPTER 1 Components in the Annual Report 27

Financial Statements and Decision Making 2 Notes to the Financial Statements 29
Management’s Discussion and Analysis 29
Financial Statements and Decision Making 4 Report of Independent Auditors 29
Business: Forms and Activities 5 International Financial Reporting Standards 30

Forms of Business Organization 5 Ethics and Legal Liability in Accounting 31
Business Activities 6
Significant Differences between IFRS and ASPE 32
Communication of Accounting Information 8
The Four Basic Financial Statements 8
The Basic Accounting Equation 10 CHAPTER 2
Cornerstone 1.1: Using the Basic Accounting Equation 10
The Accounting Information System
The Statement of Financial Position 11 and Financial Statements 62
Elements 11
Current Assets 12 Fundamental Accounting Concepts 64
Noncurrent Assets 13 The Conceptual Framework 64
Current Liabilities 14 Qualitative Characteristics of Useful Information 64
Long-Term Liabilities and Shareholders’ Equity 14 Assumptions 66
Preparing a Statement of Financial Position 15 Principles 67
Cornerstone 1.2: Preparing a Classified Statement Elements of the Financial Statements 67
of Financial Position 15 Cornerstone 2.1: Applying the Conceptual Framework 68
Using Statement of Financial Position Information 16
Measuring Business Activities: The Accounting Cycle 69
The Statement of Comprehensive Income 17
Economic Events 70
Elements 19 The Expanded Basic Accounting Equation 71
Preparing a Statement of Earnings 20
Cornerstone 1.3: Preparing a Statement of Earnings 20 Step 1: Analyze Transactions 72
Statement of Earnings Formats 21
Cornerstone 2.2: Performing Transaction Analysis 72
Using Statement of Earnings Information 23
Transaction 1: Issuing Common Shares 73
The Statement of Changes in Equity 24 Transaction 2: Borrowing Cash 73
Transaction 3: Purchase of Equipment for Cash 74
Cornerstone 1.4: Preparing a Statement of Retained Transaction 4: Purchasing Insurance 74
Earnings 25 Transaction 5: Purchase of Supplies on Credit 74
Use of the Retained Earnings Statement 25 Transaction 6: Sale of Services for Cash 75
NEL
vi
Contents vii
Transaction 7: Sale of Services for Credit 75 The Matching Concept 132

Transaction 8: Receipt of Cash in Advance 75 Applying the Revenue Recognition Principle
Transaction 9: Payment to a Supplier 76 and Matching Concept 133
Transaction 10: Payment of Salaries 76 Cornerstone 3.1: Applying the Revenue Recognition
Transaction 11: Collection from a Customer 76 Principle and Matching Concept 134
Transaction 12: Payment of Utilities 77
Transaction 13: Declaration and Payment of a Dividend 77 Adjusting Entries and Accrual Accounting 135
Overview of Transactions for HighTech Communications Inc. 77 Which Transactions Require Adjustment? 135
Cornerstone 3.2: Determining Which
Double-Entry Accounting 79 Transactions Require Adjustment 136
Accounts 79
Debit and Credit Procedures 80 Step 5: Adjusting the Accounts and Preparing
Cornerstone 2.3: Determining Increases or the Adjusted Trial Balance 137
Decreases to a Statement of Financial Accrued Revenues 137
Position Account 81 Cornerstone 3.3: Recording Accrued Revenues 138
Cornerstone 2.4: Determining Increases or Accrued Expenses 139
Decreases to Revenues, Expenses, and Cornerstone 3.4: Recording Accrued Expenses 140
Dividends Declared 82 Unearned Revenues 141
Cornerstone 3.5: Adjusting Unearned Revenues 142
Step 2: Journalize Transactions 84 Prepaid Expenses 143
Cornerstone 2.5: Preparing a Journal Entry 85 Cornerstone 3.6: Adjusting Prepaid Expenses 144
Transaction 1: Issuing Common Shares 86 Summary of Financial Statement Effects of Adjusting
Transaction 2: Borrowing Cash 87 Entries 146
Transaction 3: Purchase of Equipment for Cash 87 Comprehensive Example 146
Transaction 4: Purchasing Insurance 87
Transaction 5: Purchase of Supplies on Credit 87 Step 6: Preparing the Financial Statements 151
Transaction 6: Sale of Services for Cash 87
Step 7: Closing the Accounts and Preparing
Transaction 7: Sale of Services for Credit 87 The Post-closing Trial Balance 151
Transaction 8: Receipt of Cash in Advance 88
Transaction 9: Payment to a Supplier 88 Cornerstone 3.7: Closing the Accounts 154
Transaction 10: Payment of Salaries 88
Summary of the Accounting Cycle 155
Transaction 11: Collection from a Customer 88
Transaction 12: Payment of Utilities 88 Significant Differences between IFRS and ASPE 156
Transaction 13: Declaration and Payment of a Dividend 88
Step 3: Post to the Ledger 89
Step 4: Prepare a Trial Balance 90 CHAPTER 4

Cornerstone 2.6: Preparing a Trial Balance 91 Internal Control and Cash 196
Fraud—A Reason For Internal Control 198
Role of Internal Control 199

CHAPTER 3
Accrual Accounting and Financial Elements of Internal Control 200
Statements 128
Control Environment and Ethical Behaviour 201
Completing the Accounting Cycle 130 Risk Assessment 202

Accrual versus Cash Basis of Accounting 130 Strategic Risks 202
Business Process Risks 202
Key Elements of Accrual Accounting 131
Periodicity Assumption 131 Control Activities 203
The Revenue Recognition Principle—Current Authorization of Transactions and Other
(IAS 18) and Proposed (IAS 15) 131 Business Activities 203
NEL
viii Contents
Segregation of Duties 203 Sales Discounts and Credit Card Discounts 253
Documentation Adequacy 204 Cornerstone 5.1: Recording Sales Discounts 253
Physical Controls 204 Sales Returns and Allowances 255
Independent Checks on Performance 204
Human Resource Controls 205 Types of Receivables 256
Receivables in Foreign Currencies 257
Information and Communication 205 Interest Revenue 257
Monitoring 206 Accounts Receivable Control Account and Subsidiary
Ledger 257
Relationship between Control Activities
and the Accounting System 206 Valuation of Accounts Receivable and Accounting
for Bad Debts 257
Cash Controls 207 Direct Write-Off Method 258
Allowance Method 258
Reconciliation of Accounting Records
to Bank Statement 208 Cornerstone 5.2: Estimating Bad Debt Expense
Using the Percentage of Credit Sales Method 260
Transactions Recorded by the Company, Cornerstone 5.3: Estimating the Allowance for
but Not Yet Recorded by the Bank 210 Doubtful Accounts Using the Aging Method 262
Transactions Recorded by the Bank, Bad Debts from a Management Perspective 263
but Not Yet Recorded by the Company 211
Errors 212 Managing Accounts Receivable 264
Performing a Bank Reconciliation 212
Factoring Receivables 264
Cornerstone 4.1: Performing a Bank Reconciliation 213
Credit Cards 264
Making Journal Entries as a Result of the Bank
Debit Cards 265
Reconciliation 214
Extending Credit to Customers 265
Cornerstone 4.2: Recording Journal Entries
Determining the Credit Period 266
as a Result of the Bank Reconciliation 214
Monitoring Accounts Receivable Collection 266
Cash Over and Short 215 Notes Receivable 266
Cornerstone 4.3: Recording Cash Over and Short 215
Cornerstone 5.4: Accounting for Notes Receivable 267
Petty Cash 216 Honouring and Dishonouring Notes Receivable 269
Zero Interest Notes 269
Cornerstone 4.4: Accounting for Petty Cash 216
Internal Control Over Sales 269
Accounting and Reporting Cash 217
Analyzing Sales and Receivables 270
Operating Cycle 218
Sales 270
Cash Management 220 Industry Comparison 271
Receivables 271
Buying Inventory 220
Cornerstone 5.5: Calculating the Gross Profit Margin,
Paying for Inventory 220
Operating Margin, Net Profit Margin, Accounts
Selling Inventory 220
Receivable Turnover, and Average Collection Period
Short-Term Investments 220
Ratios 272
Cash Flow Projections 221
Significant Differences between IFRS and ASPE 221 Statement Presentation of Receivables 273
CHAPTER 5 CHAPTER 6
Reporting and Analyzing Sales Reporting and Analyzing Inventory
Revenue and Receivables 250 and Cost of Goods Sold 308
Timing of Revenue Recognition 252 Nature of Inventory and Cost of Goods Sold 310
Types of Inventory and Flow of Costs 311
Amount of Revenue Recognized 253 Cost of Goods Sold Model 312
NEL
Contents ix
Cornerstone 6.1: Applying the Cost of Goods Sold First-In, First-Out (FIFO) 342
Model 313 Cornerstone 6.11: Applying the FIFO
Inventory Systems 314 Inventory Costing Method in a Periodic
Inventory System 343
Recording Inventory Transactions—Perpetual System 316 Weighted Average Cost Method 344
Accounting for Purchases of Inventory in a Perpetual Cornerstone 6.12: Applying the Weighted Average
System 317 Cost Inventory Costing Method in a Periodic
Cornerstone 6.2: Recording Purchase Transactions Inventory System 344
in a Perpetual Inventory System 320
Accounting for Sales of Inventory in a Perpetual System 321 Significant Differences between IFRS and ASPE 345
Cornerstone 6.3: Recording Sales Transactions in a
Perpetual Inventory System 322 CHAPTER 7
Inventory Costing Methods 323 Reporting and Analyzing Property, Plant,
Gross Profit Method of Inventory Estimation 324
and Equipment; Intangibles; and Natural
Inventory Costing Methods 324 Resources 380
Specific Identification 325
Cornerstone 6.4: Applying the Specific Identification Understanding Capital Assets 382
Method 326
First-In, First-Out (FIFO) 327 Acquisition of Property, Plant, and Equipment 383
Last-In, First-Out (LIFO)—A Divergence from IFRS Measuring the Cost of Property, Plant, and Equipment 383
and ASPE 327 Recording the Cost of Property, Plant, and Equipment
Cornerstone 6.5: Applying the FIFO Inventory Acquired by Cash, Debt, Equity (or Other Noncash
Costing Method in a Perpetual Inventory System 328 Consideration), or Construction 384
Weighted Average Cost 329 Cornerstone 7.1: Measuring and Recording
Cornerstone 6.6: Applying the Weighted Average the Cost of Property, Plant, and Equipment 386
Cost Inventory Costing Method in a Perpetual Basket Purchases 387
Inventory System 330
Depreciation 387
Analysis of Inventory Costing Methods 332 Information Required for Measuring Depreciation 388
Illustrating Relationships: Financial Statement Effects of
Alternative Costing Methods 332 Depreciation Methods 390
Income Tax Effects of Alternative Costing Methods 332 Straight-Line Method 390
Consistency in Application 333 Cornerstone 7.2: Computing Depreciation
Expense Using the Straight-Line
Lower of Cost and Net Realizable Value Rule 334 Method 391
Cornerstone 6.7: Valuing Inventory at Lower Declining Balance Method 392
of Cost and Net Realizable Value 335 Units-of-Production Method 393
Cornerstone 7.3: Computing Depreciation
Analyzing Inventory 336 Expense Using the Declining Balance Method 394
Gross Profit Ratio 336 Cornerstone 7.4: Computing Depreciation
Inventory Turnover Ratio 336 Expense Using the Units-of-Production Method 395
Cornerstone 6.8: Calculating the Gross Profit Choosing Between Depreciation Methods by
and Inventory Turnover Ratios 337 Management 397
Depreciation for Partial Years 398
Effects of Inventory Errors 338 Depreciation and Income Tax Reporting 399
Cornerstone 6.9: Analyzing Inventory Errors 339 Components and the Depreciation Process 399
Revaluation Model Alternative 400
Inventory Transactions in a Periodic System 340 Valuation Model—Investment Properties
Cornerstone 6.10: Recording Purchase Transactions (Rental Real Estate) 400
in a Periodic Inventory System 341
Expenditures After Acquisition 400
Appendix: Inventory Costing Methods and Revenue Expenditures 400
the Periodic Inventory System 342 Capital Expenditures 401
NEL
x Contents
Revision of Depreciation 401 Cornerstone 8.4: Recording Property Taxes 461

Cornerstone 8.5: Recording Unearned
Cornerstone 7.5: Revising Depreciation Expense 402
Revenues 462
Measuring and Recording of Impairment of Property,
Plant, and Equipment 402 Contingent Liabilities 463
Cornerstone 7.6: Recording an Impairment of Commitments 464

Property, Plant, and Equipment 403
Provisions 465
Disposal of Property, Plant, and Equipment 403 Cornerstone 8.6: Recording Warranty Liabilities 466
Cornerstone 7.7: Recording the Disposition of
Calculating and Analyzing Current Liabilities 467
Property, Plant, and Equipment 404
Cornerstone 8.7: Calculating Liquidity Ratios 468
Analyzing Property, Plant, and Equipment 406
Cornerstone 7.8: Analyzing Property, Plant,
and Equipment and Total Asset Ratios 407 Appendix: Deferred (Future) Income Taxes:
Measurement and Reporting 469
Intangible Assets 409
Accounting for Intangible Assets 409
Cornerstone 7.9: Accounting for Intangible Assets 411 CHAPTER 9
Reporting and Analyzing Noncurrent
Natural Resources 412 Liabilities 500
Cornerstone 7.10: Accounting for Depletion
of a Natural Resource 413 Bonds Payable and Notes Payable 502
Significant Differences between IFRS and ASPE 415 Selling New Debt Securities 503
Types of Bonds 504
Accounting for Bonds and Notes Payable 506
CHAPTER 8 Recording Issuance 507

Cornerstone 9.1: Recording the Issuance of
Reporting and Analyzing Current Bonds at Face Value, at a Premium, and at a Discount 507
Liabilities 446
Recognizing Interest Expense and Repayment
Current Liabilities 448 of Principal 508
Interest Amortization Methods 509
Recognition, Measurement, and Reporting
of Liabilities 448 The Effective Interest Rate Method: Recognizing
Recognition of Liabilities 449 Interest Expense and Repayment of Principal 509
Measurement of Liabilities 450 Bonds with Regular Interest Payments Sold at Par 510
Reporting of Current Liabilities 450 Cornerstone 9.2: Recording Interest Expense
for Bonds Sold at Face Value 510
Current Liabilities 450 Cornerstone 9.3: Recording Interest Expense
Operating Line of Credit 451 for Bonds Sold at a Discount Using the Effective
Accounts Payable 451 Interest Rate Method 511
Accrued Liabilities 452 Cornerstone 9.4: Recording Interest Expense for
Income Tax Payable 452 Bonds Sold at a Premium Using the Effective
Short-Term Notes Payable 453 Interest Rate Method 512
Cornerstone 8.1: Recording Notes Payable
and Accrued Interest 454 The Straight-Line Method 513
Current Portion of Long-Term Debt 456 Bonds with Regular Interest Payments Sold at
Other Current Liabilities 456 a Premium or Discount 514
Cornerstone 8.2: Recording Liabilities at Cornerstone 9.5: Recording Interest Expense
the Point of Sale 457 for Bonds Sold at a Discount Using the
Cornerstone 8.3: Recording Payroll Taxes 459 Straight-Line Method 515
NEL
Contents xi
Cornerstone 9.6: Recording Interest Expense Accounting For and Reporting the Issuance
for Bonds Sold at a Premium Using the of Common and Preferred Shares for Cash 570
Straight-Line Method 517 Issuance of Shares for Services or Non-cash Assets 570
Accruing Interest on Bonds Payable 519 Cornerstone 10.1: Recording the Issuance
of Common and Preferred Shares 571
Zero Coupon Bonds 520
Stated Capital and Contributed Surplus 572
Retirement of Bonds Payable 521 Shares Issued under Stock Warrants 572
Shares Issued under Employee Stock Options 573
Redeeming a Bond At Maturity 521
Redeeming a Bond Before Maturity 521 Accounting for Share Repurchases, Dividends,
and Stock Splits 575
Installment Debt 522
Share Repurchases 575
Installment Debt Payment as Fixed Principal Cornerstone 10.2: Accounting for Share Repurchases 576
Amount Plus Interest 522 Dividends 577
Installment Debt Payment as Blended Principal Cornerstone 10.3: Recording Cash Dividends 578
and Interest 523 Cornerstone 10.4: Recording Small and Large Stock
Dividends 580
Pros and Cons of Debt Financing 523
Cornerstone 10.5: Calculating Cumulative
Tax Deductible Interest Expense 523 Preferred Dividends 583
Financial Leverage 524
Inflation 525 Report and Analyze Retained Earnings and
Payment Schedule 525 Accumulated Other Comprehensive Income 584
Restrictions on Retained Earnings 584
Operating and Finance Leases 525 Reporting and Analyzing Accumulated Other
Operating Leases 525 Comprehensive Income 585
Finance Leases 526
Analyze Shareholders’ Equity 587
Analyze Long-Term Liabilities 527 Shareholder Profitability Ratios 587
Cornerstone 9.7: Calculating and Analyzing Cornerstone 10.6: Calculating Shareholder
Long-Term Debt and Interest Coverage Ratios 528 Profitability Ratios 589
Shareholder Payout Ratios 589
Other Long-Term Liabilites 530 Cornerstone 10.7: Calculating Shareholder
Provisions 530 Payout Ratios 590
Employee Retirement and Post-employment Interpreting Ratios 591
Benefit Plans 530
Unincorporated Businesses—Proprietorships and
Pricing Bonds Payable 531 Partnerships 591
Accounting for Owner’s (Proprietor’s) Equity in a
Significant Differences between IFRS and ASPE 531 Proprietorship 592
Accounting for Partners’ Equity in a Partnership 592
Cornerstone 9.8: Determining the Market
Value of a Bond 532 Significant Differences between IFRS and ASPE 595
CHAPTER 10 INTEGRATIVE CASE 3 623

Reporting and Analyzing
Shareholders’ Equity 564 CHAPTER 11
Reporting and Analyzing the Statement
Ownership and Governance of a Corporation 566 of Cash Flows 624
Issuing Share Capital within a Corporation 567 Role of the Statement of Cash Flows 626
Authorization and Issuance of Shares 567 Assessing a Company’s Ability to Produce Future
Common Shareholders and Their Rights 568 Net Cash Inflows 626
Preferred Shareholders and Their Rights 568 Judging a Company’s Ability to Meet Its Obligations
Typical Features of Preferred Shares 568 and Pay Dividends 627
NEL
xii Contents
Estimating the Company’s Needs for External Financing 627 Significant Differences between IFRS and ASPE 654
Understanding the Reasons for the Differences
between Net Income and Related Cash Receipts Appendix 11A: The Direct Method 654
and Cash Payments 627
Cash Collected from Customers 654
Evaluating the Statement of Financial Position
Other Cash Collections 654
Effects of Both Cash and Noncash Investing
Cash Paid to Suppliers 655
and Financing Transactions 627
Cash Paid for Operating Expenses 655
Classification of Cash Inflows and Cash Outflows 628 Cash Paid for Interest and Income Taxes 656
Other Items 657
Reporting and Analyzing Cash Flows from Operating
Applying the Direct Method 657
Activities 628
Cornerstone 11.7: Calculating Net Cash Flows from
Reporting and Analyzing Cash Flows from Investing
Operating Activities: Direct Method 658
Activities 629
Reporting and Analyzing Cash Flows from Financing Appendix 11B: Using a Spreadsheet to Prepare the
Activities 630 Statement of Cash Flows 658
Reporting and Analyzing Noncash Investing and
Net Income 659
Financing Activities 630
Adjusting for Noncash Items 659
Reporting and Analyzing Foreign Exchange 630
Adjusting for Gains and/or Losses Due to Investing and
Cornerstone 11.1: Classifying Business Activities 631
Format of the Statement of Cash Flows 632
Adjusting for Changes in Current Assets and Current
Analyzing the Accounts for Cash Flow Data 634 Liabilities 661
Adjusting for Cash Inflows and Outflows Associated with
Cornerstone 11.2: Classifying Changes in Financing Activities 661
Statement of Financial Position Accounts 635 Completing the Statement of Cash Flows 661
Preparing a Statement of Cash Flows 637
CHAPTER 12
Preparing Cash Flows from Operating Activities 637 Reporting and Analyzing Investments 696
The Direct Method 637
The Indirect Method 639 Why Investments Are Made 698
Applying the Indirect Method 639
Classification of Investments 698
Cornerstone 11.3: Calculating Net Cash Flow from
Operating Activities: Indirect Method 641 Accounting and Reporting for Nonstrategic
Investments 698
Preparing Cash Flows from Investing Activities 645
Accounting Models 699
Analyzing Investing Activities 645
Cornerstone 12.1: Effective Interest Rate Method
Cornerstone 11.4: Reporting Net Cash Flow
of Bond Amortization 699
from Investing Activities 647
Fair Value through Profit or Loss Method 702
Preparing Cash Flows from Financing Activities 647 Fair Value through Other Comprehensive Income (OCI)
Model for Nonstrategic Debt and Equity Investments 705
Analyzing Financing Activities 647
Cornerstone 11.5: Reporting Net Cash Flow from Account For and Report Strategic Investments 705
The Cost Method of Accounting 706
Analyzing the Statement of Cash Flows 650
Date of Acquisition of Shares 706
Examining the Statement of Cash Flows 651 Investee Income and Dividends 707
Comparing Statements of Cash Flows from Several Sale of Investment in Shares 707
Periods and Assessing Financial Statement Reporting on the Financial Statements during the
Interrelationships 651 Period of Ownership 707
Cornerstone 11.6: Analyzing Free Cash Flow The Equity Method of Accounting 707
and Cash Flow Adequacy 652 Cornerstone 12.2: Using the Equity Method of
Comparing the Statement of Cash Flows to Similar Accounting 708
Companies 653
Consolidated Financial Statements 710
NEL
Contents xiii
Preparing Consolidated Statements 710 Cornerstone 13.8: Calculating and Interpreting

Reporting a Minority or Noncontrolling Interest 711 Shareholder Ratios 755
DuPont Analysis 756
Business Combinations 712 Cornerstone 13.9: Performing and Interpreting
DuPont Analysis 758
Summary of Financial Ratios 759
Data for Ratio Comparisons 760
CHAPTER 13
Analysis and Interpretation of Financial
Statements 724
APPENDIX 1
Use of Financial Statements in Decisions 726 Time Value of Money 808
Customer Decisions 726
Supplier Decisions 727 Compound Interest Calculations 809
Employment Decisions 727 Cornerstone A1.1: Computing Future Values Using
Credit Decisions 727 Compound Interest 810
Investment Decisions 728
More Than Quantitative Analysis Is Required 728 Present Value of Future Cash Flows 811
Understanding the Company’s Business 728 Interest and the Frequency of Compounding 811
Understanding Financial Statements (and Notes) 728
Four Basic Compound Interest Problems 812
Analyzing Financial Statements with
Cross-sectional and Time Series Analysis 729 Computing the Future Value of a Single Amount 812
Cornerstone A1.2: Computing Future Value
Cross-sectional Analysis 729 of a Single Amount 814
Time Series Analysis 729 Computing the Present Value of a Single Amount 815
Cross-sectional and Time Series Analysis Illustrated 730 Cornerstone A1.3: Computing Present Value of a
Cornerstone 13.1: Interpreting Cross-sectional Single Amount 816
and Time Series (or Trend) Analysis 730 Computing the Future Value of an Annuity 817
Cornerstone A1.4: Computing Future Value of an
Analyzing the Financial Statements with Horizontal
and Vertical Analysis 731 Annuity 819
Present Value of an Annuity 820
Horizontal Analysis 731 Cornerstone A1.5: Computing Present Value of an
Cornerstone 13.2: Preparing Common Size Annuity 821
Statements for Horizontal Analysis 732
Vertical Analysis 733
Cornerstone 13.3: Preparing Common Size ONLINE APPENDIX 2
Statements for Vertical Analysis 733 Financial Statement Information: Canadian
Tire Corporation, Limited (available online
Analyzing the Financial Statements with
Ratio Analysis 737
at http://www.nelson.com/student)
Short-Term Liquidity Ratios 737
Cornerstone 13.4: Calculating and Interpreting ONLINE APPENDIX 3
Short-Term Liquidity Ratios 740
Financial Statement Information: Rogers
Debt Management (Solvency) Ratios 742
Cornerstone 13.5: Calculating and Interpreting Communications Inc. (available online at
Debt Management Ratios 744 http://www.nelson.com/student)
Asset Efficiency Ratios 745
Cornerstone 13.6: Calculating and Interpreting
Asset Efficiency Ratios 749
Glossary 833
Profitability Ratios 750
Cornerstone 13.7: Calculating and Interpreting Check Figures 843
Profitability Ratios 752 Index 848
Shareholder Ratios 753
NEL
Get there with
CORNERSTONES AND
Cornerstones is a complete text and technology solution that helps you and your students reach course
goals and objectives. The Cornerstone pedagogy incorporates step-by-step coverage of important concepts
throughout each chapter by utilizing the familiar Cornerstone examples and exercises throughout. The ap-
proach provides students with a solid foundation of the core concepts, which allows them to build on that
knowledge to get to a higher understanding of financial accounting. The integration of the Cornerstones
text and unique features in CengageNOWv2™ will get students thinking like managers! The goal of this
text is to solidify homework concepts so that students can spend more time learning how to analyze business
situations and become good decision makers.
The Cornerstones approach focuses on three core needs:
BUILDING A STRONG FOUNDATION

Students simply cannot move forward in this course until they have built and practised the
foundational aspects of accounting. With Cornerstones, students learn the foundations of
financial accounting FASTER, so that they can easily transition into applying and analyzing
business information in a conceptual manner.
ANALYZING RELATIONSHIPS
Students also need to be able to analyze and interpret the interrelationships between the
numbers and how they affect one another in order to make sound business decisions. Because
accounting is an interrelated accounting system, Cornerstones incorporates digital technology
to allow students to see actual end results.
DECISION MAKING
Cornerstones has a plethora of tools to give students practice in decision making. Armed
with the foundational knowledge and interrelationship understanding, students should now
feel comfortable analyzing the data in order to make sound business decisions.
NEL
xiv
BUILDING A STRONG FOUNDATION
Students need to obtain a solid understanding of the foundations of accounting
to set the stage for thinking like a manager.
Preparing a Journal Entry C O R N E R S T O N E 2.5
Information:
On January 1, Lee Inc. purchases a $3,000 computer from Bay Electronics on credit,
Where other texts bury their examples with payment due in 60 days.
in blocks of text, Cornerstone
Required:
examples are easy to find, clear, Prepare a journal entry to record this transaction.
and consistently formatted to help
students digest material faster. Why:
A journal entry records the effects of a transaction on accounts using debits and credits.
Students value step-by-step, clear Journal entries must accurately reflect increases or decreases to the general ledger
examples more than any other feature accounts in terms of both amount and classification since the general ledger is the source
of data used in the preparation of financial statements.
in a text.
Solution:
First, analyze the transaction using the procedures described in Cornerstone 2.2:
Required:
Prepare journal entries for the transactions.
Cornerstone Exercise 2-27 Journalize Transactions OBJECTIVE 5

Four transactions that occurred during May are listed below. CORNERSTONE 2.5
a. May 5: Borrowed cash of $20,000 from CIBC Each end-of-chapter Cornerstone
b. May 10: Made cash sales of $14,500 to customers
c. May 19: Paid salaries of $8,600 to employees for services performed Exercise references the
d. May 22: Purchased and used $4,100 of supplies in operations of the business
Required:
corresponding Cornerstone example
Prepare journal entries for the transactions. from the text that will aid students in
Cornerstone Exercise 2-28 Preparing a Trial Balance OBJECTIVE 7 completing that particular exercise.
Listed below are the ledger accounts for Borges Inc. at December 31, 2018. All accounts have CORNERSTONE 2.6
normal balances. This makes getting started with
Service Revenue
Cash
$23,150
12,850
Dividends Declared
Salaries Expense
$ 1,500
4,300
the homework less intimidating
Accounts Payable
Common Shares
2,825
15,000
Equipment
Accounts Receivable
12,725
5,700 and encourages students to learn
Rent Expense 2,400 Advertising Expense 1,500
independently.
Required:
Prepare a trial balance for Borges at December 31, 2018.
As further reinforcement, newly revised

Cornerstone Videos are available for every
Cornerstone example and are linked to the
Cornerstone Exercises in CengageNOWv2.
These videos further solidify concepts as they
walk through Cornerstone examples in a way
NEL
that appeals to visual and auditory learners!
xv
ANALYZING RELATIONSHIPS
Students need to be able to get beyond just understanding the individual pieces
of an accounting system and be able to connect concepts and see the relation-
ships between the parts.
INTEGRATIVE CASE 1
(CHAPTERS 1–3)
The chapter-spanning Integrative
Cases present opportunities to
integrate concepts from several
The Accounting Cycle
chapters in order to analyze financial
Begin with the following account balances for University Street Parking Garage (assume all accounts
have normal balances) at December 31, 2018: accounting information in a broader
Accounts payable
Accounts receivable
$ 16,700
39,200
context.
Accumulated depreciation (equipment) 36,800
Cash 6,700
Common shares (20,000 shares) 100,000
Depreciation expense (equipment) 12,300
Dividends 6,300
Equipment 269,500
Income taxes expense 2,700
Income taxes payable 1,100
Interest expense 16,500
Interest payable 0
Interest revenue 4,100
Inventory 4,900
Investments 35,000
N bl (d M 2 2024) 160 000
Problem 3-65A Inferring Adjusting Entries from Account Balance Changes

OBJECTIVE 4
The following schedule shows all the accounts of Brandon Travel Agency that received year-end
adjusting entries:
Unadjusted Adjusted Account
Instructors have told us most texts Account Account Balance Balance
do not explain the interrelationships Prepaid Insurance

Prepaid Rent
$ 23,270
3,600
$ 6,150
2,100
between the numbers. The Accumulated Depreciation
Wages Payable
156,000
0
(a)
6,750
Cornerstones text explains those Unearned Service Revenue

Service Revenue
13,620
71,600
(b)
78,980
relationships where appropriate Insurance Expense

Rent Expense
0
29,700
(c)
(d)
throughout the text and identifies Depreciation Expense

Wages Expense
0
44,200
12,500
(e)
them as Illustrating Relationships. Required:

1. Calculate the missing amounts identified by the letters a through e.
2. Prepare the five adjusting entries that must have been made to cause the account changes as
indicated.
Problem 3-66A Preparation of Closing Entries and a Statement of Earnings OBJECTIVE 5 6

Bell Grove Alarm Company provides security services to homes in northwestern Ontario. At
year-end 2018, after adjusting entries have been made, the following list of account balances is
prepared:
The end-of-chapter materials also contain exercises and problems

that challenge students to think backward, to give students a better
understanding of the different accounting interrelationships.
NEL
xvi
DECISION MAKING
Students need concrete ways to practice how to use accounting information to
make sound business decisions.
Quality of Earnings
You Decide takes Cornerstones’ Investors and other users often assess the quality of a company’s determining accruals and deferrals (prepayments) of revenues
earnings when analyzing companies. The quality of earnings refers and expenses can have a significant impact on a company’s net
concepts beyond the foundations. to how well a company’s reported earnings reflect the company’s
true earnings. High-quality earnings are generally viewed as perma-
income. Companies that make relatively pessimistic estimates
and judgments are said to follow prudent accounting practices
Students must put themselves in the nent or persistent earnings that assist financial statement users in
predicting future earnings and cash flows. Low-quality earnings are
and are generally viewed as having earnings that are of higher
quality. In contrast, many companies use relatively optimistic esti-
shoes of a manager or business owner temporary or transitory earnings from one-time transactions or
events that do not aid in predicting future earnings or cash flows.
mates and judgments and employ aggressive accounting prac-
tices. These companies are normally viewed as having a lower
and consider the different implications While there is no consensus on how best to measure earnings qual-
ity, research suggests that investors recognize differences in earnings
quality of earnings.
quality and that these differences affect a company’s share price.

and outcomes of their “company’s” Adjusting entries that lead to better predictors of future
earnings or cash flows are viewed as contributing to a higher
decisions. Cornerstones gives students How do adjusting entries influence the quality of earnings? quality of earnings.
a chance to actually practise making

Because adjusting entries always affect amounts reported on the
statement of earnings, the estimates and judgments involved in
decisions.
“ [Cornerstones] is a very good book with a good balance of technical pro-

cedures and analysis for critical thinking. It focuses on decision making and
concept application. Yes, I would recommend this book to my colleagues.
—LIANG CHEN, University of Toronto
”
Required:
Calculate the amount of net income that Lauhl should recognize in April under (1) cash-basis
accounting and (2) accrual-basis accounting.
OBJECTIVE 3 Brief Exercise 3-31 Identification of Adjusting Entries

Examine the following accounts: Conceptual Connection requirements
a. Prepaid Insurance
b. Inventory within many end-of-chapter
c. Interest Payable
d.
e.
Unearned Service Revenue
Accumulated Depreciation
assignments ask students to go
Required:
beyond the calculations and analyze
CONCEPTUAL CONNECTION Identify and explain why each account may or may not require
adjustment.
the conceptual context of the problem.
OBJECTIVE 4 Brief Exercise 3-32 Adjusting Entries—Accruals
Students will better understand how
Nichols Company had the following items that required adjustment at December 31, 2018. companies use the calculations to
a. Electricity used during December was estimated to be $320. This amount will be paid in
January. make sound business decisions.
NEL
“ The quality examples and problems [in Cornerstones] are realistic
and challenging. They will not only equip students with technical
skills but will also develop problem solving and critical thinking.
—KARIN JONSSON, CPA, CA. Director, Corporate Finance, Rio Tinto
” xvii
KEY FEATURES
• Experience Financial Accounting vignettes offer a rela-
tional approach to teaching and learning materials
through the use of chapter-opening cases that show how
real businesses deal with financial accounting issues.
• The You Decide feature helps students actively practise • CengageNOWv2TM is an online learning resource that
decision making. Students play the part of a manager or provides students with access to the tools that will help
business owner, then consider the different factors in them get the most out of their course. Interactive learning
their decisions and how they will affect outcomes. You resources include the Adaptive Study Plan, Animated
Decide helps students prepare for work in the real Activities, and the Blueprint Problems and Cornerstone
world. Video resources detailed below.
• Conceptual Connection requirements within many end- • Author-Revised Check My Work Feedback: Cengage-
of-chapter assignments ask students to go beyond the NOWv2 helps students progress further outside the
calculations and analyze the conceptual context of the classroom and keeps them from getting stuck in their
problem. Students will better understand how com- studies by providing them with meaningful guidance
panies use the calculations to make sound business and tips as they work through their homework assign-
decisions. ments. Feedback has been fully revised by the author
• The Concept Q&A boxes throughout the text challenge team and is consistent with material presented in the
students to use higher-level reasoning skills. Students are text.
prompted to go beyond the procedures and understand • Post-submission Feedback: Also available in Cengage-
the broader business implications. NOWv2 is the ability to show the full solution in addi-
• The chapter-spanning Integrative Cases present oppor- tion to newly added source calculations to enhance the
tunities to integrate concepts from several chapters in learning process. Now students can see where they may
order to analyze financial accounting information in a have gone wrong so that they can correct their work
broader context. through further practice.
• The Integrated Learning System (ILS) anchors chapter • Animated Activities: Animated Activities in Cengage-
concepts, provides a framework for study, and links all NOWv2 are the perfect pre-lecture assignment to expose
the instructor resources. Learning objectives with num- students to concepts before class! These cartoon-like
ber icons are listed at the start of each chapter. These illustrations visually guide students through selected
icons reappear throughout the text and end-of-chapter core topics. A realistic company example illustrates how
materials, linking them to the chapter learning objec- the concepts relate to the everyday activities of a busi-
tives. The ILS provides structure for instructors prepar- ness. Animated Activities are assignable or available for
ing lectures and exams, and helps students learn quickly self-study and review.
and study efficiently. • Blueprint Connections: These scenario-based teaching
problems solidify concepts and demonstrate their inter-
relationships as well as promoting critical thinking.
Blueprint Connections combine multiple topics, allow-
ing students to explore a larger concept more fully.
NEL
xviii
NEW TO THIS EDITION
• Updated and enhanced end-of-chapter assignments. The
end-of-chapter questions have been updated throughout
the text to include new data and the most recent devel-
opments in accounting. They also to incorporate current • Newly released CengageNOWv2TM connects students to
company information and the CPA Educational Stand- assignable content matched to their text. CengageNOWv2
ards. Integrative Cases have been added following is an interactive learning solution that helps students focus
Chapters 3, 7, and 10. on what they need to learn. It improves academic perform-
• New Brief Exercises. A new section of exercises, with an ance by increasing students’ time on task and giving them
average of 15 exercises per chapter, has been added to prompt feedback. With a focus on active learning, concept
the second Canadian edition. mastery, and automatic grading, CengageNOWv2 is an
• ‘‘Why’’ in Cornerstones. The ‘‘Why’’ section has been easy-to-use digital resource designed to get students
expanded in each Cornerstone example to provide stu- involved in their learning progress and be better prepared
dents with additional reasons for covering the topic. for class participation and assessment. CengageNOWv2
• New real-company references. The Experience Financial for Cornerstones of Financial Accounting can be used for
Accounting opening vignettes have been updated to reflect self-study or assigned as homework. Each student’s unique
additional Canadian companies or multinational corpora- needs are identified with a pre-test that generates an
tions that have prominent operations in Canada. These Adaptive Study Plan for each chapter. Platform enhance-
companies are then appropriately referenced within the ments in CengageNOWv2 allow for more advanced types
chapters to reinforce the connections between key concepts of questions, providing students with an even richer learn-
and their applications in real-world business situations. ing experience.
• Highlights of content updates. Chapter 1 has been • Blueprint Problems: These are new to CengageNOWv2
amended to focus on the basics of an introductory for this edition and are author-written specifically for
accounting course. Chapter 3 has been expanded with this text. Blueprint Problems are teaching-type problems
additional content concerning the reversal of accruals that are based on the Cornerstones from within the
and the closing of accounts. Chapter 4 has been chapter. Each chapter contains two to four Blueprint
expanded with respect to the application of internal Problems written to help students understand the funda-
controls and fraud. Chapter 5 has increased discussion on mental accounting concepts and their associated build-
the allowance for doubtful accounts and the use of credit ing blocks—not just memorize the formulas. They are
and debit cards. Chapter 7 includes increased discussion written in a step-by-step format, from an overview to
of goodwill impairment. Chapter 12 has been updated to application of the concepts.
reflect recent changes in investment accounting. • Blueprint Problems Using Excel: These are also new to
• New IFRS content. The content in each chapter has been CengageNOWv2 for this edition and are designed as an
changed or updated to fully reflect IFRS for publicly alternative to the Blueprint Problems as a way to incor-
accountable enterprises in Canada. porate Microsoft Excel in greater detail. Students build
• New summaries of differences between accounting stand- their own spreadsheets and create their own formulas
ards. Each chapter contains an appropriate summary of rather than simply input numbers into a template. The
‘‘Significant Differences between IFRS and ASPE’’ in unique Blueprint format starts as a conceptual overview
Canada. and is followed by application of the chapter concepts
using Excel.
• Cornerstone Videos: Revised and updated Cornerstone
videos provide clear examples. Additional hints and tips
have been added to guide students through each Corner-
stone problem.
NEL
xix
SUPERIOR SUPPLEMENTS
Inspired Instruction at Nelson • NETA Presentation: Microsoft¤ PowerPoint¤ lecture slides
for every chapter have been revised by Liang Chen of the
University of Toronto, Scarborough Campus. There is an
average of 55 slides per chapter, many featuring key con-
cepts, exhibits, and tables from Cornerstones of Financial
Accounting. NETA principles of clear design and engaging
The Nelson Education Teaching Advantage (NETA) program
content have been incorporated throughout.
delivers research-based instructor resources that promote
• Instructor’s Manual: The Instructor’s Manual to accompany
student engagement and higher order thinking to enable the
Cornerstones of Financial Accounting has been prepared by
success of Canadian students and educators. Be sure to visit
Robert Ducharme of the University of Waterloo. This man-
Nelson Education’s Inspired Instruction website at www.
ual contains learning objectives, chapter outlines, suggested
nelson.com/inspired to find out more about NETA. Don’t miss
Cornerstone exercises, and suggested application exercises.
the testimonials of instructors who have used NETA supple-
• Instructor’s Solutions Manual: This manual, prepared by
ments and seen student engagement increase!
Ralph Tassone, author of the second Canadian edition
textbook, has been independently checked for accuracy by
Instructor’s Resource Jay Perry of Niagara College. It contains complete solu-
tions to discussion questions, multiple-choice exercises,
Key instructor ancillaries are provided on the Instructor’s Cornerstone exercises, exercises, problem sets, and cases.
Website: www.nelson.com/instructor. • Spreadsheet Solutions: The complete solutions to the Excel-
• NETA Test Bank: This resource was revised by Tamera based spreadsheet exercises are provided.
Ebl of the University of British Columbia. It includes over • Image Library: This resource consists of digital copies of
1,100 multiple-choice questions written according to exhibits, Cornerstones, Concept Q&As, and You Decide
NETA guidelines for effective construction and develop- boxes used in the book. Instructors may use these jpegs to
ment of higher order questions. Also included are over 400 create their own PowerPoint presentations.
true/false questions, over 300 problems, over 100 essay
questions, over 250 fill-in-the-blank exercises, and over 450
matching questions.
With its engaging learning and assessment tools, Cengage-

NOWv2 supports the entire student workflow, from motivation
to mastery. For instructors, CengageNOWv2 provides control
The NETA Test Bank is available in a new cloud-based and customization with the opportunity to tailor the learning ex-
platform. Nelson Testing Powered by Cognero¤ is a secure perience to improve outcomes. Class-tested and student-praised,
online testing system that allows instructors to author, edit, CengageNOWv2 offers a variety of features that support course
and manage Test Bank content from anywhere Internet objectives and interactive learning. These features include:
access is available. No special installations or downloads • Multipanel View
are needed, and the desktop-inspired interface, with its • Adaptive Study Plan
drop-down menus and familiar, intuitive tools, allows • Animated Activities
instructors to create and manage tests with ease. Multiple • Cornerstones Videos
test versions can be created in an instant, and content can be • Blueprint Problems
imported or exported into other systems. Tests can be deliv- • Blueprint Connections
ered from a learning management system, the classroom, or
wherever an instructor chooses. Nelson Testing Powered by Ask your Nelson Education learning solutions consultant for
Cognero for Cornerstones of Financial Accounting can be more information about integrating CengageNOWv2 into
accessed through www.nelson.com/instructor. your course.
NEL
xx
ACKNOWLEDGMENTS AND THANKS
We would like to thank the following authors of the U.S. We would also like to acknowledge the instructors who
text whose work provided a foundation for this second worked on updating and adapting the rich ancillary
Canadian edition: package for Cornerstones of Financial Accounting:
Jay S. Rich, Illinois State University Robert Ducharme, University of Waterloo (Instructor’s
Jefferson P. Jones, Auburn University Manual)
Maryanne M. Mowen, Oklahoma State University Liang Chen, University of Toronto, Scarborough Cam-
Don R. Hansen, Oklahoma State University pus (PowerPoint presentations)
Tamara Ebl, University of British Columbia (Computer-
We would also like to thank the following reviewers, whose
ized Test Bank)
helpful suggestions were used in the preparation of the
John Love, Ted Rogers School of Management, Ryerson
second Canadian edition:
University, and Ralph Tassone, Joseph L. Rotman
Jerry Aubin, Algonquin College School of Management, University of Toronto (Corner-
Liang Chen, University of Toronto stone videos)
Tamara Ebl, University of British Columbia
Finally, we would like to thank the faculty and students at
Sonya von Heyking, University of Lethbridge
the University of Windsor who provided ideas and
Karin Jonsson, CPA, CA, Rio Tinto
suggestions as the text was prepared and the staff at Nelson
Lauren Kirychuk, Bow Valley College
Education and its associates: Publisher Anne-Marie
Shiraz Kurji, Mount Royal University
Taylor, Content Development Manager Maria Chu, Senior
Darlene Lowe, MacEwan University
Production Project Manager Imoinda Romain, Rights
Sylvie Monette, CPA, CA, KPMG
Project Manager Lynn McLeod, Copy Editor Marcia
Dal Pirot, Grant MacEwan University
Gallego, and Project Manager Rajachitra S.
Haiping Wang, York University
We are grateful to the experts who worked diligently as Donald Jones
technical reviewers on the textbook and solutions manual: Ralph Tassone
Jay Perry, Niagara College, and Tamara Ebl, University of June 2016
British Columbia.
NEL
xxi
ABOUT THE AUTHORS
Donald Jones is a tenured lecturer who teaches accounting, auditing, and income tax at the
University of Windsor. He received his B.Comm. degree from the University of
Windsor and his M.B.A. degree from the University of Toronto. Jones is a Canadian
Chartered Professional Accountant (CPA), having qualified as both a Chartered
Accountant (CA) and a Certified Management Accountant (CMA) in the Province
of Ontario. Jones is a member in good standing of CPA Canada and CPA Ontario.
Jones has 36 years of professional public accounting experience, including service as
a partner of Deloitte, an international professional accounting firm. In addition to
his academic duties at the University of Windsor, Jones has led seminars for both
large corporate audiences on accounting and auditing matters, including IFRS, and
for private enterprise shareholder-managers on accounting and tax issues. Jones is
licensed as an active public accountant (LPA) in the Province of Ontario, where he
carries on a professional practice. Jones enjoys watching football and hockey and
expanding his Canadian coin and currency collection. He and his wife, Linda, have
three children, each of whom is a professionally qualified accountant.
Ralph Tassone Ralph Tassone teaches accounting at the Joseph L. Rotman School of Management
(Rotman), University of Toronto. He is a Canadian Chartered Professional
Accountant (CPA), having qualified as a Chartered Accountant (CA) in the Province
of Ontario, and has over 16 years of public accounting experience. His focus in public
accounting is on owner-managed businesses. Tassone advises clients on accounting
and tax planning arrangements. At Rotman, his teaching focus is accounting; he has
taught several undergraduate courses, including Introductory and Intermediate
Financial Accounting, Managerial Accounting, and Management Control. At the
graduate level, he has taught Advanced Financial Reporting for the Rotman Graduate
Diploma in Professional Accounting program. He graduated from the University of
Toronto Commerce program in 2000 and subsequently commenced his articling with
KPMG LLP. He completed his Master of Education at OISE, University of Toronto,
in 2014. He enjoys watching sports and travelling to new places around the world.
Jay S. Rich is a Professor of Accounting at Illinois State University. He received his B.S., M.S.,
and Ph.D. from the University of Illinois. Before entering the Ph.D. program, Rich
worked as an auditor at Price Waterhouse & Co. and earned his CPA. His primary
teaching interest is financial accounting, and he has taught numerous courses at the
undergraduate, master’s, and doctoral levels. Rich has been awarded both the
Outstanding Dissertation Award and Notable Contribution to the Literature Award
by the Audit Section of the American Accounting Association. He has published
articles in The Accounting Review; Auditing: A Journal of Practice & Theory;
Accounting Horizons; Organizational Behavior and Human Decision Processes; and
Accounting Organizations and Society, and has served on the editorial board of
Auditing: A Journal of Practice and Theory. His outside interests include family,
travel, reading, and watching sports, but he spends most of his free time driving his
children to various activities. He also repeatedly develops plans to exercise and diet
at some point in the future and has not been to a movie in years. By all accounts, he
is a master at grilling meat, a mediocre skier, and a shameful golfer.
NEL
xxii
Another random document with
no related content on Scribd:
“She hath obliterated her own individuality until she is an echo
whom Setos values no more than the mats under his feet.”
Yermah sent Cezardis away for rest and refreshment before giving
an answer, when he was again urged to return to Tlamco.
As soon as he was alone Yermah’s mind reverted to its normal
condition, and he was entirely dispassionate in his reply.
“I cannot comply with thy wishes, Cezardis,” he said. “Not that I
dread the conflict inevitable with the overthrow of Setos. I have
another and more difficult battle to fight.”
“I have made oath not to return without thee, and I will not. The
whole country is preparing to follow thee south, and thou art the only
one capable of holding them back.”
“Nothing can stay the exodus. It is the breaking up of old lines. A
new dispensation is beginning, and the present order must pass
forever.”
“Wilt thou let me serve thee? I would have come with thee in the
beginning, had I known.”
Cezardis was aware that Yermah could not refuse to accept his
offer. It was an old-time custom for one man to serve another,
voluntarily, and the servant’s was the honored position. To serve
sweetly in any capacity was the aspiration animating this entire
dispensation.
The Dorado smiled as he said:
“Thou wilt be the last to make such an offer. The generations
following will reverse our beliefs and practices. Go thou to Ben Hu
Barabe, and tell him to give Hanabusa leave to stock his balsa with
food and raiment for five men. See to it that there is plenty, for thou
art of the company.”
Yermah worked incessantly for several days making a llama of
silver, as an emblem of suffering innocence. Its belly was a golden
sunburst, and it was seated upon the back of an eagle, rescuing a
rabbit from the fangs of a serpent. This represented the unequal
conflict between good and evil; but the serpent being obliged to give
up its prey, manifested the final triumph of goodness.
There were eight altars in the temple; and, at sunset on the last day
of his stay, Yermah placed the llama on the altar facing the east.
Simultaneously with this act, Gautama headed a procession at the
base of the pyramid, which slowly climbed to the top.
The worshipers performed a sacrifice on each of the four terraces,
and did not reach the temple until midnight.
They found Yermah in the great, dark structure, intently watching
the constellation of the Pleiades. As Alcyone approached the zenith
he sprang forward with a glad cry, and vigorously swinging a copper
hammer, made the sparks fly from a granite rock.
The venerable Gautama held the cotton, and carefully nursed the
sparks into a blaze. As the light streamed up toward the heavens,
shouts of joy and triumph burst forth—for once more the children of
men received a direct ray from the spiritual sun.
Carriers with torches lighted at the blazing beacon ran in every
direction, carrying the cheering element to every part of the country.
Long before sunrise it was brightening the altars and hearthstones
everywhere.
Yermah sent up orisons from the eastern altar, and then took an
affectionate farewell of the priests in attendance, but before
beginning to descend he gazed long at the matchless scenery below.
Soft spring verdure lay everywhere, and he drew courage and
inspiration from the fact that the lower forms of creation neither
sulked nor held back because the elements had been remorselessly
cruel to them.
Wherever there was enough soil to support plantlife, flowers and
grasses put forth, and all nature was making a brave effort to swing
back into harmony.
Gautama walked with him, and so did an unseen host led by Akaza
and Kerœcia.
The Dorado wore all the insignia of his office. He had a cloth-of-
gold robe, and a pale violet mantle. On his head was a high cap of the
same color crested with jewels. There were jeweled sandals on his
feet, and he carried a caduceus of silver running through a circle,
which was a gold serpent with its tail in its mouth.
At the foot of the pyramid Yermah found Alcyesta and her infant
son waiting for his blessing. Beside her was Ildiko, in the white robes
of a high-priestess, surrounded by the few vestals possible to the
depleted numbers.
Ben Hu Barabe, Hanabusa and Cezardis were ready to accompany
him.
Taking a handful of salt and holding the baby up to the sun with
the left hand, Yermah spake:
“By right of initiation, I name thee Gautamozin, and by the power
of adeptship endow thee with Brotherhood inheritance. Thou shalt
have a long line; but the last of thy name shall be as I am, a sacrifice
to another order of being.”
As Yermah ceased speaking, he sprinkled salt over the child’s face,
and at this juncture a tamane approached leading Cibolo. With his
disengaged arm Yermah drew the horse’s head down until its nose
touched the baby’s soft cheek, and when Cibolo had tasted a morsel
of the salt his master laid his face close to the horse’s jaw, and said
softly:
“Thou wilt be a good and faithful friend to Gautamozin, as thou
hast been to me? Thine shalt be a name to conjure with—as thy love
and obedience hath been worthy of example. Farewell, my comrade!
Thy days shall be as the sunny hours.”
From his breast Yermah drew the locket containing Kerœcia’s ring.
Taking Alcyesta’s hand, he silently slipped it on her finger, while
unchecked tears coursed down her cheeks.
Turning to Ildiko, he handed her the locket. Facing them all, he
said:
“Be of good cheer! A long era of peace and prosperity is for thee
and thine. Thou art saved from the floods for a divine purpose. Let
this knowledge be thy secret refuge, lest thou be tempted to depart
from the way.”
At the water’s edge he embraced and blessed each one.
“Grieve not for me. In the fullness of time I shall come again.”
The young men went out on flower-laden rafts with him, and cast
gold and emeralds into the sea in his honor.
The stone of promise signified renewal after the cataclysm, and
Yermah was El Dorado,—“He of the golden heart.”
The men on the raft strained their vision to catch a last glimpse of
the balsa, as it was known that he was going away for purification,
and they believed implicitly that he would come again.
It was not long before the people on shore began the weary watch
for his return, which makes Cortez’s conquest of later days so
pathetic and pitiful.
The heart aches with the memory of the treachery and cruelty of
the Conquistadors at Cholula, after its inhabitants had sent Cortez a
helmet filled with gold nuggets, because they saw with surprise that
he whom they mistook for their Fair God, valued this metal.
The gold, itself, thrown up in the days of the earth agony, lay
untouched for centuries, but every precept of the “golden one”[27] was
cherished as priceless gifts over all the Americas.
The tribes had different local versions of him, where they built
pyramids and teocallis in his honor, sculptured his sayings in
enduring granite, repeated his exploits in poetry and song, until
finally his name and fame excited the cupidity of the European
adventurers who sought the Golden Fleece in crusades and voyages
of discovery.
The American version of the Argonauts’ expedition for the golden
apples, under Columbus, began in violence and ended in crime.
But the search for the fabled El Dorado did not end here.
Like a veritable will-o’-the-wisp, it led some into the fever-infested
swamps of the Orinoco, in South America,[28] and finally induced
Coronado to push northward into Kansas, after he had nearly
perished in the desert sands of the Colorado. He pounced down upon
the Zuni pueblo, and tried hard to persuade himself that he had
found the land of Quivira, though he vainly tried to locate the seven
cities of Cibolo.
The magic words “El Dorado” attracted another bond of gold-
seekers, who have made the name and the country their very own.
In their wake are the forerunners of the men and women who will
make California[29] a great center of occult knowledge—the
alchemical gold, corresponding to her mineral wealth.
“The land! The land! O my beloved country! How art thou

humbled by misfortune! I know not thy desolate bosom!” cried
Yermah, springing ashore upon the island of Teneriffe, the mountain
peak of Poseidon’s kingdom, his lost Atlantis.
“I kiss thy blackened and charred face! Thou mother of the white
race! Thou source of all learning! Grant that thy dependencies may
not forget and deny thee!”
Gautama, too, had prostrated himself, while a stifled, smothered
feeling kept him silent. For a time, Yermah forgot that the three
bronzed men who stood looking at the shepherds gathered about the
shore were not Atlantians.
It seemed doubtful what kind of a reception they were to receive,
until Yermah called to the natives in their own tongue.
“Our Dorado! Come to us out of the sea!” they shouted almost
beside themselves with joy.
“O thou blessed one! Dost thou see the scourge laid upon us?
“Thy father, Poseidon, and all thy countrymen, save us, poor
Guanches, are perished. Evil days have fallen on Majorata. Dost thou
not see the new mountain choking and filling her wide-open mouth?
Tell us how thou art come.”
“Thy servant brother, Hanabusa, skilled in sailcraft, is my
deliverer.”
“The sun and stars lent countenance to our venture,” said he, “save
when obscured by a passing shadow. Then the corposant ran in balls
and spirals from sheet to sheet, and we could not fail.”
“I am of the Monbas,” said Ben Hu Barabe, “far to the west, and I
am brother to thee in sorrow. The destructive power of the Divine
took all my people.”
“And I am of the Mazamas,” said Cezardis, coming forward. “My
country lies under sheets of ice mountains high, and no living thing
is there.”
“Misfortune is known in the land of Mexi, whence I come,” said
Gautama. “Flood and fire hidden in the earth made us tremble for
days lest we all should perish.”
“The Azes, too—” Hanabusa was not allowed to finish his sentence.
“Thou art of our blood!” exclaimed the Guanches, in a breath.
“Never again shalt thou depart from us. Thou wert with the
Dorado?”
“From the beginning,” he answered.
CHAPTER THIRTY-ONE
FINAL PEACE IS MADE WITH COSMIC LAW
These Guanches were splendid specimens of manhood, the remote

forefathers of the warriors who, five hundred years ago, held their
European conquerors at bay for more than a hundred years—never
more than a handful of men at any time.
First the fierce and ruthless Normans, then the Portuguese, and
lastly the Spanish, laid a destroying hand on the brave Guanches.
Now, there is but little more than their goats left of the surviving
Atlantians. These goats are of a Vandyke brown, with long twisted
horns, venerable beards, and hair lengthening almost to a lion’s
mane.
Teneriffe was the Island of the Blessed of the Hindus, the Elysian
Fields of the Greeks, and the Tlapallapan of the Aztecs.
The Greeks had their Hermes; the Norsemen, Ymer; the
Egyptians, Kema; all words correlated to, and having the same
significance as Yermah,[30] which means the Divine Germ incarnate.
As El Dorado, his love nature was typified, but he transmuted
passion, and became a god among men. He was Votan to the
Quiches; to the Mayas, he was Kukulcan; and to the Peruvians he
was Manco-capac—all types of the same character, and emanations
from the same civilizing source.
The next morning the Guanches made a part of the company
which gave escort to Yermah, as he essayed climbing the still
smoking peak. After they had passed the line of vegetation there was
naught to be seen save a sea of red rocks, and thirsty yellow pumice.
The scorching sun and blue, unvaried sky condemned everything
far and near to barrenness and desolation forever.
Climbing higher, there was no solid rock, no soft earth—nothing
but black stones, piled one upon the other so loosely that under the
crenellated edge of the sky-line were frequent glimpses of daylight.
It was not necessary for the Guanches to explain that a marvelous
bombardment of the heavens had but recently taken place. The
wrenching and heaving, when the crater of eruption was active, had
cracked the cooling and hardening surface repeatedly, sending
masses of cinders and stones rattling down only to be caught and
piled one over another fathoms deep.
The granular lava had crystals of white felspar mixed in it, liked
chopped straw, which were formed into spherical shells, veined,
curved and frothy. Under the varying effects of pressure, the still
pasty mass was rolling, falling and crystallizing in grotesque
cascades.
In some places the trade-winds had hardened them into wild,
dreamlike faces, while some were pictures of contending beasts.
Yermah could hear them grinding and crushing in low snarls and
growls as they rolled heavily downward.
Many times these writhing and twisting forms threatened to
remain forever suspended in mid-air.
The Dorado imagined that he recognized some of the effigies, and
was made dizzy and seasick by their ceaseless progression in a
community of pain.
How inexpressibly varied were the colors, bathed in the brilliant
light of a vertical tropical sun, undimmed by impurities of the lower
atmosphere!
The tired and thirsty party halted at the Guajara Springs near the
spectral Lunar Rocks of the Cañadas, standing like white teeth newly
cast from a granite mouth opened wide enough to admit a tongue of
lava thousands of feet higher in air.
These grayish white spikes line the “Road of the Guanche Kings”
where the crater of elevation sticks out its ragged and torn lips,
eternal witnesses to one of nature’s most stupendous debauches.
Yermah groaned in spirit as he looked across the dreary waste, and
he mourned unfeignedly for his lost people. It seemed to need this
grand, harmonious outburst of unseen forces to give voice to the wild
and passionate utterances seeking vent in his heart. Nature speaks to
each soul alone, and no mortal may interfere with the communion.
In taking a tender farewell of his comrades, Yermah appointed the
life work of each loyal heart; nor had he the least doubt of their
faithful obedience.
“Go thou to Egypt, Gautama, and tell them the task is finished.”
“Mayst thou be eternally at one with the Divine.”
“And thou, Cezardis, journey on beyond Egypt, until thou art come
to Lassa. Find Kadmon, and tell him all is well.”
“And thou, Yermah, wilt thou come with me?” asked Ben Hu
Barabe.
“No. Thou must teach Gautamozin in my stead. He will learn from
the Brotherhood. Farewell, beloved! I shall return, but not now.”
“Thou art come to thine own, Hanabusa,” he continued. “Stay thou
here with the despoiled.”
He kissed each one on brow and cheeks, murmuring affectionate
words of encouragement and farewell.
“Go now to the sea level. I am come to the end of my journey, and
would fain be alone.”
It was difficult for him to persuade the Guanches to leave him.
“Thou wilt see me again,” he promised; “but at another time.”
The shepherds turned again and again, kissing their hands to him
as long as he was in sight.
Weary and exhausted, Yermah slept soundly until the first streak
of dawn appeared in the lowest place on the horizon, while the long
glade of zodiacal light shot up amongst the stars of Orion and
Taurus.
Yermah knew how to interpret this heavenly sign. Gradually a
reddish hue appeared, and as soon as the lonely watcher
comprehended its meaning the zodiacal light faded, and golden
yellow gradually overcame and drove out the red tinge, grown to
vermilion.
The cold region of gray at its upper limit blushed a rosy pink as the
first point of the solar disk leaped from behind a horizon of ocean
and clouds.[31]
The Dorado performed ablutions with marked care, dressed
himself in fresh, white linen, and before the sun was an hour old was
picking his way to the higher regions.
Finally, a bright spot of fire appeared in the malpais, then a
lengthening red and smoking line, widening and growing deeper as it
flowed down the mountain side.
Nothing but the extreme high altitude made the heat bearable.
Occasionally a fresh tongue of fire shot up from the fountain head,
and the whole mass of fluid lava and scoria felt the impulse.
Alternate cascades of fire and dross thundered precipitately against
the lower slopes.
The tense and elastic vapors in their struggles for freedom here
made one collective heave to gain the light of day, as the Island of
Atlantis slowly settled down on the bed of the ocean, and the crater
of eruption came up like a huge lava bubble.
During this process the cold atmosphere did effective work on the
outside.
The mass was hidebound with hardening stone; but the violence of
the heated gases made a grievous rent in the wrinkled coating, thus
causing the mountain to shake as with the ague.
Finally, the internal pressure being too great, the massive shell was
shattered into a thousand pieces. Not once, but many times, has this
battle between heated gases and cold air taken place in the years
since then, as the extinct craters amply testify, before the pent-up,
unruly spirits of the mountain finally escaped.
Prior to reaching his destination, Yermah discovered a lava figure
resembling Kerœcia, kneeling with her hands joined in prayer, and
appearing to have a heavy mantle thrown over her shoulders.
This effigy is still one of the many fantastic shapes pointing the
way to the Ice Cavern—that wondrous sepulcher of the Dorado.
It was not then an ice-cold spring banked with snow, in the midst
of desolation, but was a vent where three conical mouths of the
volcano flared open from different quarters, and hardened there in a
dome-shaped elevation.
Lying to the south is a particularly large mass of scoria turned
upside down, which has been used from time immemorial by the
Guanches as a place to pack and make up their parcels of cavern
snow before venturing to carry it under a vertical sun, thirty miles to
the capital below.
It was nightfall when Yermah reached this spot, where he found
the pentagram mentioned in Akaza’s will.
Nature had made it for him of whitish felspar on the western side
of the scoria table. Certain that he had been guided aright, he sat
down to await the appearance of Venus in the eastern horizon.
Astronomers call it lateral refraction when a star oscillates and
makes images in the heated atmosphere; but to Yermah it had a
different significance. He first saw Venus seven degrees high,
apparently motionless. The planet oscillated up and down, then
horizontally, outlining a Maltese cross—the primordial sign of
matter.[32]
Finally, it rose perpendicularly, descended sideways at an angle,
and returned to the spot whence it started, completing a triangle—
the universal emblem of spirit.
While Yermah sat on the rock lost in reverie, the sub-conscious
man made its final peace with cosmic law. His entire life passed
before him in successive events when he knew that here was the end;
but with this realization he leaned confidently upon the Divine.
Under the impulse of utter helplessness, he arose and kissed his
hand reverently to the evening star—a practice taught him in the
nursery.
As a child it was his first act of adoration before his tongue learned
to fashion appropriate speech or his mind to comprehend
veneration. In this supreme moment, he turned back to that time
insistently.
Finally, he knelt—and lifting up his arms as if to embrace a
heavenly ray, Yermah kissed the air as if it were the raiment of God.
Turning his face up to the sky, he closed his eyes in silent prayer.
Rising, he approached the mouth of the crater which faces north.
He could hear the angry, hissing roar of the subterranean fires, and
the scorching flames licked out at him as he fed them his belongings
one by one.
But a short time previous, Yermah had passed his thirty-third
birthday, and, as he now stood ready for self-immolation, he was in
the prime and glory of vigorous manhood.
He had the illumined face of a saint, and was uplifted by that spirit
which sustained martyrs in the after years. Even his fair young body
seemed to be spiritualized.
“O Thou Ineffable One! Thou Spirit of Fire! Take that which is
thine! Lap thy purifying tongue about me, and leave no dross!”
The desolation about him was the veritable home of black despair.
Of what use was it to cry out to the deadly calm of the rarefied air,
amidst the crushing, strangling and appalling stillness?
Coming nearer, Yermah looked down into the white heat of the
pink-throated cavern.
“O Thou Sacred Fire! Thy kiss was welcome to her sweet lips. Feast
Thou on mine!”
With the fervor of an enthusiast he rushed forward to fling himself
headlong into the yawning chasm, but a dazzling effulgence obscured
the way, and a voice from the land of shadows said:
“Yermah, son of light, no further sacrifice is required of thee!”
It was the gentle, unseen hand of Akaza which halted the
action * * * then a Higher Power suffered Yermah’s lifeless body to be
at rest.
“Kerœcia, beloved, receive thy twin spirit!” he cried, in passing.
In the transcendent radiance of the Presence enveloping all, the
twain appeared—transfigured and glorified.
Being thus reunited, Kerœcia realized for the first time that she
was out of the body.
Yermah was neither Krishna, nor the Christ, but the Ideal Man of
all time, and of all people.
He was LOVE, the eternal mystery; that love which Madame de
Staël has said confounds all notion of time, effaces all memory of a
beginning and all fear of an end.
FINIS
1. The modern name is preferably employed.

2. Modern name preferably employed.
3. J. M. Hutchings in “The High Sierras.”
4. Indian name for Mirror Lake.
5. Modern names are preferably employed.
6. This head is in the Museum in the City of Mexico. It was found in 1830 in
the streets of Santa Teresa by some workmen while excavating for the foundation
of a new house.
7. The giant Gulliver bound in a net-work of threads by the Lilliputians is a
familiar mythical form of the same belief—Gulliver representing the whole human
family with its net-work of desires and illusions.
8. Modern names preferably used.
9. Indian Legend.
10. From the Egyptian Book of the Dead.
11. Later, in all the distorted legends of Adam Kadmon, the cosmic man,—
Woman was accused of causing his fall through lustful desire; and what was
originally an allegory of initiation, or of being able to distinguish between the true
and the false in the battle-ground of our own hearts, has been perverted into a
literal interpretation of dread consequence.
This false idea has degraded millions of men and women.
12. Aleutian Island chain.
13. In the year 1866, a miner found Akaza’s skull, while sinking a shaft in a
strata of gravel one hundred and thirty-seven feet below the surface. It was in a
beautiful flat, about fifteen miles north of Table Mountain, a mass of basaltic lava,
six hundred feet thick, which was not erupted until after Akaza’s death.
The skull no longer surmounted that last nudity of man which instinct bids us
conceal in the Earth. It was coated with a deposit of gravel and sand, that told of its
lying in a river bed while mountains were worn to plains, and the decomposed
quartz and loose gravel were plowed up by glacial erosion, and scattered over the
hillsides. The skull was broken in its strongest part, an evidence of the force with
which some torrent had dashed it against bowlders in the lapsing centuries.
Some time during its wanderings in the river beds, or while resting on the
banks, a snail had crawled under the malar bone and died. Its shell was found
there, and no such species of snail has been known since the volcanoes ceased
pouring lava over California.
The skull[33] and the snail-shell have been the cause of great discussion among
the scientists of our epoch: Its age is too great to agree with the preconceived idea
of man’s existence.
14. Initiates were always considered hermaphrodites, but not in a sex sense.
The name itself implies this, being a compound of Hermes (wisdom) and
Aphrodite (love). When sex takes precedence over humanity it is hard to explain a
divine mystery, because organs are mistaken attributes, and the whole world is sex
mad. Nevertheless, activity and repose, positive and negative, equilibrium and
discord, cause and effect, involution and evolution, differentiation and polarization
of atoms, and the laws governing them are united in the one word—SEX.
15. Lares and penates—household gods.
16. H. P. Blavatsky in The Secret Doctrine.
17. It is a mistake to suppose that the personality originates thought. The
sphere called mind reflects thought, as the earth reflects the light of the sun. It is
quite as mis-leading to assert that the spirit leaves the body at death as it would be
to assume that the sun is actually in the earth, because this planet lives by its rays.
The spirit never is in the body—therefore it has neither birth nor death. It contacts
and vivifies the body in the same manner as does the sun and the earth. The
photosphere of the earth, and the aura of man are universal exemplifications of the
mysterious Bridge of Kinevat.
18. Sixteen hundred (Egyptian) feet long by five hundred feet wide.
19. Profane and blasphemous words were unknown to the native races in the
Americas. These people believed that speech was given man to enable him to praise
his Maker.
To this day the Indian is chary of words—and in all the relations of life his
language is circumspect, and dignified. He only speaks when it is necessary, and
rightly has profound contempt for the human who talks too much.
20. The Breath of Life.
21. Co-ownership of property necessitated the institution of civil marriage, in
order to define inheritance.
22. Egyptian Book of the Dead.
23. A planet runs through its grand period of life from a formless nebula to a
globe, which solidifies into a planet with or without satellites. It is involution as
long as the planet is in process of formation; but when matter begins to manifest,
the first step in evolution is taken, which goes on from protoplasm to man. Then
comes the blooming-time, when this flower of space will scatter its seeds, as did
the huge planet once revolving between Jupiter and Mars.
Where once was unity, light and power, we have now a confused mass of
asteroids moving in eccentric orbits. This was not merely the experience of a
planet, but was a tragedy of the solar system; and in it the extremity of
individualism finds exemplification. The mind of humanity is broken and divided
in a corresponding manner. Both represent the fluid side of nature, and are
correlated to the soul on the downward spiral.
No one claims that the ego contacts through the animal kingdom, but the soul
of desire may.
When the latter does so, it is lost—until brought back on the upward spiral by
aspiration and harmony, where it becomes one with Divinity.
24. City of Mexico.
25. Cholula was to the primitive Americas, what Jerusalem is to the Christian;
Mecca, to the Mohammedan; Benares, to the Brahman.
26. Gautamozin—meaning son of Guatama—was the nephew of Montezuma,
and the spiritual leader of the Aztecs at the time of the conquest. He was the last
hierophant of the Brotherhood of Quetzalcoatl, the Aztec Messiah. He defended
Mexico City and was tortured and slain by Cortez. The statue erected in his honor
in the Paseo de la Reforma, Mexico City, is one of the finest monuments on the
North American continent.
27. All the heroes and ideal men of primitive times were sun-gods. Buddha
was the shining one. Zoroaster (zoe, light; aster, star); was called the glittering one.
The Son of Man came clothed in the glory of the sun. When the padres attempted
to teach the natives of America the story of Jesus, they exclaimed: “El Dorado!”
Such at least is the Spanish translation of what they called their own spiritual
leader.
28. History of the Conquest of Mexico.
29. Esoteric students everywhere understand that California is one of the
occult eyes of the world, because it still retains the magnetism of pre-historic
times, never having been visited by the ice ages nor the flood, and only in recent
geologic reckoning being partially purified by fire. Its Sanscrit name is Kali (time)
and purna (fulfillment).
30. Yermo and Yermina are diminutives and corruptions of Guillermo, the
Spanish for William, and are in common use among the natives of Mexico and the
neighboring states.
31. Chas. Piazzi Smyth, at Teneriffe.
32. Von Humboldt at Teneriffe.
33. Calaveras skull, Smithsonian Institution.
TRANSCRIBER’S NOTES
1. Silently corrected obvious typographical errors and
variations in spelling.
2. Retained archaic, non-standard, and uncertain spellings
as printed.
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RICH JONES MOWEN HANSEN JONES TASSONE

CHAPTER 1 Financial Statements and Decision Making 2

Key Features xviii Statement of Cash Flows 26

CHAPTER 1 Components in the Annual Report 27

Business: Forms and Activities 5 International Financial Reporting Standards 30

Transaction 7: Sale of Services for Credit 75 The Matching Concept 132

Step 4: Prepare a Trial Balance 90 CHAPTER 4

Role of Internal Control 199

Completing the Accounting Cycle 130 Risk Assessment 202

Revision of Depreciation 401 Cornerstone 8.4: Recording Property Taxes 461

Cornerstone 7.6: Recording an Impairment of Commitments 464

CHAPTER 8 Recording Issuance 507

CHAPTER 10 INTEGRATIVE CASE 3 623

Preparing Consolidated Statements 710 Cornerstone 13.8: Calculating and Interpreting

The Cornerstones approach focuses on three core needs:

BUILDING A STRONG FOUNDATION

Preparing a Journal Entry C O R N E R S T O N E 2.5

Cornerstone Exercise 2-27 Journalize Transactions OBJECTIVE 5

As further reinforcement, newly revised

Problem 3-65A Inferring Adjusting Entries from Account Balance Changes

do not explain the interrelationships Prepaid Insurance

Cornerstones text explains those Unearned Service Revenue

relationships where appropriate Insurance Expense

throughout the text and identifies Depreciation Expense

them as Illustrating Relationships. Required:

Problem 3-66A Preparation of Closing Entries and a Statement of Earnings OBJECTIVE 5 6

The end-of-chapter materials also contain exercises and problems

quality and that these differences affect a company’s share price.

a chance to actually practise making

“ [Cornerstones] is a very good book with a good balance of technical pro-

OBJECTIVE 3 Brief Exercise 3-31 Identiﬁcation of Adjusting Entries

With its engaging learning and assessment tools, Cengage-

“The land! The land! O my beloved country! How art thou

These Guanches were splendid specimens of manhood, the remote

1. The modern name is preferably employed.

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