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FINANCIAL FOURTH
EDITION

ACCOUNTING
A CRITICAL APPROACH

JOHN FRIEDLAN
vi CONTENTS

Summary of Key Points 65 Why Does It Matter When a Company

Formula Summary 66 Recognizes Revenue? 194
Key Terms 66 Google Inc. 197
Why Do Managers Have So Much Choice? 199
Similar Terms 67
The Gradual Approach to Recognizing
Assignment Materials 68
Revenue 199
Questions 68
Multiple Deliverable Arrangements 204
Exercises 70
Problems 76 Expense Recognition 205
Using Financial Statements 91 Gains and Losses 206
Endnotes 100 The Objectives of Financial Reporting 208
Tax Minimization 209
Stewardship 210
CHAPTER 3 Management Evaluation 210
The Accounting Cycle 101 Performance Evaluation 210
Cash Flow Prediction 210
Introduction 102
Monitoring Contract Compliance 210
The Accounting Cycle: Introduction 102
Earnings Management 211
Accrual Accounting 104 Minimum Compliance 212
The Accounting Cycle: Transactional Analysis 107 Is Accounting Information Relevant, Reliable,
The Accounting Equation Spreadsheet and Journal and Useful? 212
Entries 107 Reporting Impact 213
The Accounting Cycle—Example 111 Can Managers Do Whatever They Want? 214
Adjusting Entries 124 Solving Accounting Choice Problems 214
The Full Accounting Cycle, Beginning to End 132 Constraints, Facts, and Objectives 215
Preparing Journal Entries 133 Analyzing Accounting Problems 216
Posting Journal Entries to the General Ledger 135 Solved Problem 218
Preparing and Posting Adjusting Journal Entries 136
Summary of Key Points 223
Preparing the Trial Balance 137
Key Terms 224
Preparing the Financial Statements 139
Preparing and Posting Closing Journal Entries 139 Assignment Materials 224
Questions 224
Solved Problem 142
Exercises 225
Summary of Key Points 153
Problems 232
Formula Summary 154
Using Financial Statements 244
Key Terms 154
Endnotes 250
Similar Terms 154
Assignment Materials 154
CHAPTER 5
Questions 154
Exercises 156 Cash Flow, Profitability, and the Cash Flow
Problems 167 Statement 251
Using Financial Statements 182 Introduction—Cash Is King! 252
Endnotes 186 The Cash Cycle 252
Example: Cash Flow Scenarios at Peabody Corp. 255
CHAPTER 4 The Cash Flow Statement: Overview 259
Income Measurement and the Objectives Understanding the Cash Flow Statement: Specific
Activities 264
of Financial Reporting 187
Financing and Investing Activities 264
Introduction 188 Cash from Operations 265
Revenue Recognition 188 Interpreting and Using the Cash Flow Statement 275
The Critical-Event Approach 189 Thomson Reuters’ Statement of Cash Flows 275
Some Critical Events 191 Other Issues 276
 CONTENTS vii

Impact of Manager Decisions on Cash Flow Using Financial Statements 371

Information and the Effect of Accrual Accounting Endnotes 377
Choices on the Cash Flow Statement 280
Solved Problem 281
CHAPTER 7
Summary of Key Points 284
Formula Summary 285 Inventory 378
Key Terms 285 Introduction 379
Similar Terms 285 What Is Inventory? 380
Assignment Materials 286 What Do IFRS Say? 381
Questions 286 Perpetual and Periodic Inventory
Exercises 287 Control Systems 382
Problems 294 Internal Control 384
Using Financial Statements 309 Inventory Valuation Methods 384
Endnotes 313 First-In, First-Out (FIFO) 386
Average Cost 386
Specific Identification 387
CHAPTER 6 Comparison of the Different Cost
Cash, Receivables, and the Time Value Formulas 387
of Money 314 Which Method Is Best? 392
Introduction 316 The Lower of Cost and NRV Rule 394
Cash 316 Inventory Disclosures in Financial Statements 397
Is a Dollar a Dollar? 318 Biological Assets and Agricultural Produce 399
The Effect of Changes in Purchasing Inventory and the Services Industry 400
Power 318 Inventory Errors 403
The Effect of Changing Prices of Foreign Inventory Accounting and Income Taxes 404
Currencies 318
Financial Statement Analysis Issues 404
Cash Management and Controls over Cash 319 A Banker’s View of Inventory 407
The Time Value of Money 320 Solved Problem 407
Future Value 321
Summary of Key Points 410
Present Value 323
Formula Summary 411
Present Value of an Annuity 325
Key Terms 411
Receivables 327
Accounting for Uncollectible Receivables 329 Similar Terms 412
Long-Term Receivables 334 Assignment Materials 412
Financial Statement Presentation 335 Questions 412
Financial Statement Analysis Issues 339 Exercises 414
Earnings Management—Hidden Reserves 339 Problems 422
Current and Quick Ratios 341 Using Financial Statements 434
Accounts Receivable Turnover Ratio 342 Endnotes 438
Other Issues 343
Solved Problem 344
CHAPTER 8
Summary of Key Points 349
Formula Summary 350 Capital Assets: Property, Plant, and Equipment,
Key Terms 350
Intangibles, and Goodwill 439
Similar Terms 350 Introduction—What Are Capital Assets? 440
Assignment Materials 350 Measuring Capital Assets and Limitations
Questions 350 to Historical Cost Accounting 441
Exercises 352 What Is Cost? 443
Problems 361 Basket Purchases 445
viii CONTENTS

Depreciation 446 Disclosure 534

Depreciation and Market Values 447 Fair Value of Debt 534
Depreciation Methods 447 Mortgages 535
Comparing Methods 451 Leases 536
Summary 454 Pensions and Other Post-Retirement Benefits 543
Componentization of Assets 455
Contingencies 548
Valuing Capital Assets at Fair Value 455
Commitments 549
Financial Statement Disclosure 457
Events after the Reporting Period/Subsequent
Natural Resources 461
Events 550
Intangible Assets 461
Financial Statement Analysis Issues 552
Goodwill 467
Debt-to-Equity Ratio 552
Sale of Capital Assets 468 Interest Coverage Ratio 553
Impairment of Capital Assets 470 The Impact of Off-Balance-Sheet Liabilities 554
Does the Way Capital Assets Are Accounted Solved Problem 556
for Affect the Cash Flow Statement? 472
Summary of Key Points 558
Financial Statement Analysis Issues 473
Appendix: Deferred Income Taxes/Future
Solved Problem 476 Income Taxes 559
Summary of Key Points 481 Formula Summary 565
Appendix: Depreciation and Taxes 482 Key Terms 566
Formula Summary 483 Similar Terms 567
Key Terms 483 Assignment Materials 567
Similar Terms 484 Questions 567
Assignment Materials 484 Exercises 569
Questions 484 Problems 578
Exercises 485 Using Financial Statements 588
Problems 493 Endnotes 599
Using Financial Statements 506
Endnotes 514
CHAPTER 10
Owners’ Equity 600
CHAPTER 9
Introduction 601
Liabilities 515 Corporations, Partnerships, and
Introduction: What Are Liabilities? 516 Proprietorships 601
Current Liabilities 517 Characteristics of Equity 607
Bank and Other Current Loans 517 Common and Preferred Shares 608
Accounts Payable 518 Share Repurchases 612
Collections on Behalf of Third Parties 518 Retained Earnings, Dividends, and
Income Taxes Payable 519 Stock Splits 613
Dividends Payable 519 Retained Earnings 613
Accrued Liabilities and Provisions 519 Dividends 613
Unearned Revenue 522 Stock Splits 616
Disclosure 522 Accumulated Other Comprehensive Income 617
Bonds and Other Forms of Long-Term Contributed Surplus 618
Debt 523
Statement of Changes in Equity 618
Characteristics of Bonds 526
Pricing of Bonds 527 Accounting Changes—Policies and
Accounting for Bonds 528 Estimates 618
Accruing Interest on Long-Term Debt 533 Leverage 619
Early Retirement of Debt 533 Employee Stock Options 622
 CONTENTS ix

Economic Consequences 625 Endnotes 705

Financial Statement Analysis Issues 626 Example of Acquiring Less Than 100 Percent of a
Price-to-Book Ratio 626 Subsidiary—Non-Controlling Interest (Online)
Earnings per Share 626
Dividend Payout Ratio and Dividend
Yield 628 CHAPTER 12
Return on Shareholders’ Equity 629 Analyzing and Interpreting Financial
Solved Problem 630 Statements 706
Summary of Key Points 633 Introduction 707
Formula Summary 634 Why Analyze and Interpret Financial
Key Terms 635 Statements? 708
Similar Terms 635 Know the Entity 709
Assignment Materials 636 Permanent and Transitory Earnings
Questions 636 and Earnings Quality 710
Exercises 638 Permanent versus Transitory Earnings 710
Problems 647 Earnings Quality 712
Using Financial Statements 658 Using Ratios to Analyze Accounting
Endnotes 666 Information 714
Vertical and Horizontal Analysis 714
Evaluating Performance 721
CHAPTER 11 Liquidity 726
Solvency and Leverage 730
Investments in Other Companies 667
Other Common Ratios 733
Introduction 668 Some Limitations and Caveats about Financial
Why Do Companies Invest in Other Statements and Financial Statement Analysis 735
Companies? 669 Earnings Management 736
Accounting for Investments in Other Corporations: A Final Thought 737
Introduction 669
Solved Problem 737
Control: Accounting for Subsidiaries 670
Summary of Key Points 743
The Consolidated Balance Sheet on the Date the
Formula Summary 744
Subsidiary Is Purchased 673
Non-controlling Interest 675 Key Terms 746
Are Consolidated Financial Statements Similar Terms 746
Useful? 677 Assignment Materials 747
Significant Influence 679 Questions 747
Passive Investments 683 Exercises 749
Problems 759
Solved Problem 686
Using Financial Statements 772
Appendix: The Consolidated Financial
Statements in Periods after a Subsidiary Endnotes 781
Is Purchased 688 Appendix: Assurance and the Auditors’
Summary of Key Points 691 Report (Online)
Key Terms 691
Similar Terms 692 APPENDIX 782
Assignment Materials 692
Questions 692
Exercises 693 GLOSSARY 794
Problems 696
Using Financial Statements 701
INDEX 803
 PREFACE

OBJECTIVES
Welcome to the fourth edition of Financial Accounting: A Critical Approach. I’ve written the book
to provide an accessible and insightful introduction to the nature of accounting information.
My goal is to have anyone who studies the book thoroughly become a sophisticated user of
financial statements and understand the accounting issues, controversies, and scandals that are
reported in the business press. I’m proud that this book is written exclusively by a Canadian
author, the only such introductory financial accounting book currently available. As an IFRS
(International Financial Reporting Standards) country, the relevance of a Canadian perspective is
all the more important. Adaptations of U.S. books are less able to effectively capture the Canadian
accounting environment.
The title of the book requires some explanation. The Critical Approach to financial account-
ing guides students to look critically at accounting information. The book emphasizes the im-
portance of accounting information as a decision-making tool but also addresses the
limitations, controversies, and problems with accounting and accounting information. Rather
than accept the numbers in financial statements at face value, students learn that managers
often choose from alternative acceptable ways of accounting for transactions and economic
events and that these choices can have economic consequences for an entity’s stakeholders and
for the entity itself. Students also learn that accounting information provided by an entity can’t
be all things to all people. The information may be useful to some decision makers, but not to
others. Students learn to critically evaluate whether the information is appropriate for the deci-
sions they are making.
A conversation with a student a few years back reminds me of the importance of a critical
approach to studying accounting. The student, who had transferred from another university, was
struggling as he prepared for the mid-term exam. He said that he found the approach I use in
introductory financial accounting quite challenging, explaining that at his previous university he
was mainly asked to calculate, not to analyze and interpret information. After he left, I wondered
how students’ careers benefit from learning accounting from mainly a technical or procedural
standpoint.
Many accounting textbooks classify themselves as having a “user” or a “preparer” orientation.
In my view, these classifications are artificial: a good introductory education in financial account-
ing requires elements of both. Although the main purpose of this book is to make students literate
readers of financial statements (a user orientation), it’s difficult to understand financial state-
ments without having some appreciation of how data are entered into an accounting system and
converted into the information included in accounting reports. As a result, it’s useful for intro-
ductory accounting students to understand basic bookkeeping (a preparer orientation). Without
this familiarity, students will find it difficult to understand how and why accounting choices
made by managers affect the financial statements.
Thus, while Financial Accounting: A Critical Approach is not primarily a book about how to
do accounting, the “how to” part is fully covered. Chapter 3 explains how transactions and
economic events are recorded and the data converted into financial statements. In the context
of this book, understanding the procedural aspects of accounting is helpful for understanding
 PREFACE xi

the relationship between transactions and economic events and the resulting financial
statements.
One of the important features of Financial Accounting: A Critical Approach is the use of short
decision-oriented “mini-cases.” The cases, and an approach for solving them, are first introduced
in Chapter 4. Cases with solutions are provided as the Solved Problems in Chapters 4 through 12.
Cases for assignment and exam purposes appear in the Appendix to the book. All of the cases
place the student in the role of a user or interpreter of financial statements (what I call user-
oriented cases). The cases serve three purposes: first, they help develop critical thinking and
problem-solving skills; second, they help develop an appreciation of the context-specific nature of
accounting; and third, they allow students to get “inside the heads” of preparers and users to
understand how perspective affects the preparation and use of financial statements. Accounting
comes to life as students are forced to think about alternative ways of accounting for transactions
and economic events, and to consider the impact the different alternatives can have on decisions
and economic outcomes.
Contemporary Canadian accounting students, accountants, and users of financial state-
ments must function is a very challenging environment. Accounting standards tend to be com-
plex and there are two quite independent sets of standards in use in Canada: International
Financial Reporting Standards (IFRS) and Accounting Standards for Private Enterprises
(ASPE). At the introductory level, ASPE and IFRS are very similar (as they say, “the devil is in
the details”), so there’s really not a big impact. I decided the main emphasis in this book would
be IFRS because public companies are the most visible, although there are many more private
companies, so there will likely be more companies that use ASPE. In places where there are
significant differences between the two sets of standards, I’ve included boxes called “Account-
ing Standards for Private Enterprises.” When using the book, you can be confident that, unless
otherwise stated, ASPE and IFRS are the same for purposes of introductory accounting. How-
ever, it’s important for readers to know that the two sets of standards can result in very signifi-
cantly different financial statements.
In the fourth edition, I was able to use IFRS financial statements of Canadian companies as
they issued their first annual sets of IFRS statements in early 2012. My thanks to the many
companies that gave their permission for extracts of their financial statements to be used in
the book.

CHANGES TO THE FOURTH EDITION

I’ve made some significant changes in the fourth edition. The major ones are:
• The learning objectives in each chapter have been expanded so that it’s easier to link specific
parts of a chapter to a specific learning objective.
• Almost all financial statement examples are from Canadian companies that prepared their
statements on an IFRS basis.
• Added balloon comments to some exhibits to explain the key points.
• Chapter 1: Expanded the introduction to IFRS and ASPE.
• Chapter 2: Moved coverage of the qualitative characteristics of useful accounting information
to Chapter 2 from Chapter 4 and updated the content to reflect the current IFRS conceptual
framework.
• Chapter 4: Clarified the appropriateness of using the percentage-of-completion method
for service arrangements. Added a short section that explained multiple deliverable
arrangements.
• Chapter 7: Introduced accounting for biological assets and agricultural produce and explained
different types of inventory errors and the impact they have on the financial statements.
• Chapter 9: Added a discussion of mortgages.
xii PREFACE

• Chapter 11: Revised coverage of passive investment to reflect the current/upcoming IFRS
standard. Briefly introduced amortized costs, fair value through profit and loss, and fair value
through other comprehensive income.
• Chapter 12: Coverage of auditors’ opinions has been moved to a chapter appendix here
from Chapter 10.
In this edition, I changed the nature of the chapter-opening vignettes. This time, each
vignette links the chapter coverage to a Canadian corporation. The vignettes welcome readers
to each chapter with an engaging, interesting, and relevant story. They were written by Can-
adian journalist Ellin Bessner (who is also my wife!). I thank her for her for the hard work
and creativity she brought to the task. I hope you find the vignettes interesting and valuable.
In addition, many other minor changes have been added to improve the text. Many of the
exercises and problems in the end-of-chapter material have been revised and many new problems
and exercises added.

PEDAGOGICAL FEATURES OF FINANCIAL ACCOUNTING:

A CRITICAL APPROACH
Besides the cases mentioned above, this text is full of other useful pedagogical tools.
• Learning Objectives and Summary of Key Points—The learning objectives at the beginning of
each chapter focus students’ attention on what they will learn. The summary at the end of each
chapter outlines how each learning objective was addressed.
• Key Terms and Glossary—Key terms are printed in bold in the text and are listed with page
references at the end of each chapter. The terms are defined in the text and appear with their
definitions and a page reference in the glossary at the end of the book.
• Questions for Consideration boxes—Each chapter contains a number of questions for con-
sideration, providing opportunities for students to stop and think about what they have
read so far in the chapter. The boxes are designed as critical thinking questions requiring
application of the material in the chapter. Solutions to the questions are provided.
• Knowledge Check boxes—Each chapter contains numbered Knowledge Check boxes that give
students a chance to stop and check their understanding of key points raised in the chapter. If
a student can’t answer the questions, they should go back and review the preceding sections.
Solutions to the Knowledge Checks are provided on Connect.
• Insight boxes—Throughout the text, commentary on key points is provided in the Insight
boxes. These provide additional details concerning the nature and interpretation of account-
ing information.
• Accounting Standards for Private Enterprises boxes—Where appropriate, these boxes high-
light differences between IFRS and ASPE.
• Use of extracts from actual entities’ financial statements—Many of the issues, concepts, and
points raised in the book are demonstrated through extracts from the financial statements of
actual entities, presented as they appeared in the entity’s annual report. Students are able to see
first-hand the presentation of the topic in a real-world setting.
• Solved Problems—Each chapter provides a detailed problem with a solution. Most of the
solved problems are cases that should help students develop their analytical skills.
• Similar Terms list—This unique feature provides a list of accounting terms used in the text
compared to other terms with essentially the same meaning that students may encounter in
the media, in financial documents, and in accounting practice.
• Using Financial Statements—Each chapter’s assignment material provides extensive extracts
from an entity’s financial statements and a series of questions that provide students with the
 PREFACE xiii

opportunity to work with actual financial statement material and to apply the chapter content
in a realistic context.
• Assignment material—Each chapter contains a large number of questions, exercises, and prob-
lems that provide students with the opportunity to apply the knowledge and skills they have
gained from the chapter. All of this material is keyed to the learning objectives in the text.

A NOTE ON COVERAGE
Financial Accounting: A Critical Approach provides considerable depth on a number of topics not
normally covered in introductory accounting texts or courses. These topics include revenue rec-
ognition, leases, pensions, future income taxes (in an appendix), employee stock options, and
consolidated financial statements. Coverage of revenue recognition is intended to introduce the
concept of accounting choice and demonstrate the impact of different ways of reporting eco-
nomic events on the financial statements. The other, more complex, topics are included because
they commonly appear in financial statements and often have large dollar amounts associated
with them. If students are to make sense of an entire set of statements, they must have some fam-
iliarity and comfort with these topics, even if they tend to be complex. Some instructors may
prefer not to cover some of the sections on leases, pensions, future income taxes, and investments
in other companies. These topics can easily be skipped without having any impact on students’
understanding of later chapters.

NAMES OF ENTITIES
Some readers may wonder about the origins of the names given to the entities used in the ex-
amples and end-of-chapter material. Financial Accounting: A Critical Approach provides names
for more than 500 entities throughout the book and most are actual names of places in Canada!

McGraw-Hill Connect™ is a Web-based assignment and assessment platform that gives students
the means to better connect with their coursework, with their instructors, and with the important
concepts that they will need to know for success now and in the future.
With Connect, instructors can deliver assignments, quizzes, and tests online. Nearly all the
questions from the text are presented in an auto-gradeable format and tied to the text’s learning
objectives. Instructors can edit existing questions and write entirely new problems, track individ-
ual student performance—by question, assignment, or in relation to the class overall—with de-
tailed grade reports, and integrate grade reports easily with Learning Management Systems
(LMS) such as WebCT and Blackboard.
By choosing Connect, instructors are providing their students with a powerful tool for improv-
ing academic performance and truly mastering course material. Connect allows students to prac-
tise important skills at their own pace and on their own schedule. And, equally important,
students’ assessment results and instructors’ feedback are all saved online—so students can con-
tinually review their progress and plot their course to success.
Connect also provides 24/7 online access to an eBook—an online edition of the text—to aid
students in successfully completing their work, wherever and whenever they choose.

KEY FEATURES OF CONNECT

Simple Assignment Management
With Connect, creating assignments is easier than ever, so you can spend more time teaching and
less time managing.
• Create and deliver assignments easily with selectable end-of-chapter questions and test bank
material to assign online.
xiv PREFACE

• Streamline lesson planning, student progress reporting, and assignment grading to make
classroom management more efficient than ever.
• Go paperless with the eBook and online submission and grading of student assignments.

Smart Grading
When it comes to studying, time is precious. Connect helps students learn more efficiently by
providing feedback and practice material when they need it, where they need it.
• Automatically score assignments, giving students immediate feedback on their work and side-
by-side comparisons with correct answers.
• Access and review each response; manually change grades or leave comments for students
to review.
• Reinforce classroom concepts with practice tests and instant quizzes.

Instructor Library
The Connect Instructor Library is your course creation hub. It provides all the critical resources
you’ll need to build your course, just how you want to teach it.
• Assign eBook readings and draw from a rich collection of textbook-specific assignments.
• Access instructor resources, including ready-made PowerPoint presentations and media to use
in your lectures.
• View assignments and resources created for past sections.
• Post your own resources for students to use.

eBook
Connect reinvents the textbook learning experience for the modern student. Every Connect sub-
ject area is seamlessly integrated with Connect eBooks, which are designed to keep students
focused on the concepts key to their success.
• Provide students with a Connect eBook, allowing for anytime, anywhere access to the textbook.
• Merge media, animation, and assessments with the text’s narrative to engage students and
improve learning and retention.
• Pinpoint and connect key concepts in a snap using the powerful eBook search engine.
• Manage notes, highlights and bookmarks in one place for simple comprehensive review.

INSTRUCTOR RESOURCES
Solutions Manual The fully revised Solutions Manual contains in-depth answers and step-by-
step solutions for all assignment material included in the text.

Instructor’s Manual The thoroughly updated Instructor’s Manual includes learning objectives,
chapter overviews, classroom icebreakers, active learning techniques, comprehensive lecture notes,
writing assignments, and an assignment topic grid related to the coverage in the assignment material.

Computerized Test Bank The test bank contains more than 1,000 questions of the highest qual-
ity, varying in style and level of difficulty.

Microsoft® PowerPoint® Presentations With one presentation for every chapter of the text, in-
structors can guide their students through the text with ease. The slides have been adapted to fit
the fourth edition, and the addition of figures and diagrams increases their visual appeal.
 PREFACE xv

SUPERIOR LEARNING SOLUTIONS AND SUPPORT

The McGraw-Hill Ryerson team is ready to help you assess and integrate any of our products,
technology, and services into your course for optimal teaching and learning performance.
Whether it’s helping your students improve their grades, or putting your entire course online, the
McGraw-Hill Ryerson team is here to help you do it. Contact your iLearning Sales Specialist to-
day to learn how to maximize all of McGraw-Hill Ryerson’s resources!
For more information on the latest technology and Learning Solutions offered by McGraw-
Hill Ryerson and its partners, please visit us online: www.mcgrawhill.ca/he/solutions.

Solutions that make a difference.

 ACKNOWLEDGMENTS

Many people contributed to the development of this book and I take this opportunity to thank them.

Many thanks to faculty reviewers who devoted significant time and effort to reading the manu-
script as it developed and who provided valuable comments, suggestions, and criticisms, all of
which served to make the book better:
Peggy Coady, Memorial University of Newfoundland
Han Donker, University of Northern British Columbia
Gurpinder Gill, Mount Royal University
Ian Hutchinson, Acadia University
Michael Khan, University of Toronto
Jaime Morales, Trent University
Sandy Qu, York University
Shu-Lun Wong, Memorial University of Newfoundland

Thanks to Bic Ngo, then a fourth-year accounting student at the University of Ontario Institute of
Technology and now with Deloitte & Touche LLP, for the work he did on the solutions, and to
Katelyn Menard, currently a student at UOIT for her work on the solutions. Also, thank you to
Susan Cohlmeyer of Memorial University of Newfoundland for her technical checks and com-
ments, and to Ellin Bessner for writing the vignettes.

Various instructors assisted in preparing the set of supplements that accompany the book:
Sandy Hilton, University of British Columbia (Connect)
Jane Bowen, University of Ontario Institute of Technology
(Microsoft® PowerPoint® Presentations)
Lynn de Grace, McGill University (Test Bank)
Alla Volodina, York University (Instructor’s Manual)

I’d like to thank the many companies whose financial statement extracts are presented in the
book. It would be very difficult to write a book like this without real-world examples of financial
reporting. Also thanks to the companies that are featured in the chapter-opening vignettes.

The staff at McGraw-Hill Ryerson provided outstanding support to help develop and market the
book and were a pleasure to work with. Many thanks to the entire team, specifically Keara
Emmett, Sponsoring Editor; Chris Cullen, Developmental Editor; and Cathy Biribauer, Super-
vising Editor. Thanks also to Gillian Scobie and Rodney Rawlings for their work on the copy
editing and proofreading, respectively, of this book.

Finally, a special acknowledgment to Professor Al Rosen who helped shape and develop the way
I think about and teach accounting. His contribution to this book is significant.

John Friedlan
Faculty of Business and Information Technology
University of Ontario Institute of Technology
 CHAPTER
1 What Is Accounting and Why
LEARNING OBJECTIVES
After studying the material
in this chapter you will be
able to do the following:
LO 1 Define accounting and
explain why it’s important.
LO 2 Describe the accounting
environment and understand
that the accounting information
an entity presents is affected by
the accounting environment.
LO 3 Discuss how the interests
of the people who prepare
accounting information can
conflict with the interests of
those who use it.
LO 4 Explain what a critical
approach to accounting is.
LO 5 Understand the purpose
of accounting standards such
as International Financial
Reporting Standards (IFRS)
and Accounting Standards for
Private Enterprises (ASPE) and
be familiar with the different
sets of accounting standards
that are used in Canada.
LO 6 Understand that the
main purpose of accounting is
to measure economic activity
and that accounting measure-
ments can often be difficult
and subjective.
The Accounting Environment:
Is It Done?
W
hen Marvel’s The Avengers
movie opened across North
America on the first weekend
in May 2012, it earned over $200 mil-
lion at the box office and set a new rec-
ord for opening weekend ticket sales.
At Cineplex Entertainment’s Silver-
City Richmond Hill Cinemas, in Ontario,
some of that money came from the
wallets of moviegoers who shelled
out for a premium-priced $16.99 3D
ticket so they could experience the
action flick in the special UltraAVX Cineplex Entertainment
auditorium. These theatres offer re-
served seating, a Christie Solaria
digital projector, a wall to wall screen, 7.1 Dolby digital surround sound,
and leatherette high-back rocker seats with moveable arm rests.
But while Cineplex encouraged its customers to “Escape With Us”
and sit in the dark to watch Captain America team up with Iron Man, Hulk,
Thor, and Black Widow, executives at the company’s head office in
Toronto were also paying careful attention to a wide range of business
information in the world outside that could have an impact on their $1.8
billion company.
For example, the healthy eating trend prompted a switch to canola oil
for the popcorn. Concern for the environment has Cineplex using recyc-
lable popcorn bags and food trays, among other green initiatives.
Economic conditions have an effect as well because, according to Pat
Marshall, a Cineplex spokesperson, “Our business tends to grow during
difficult economic times as people downsize their more expensive out-
of-home entertainment offerings and find movies a more affordable form
of escapism.”
Technological developments are also a factor for Cineplex,
because people can now watch movies at home on DVD, D, or
via Netflix or Rogers On Demand, instead of fighting the he
lineups at the cinema.
“We compete for people’s available time and leisure dol-
lars,” Marshall acknowledged.
The company is also concerned about clamping down
on movie piracy, noting that piracy affects studios’
budgets, meaning that they might produce fewer and d
poorer quality movies.
Then there is government regulation to keep in mind.
Probably some of the people engrossed in watching
the blockbuster knew that Cineplex Inc. is also re-
quired to follow Ontario Film Review Board admission
2 CHAPTER 1

rules for who can see various movies. While the board rated The Avengers PG, for
Parental Guidance, Cineplex employees couldn’t allow just anyone in to watch The
Hunger Games. The board gave that movie a 14A classification, meaning that you had
to be older than 14 to see it, or else you had to be accompanied by an adult.
Cineplex’s Web site says it is “the largest motion picture exhibitor in Canada” with
130 theatres, 1,359 screens, and 10,000 employees, who it calls Cast Members. The
company owns several top-tier brands: Cineplex Odeon, Galaxy, Famous Players,
Colossus, Coliseum, SilverCity, Cinema City, and Scotiabank Theatres.
Companies like Cineplex also check the business environment to keep up with their
competitors, including AMC and Empire Theatres. After careful study of the industry,
Cineplex management decided to open a dozen more of its UltraAVX auditoriums
across Canada before the summer of 2012.
The stock market also has an impact on the Canadian entertainment powerhouse.
The share price on Bay Street for Cineplex stock was worth $31.28 on the Friday that
The Avengers opened, which is the highest level it had been in a year.
–E.B.

LO 1 WHAT IS ACCOUNTING AND WHY DOES IT MATTER?

I have spent over 30 years in accounting education and I still get excited and passionate when I
walk into a classroom to talk about the topic of the day. You may find this strange and surprising:
How can anyone get excited about accounting? But there is a lot more to the subject than most
people realize. Accounting is dynamic. It requires creativity. It can be controversial. Accounting
matters! It’s almost impossible to make good business decisions without relevant accounting in-
formation, and accounting information can be very relevant to personal decisions people make in
their day-to-day lives.
Some of the decisions that both business managers and individuals might use accounting in-
formation for are listed in Table 1.1. The details about how many of these decisions are made is
what this book is going to explore.

TABLE 1.1 • Determine whether or not to buy a business and how much to pay.
• Calculate the amount of tax to pay.
Business and
Personal • Evaluate whether to lend to a prospective borrower, and at what interest rate.
Decisions That • Assess whether or not you can afford to borrow money.
Rely on • Decide if you can afford to go on vacation.
Accounting • Determine how to divide family assets in a divorce.
Information • Find out how much money you have in the bank.
• Determine how to invest money in a retirement savings plan or a tax free saving account.
LO 1 • Determine bonuses earned by management.
• Evaluate whether to expand your business.
• Assess whether to make a product or to purchase it from an outside supplier.
• Evaluate how well managers have managed a business.
• Assess how well a business has performed.
• Determine if you should donate money to a particular charity. (Has the charity been managed well?
Is it using its money effectively?)
• Determine how much a business is worth.
• Evaluate how much regulated businesses should be allowed to charge for their goods and services.
• Evaluate if a government has provided effective and efficient financial management.
• Decide whether to make a major purchase like a computer or car.
 The Accounting Environment: What Is Accounting and Why Is It Done? 3

Most people don’t see accounting as it really is. Consider the following:
• Accounting isn’t a science. Indeed, it’s probably more an art than a science.
• Accounting isn’t precise or exact. Many estimates have to be made and uncertainty surrounds
most accounting numbers.
• Accounting doesn’t provide the “right” answer. There can be more than one reasonable answer
for many accounting situations.
• Accounting is flexible.
• Accounting requires judgment.
As you work through the material in this book keep these statements in mind. I’m not going to explain
them here, but as you learn more about accounting you will gradually come to see that they are true.

What Is Accounting? LO 1
Let’s begin with some definitions. Accounting is a system for gathering data about an entity’s eco-
nomic activity, processing and organizing that data to produce useful information about the entity,
and communicating that information to people who want to use it to make decisions (see Figure 1.1).
The entity is an economic unit of some kind, such as a business, university, government, or even a
person. Note that data and information aren’t the same thing. Data are raw, unprocessed facts about
an entity’s economic activity that are entered into an accounting system. Information results from
organizing and presenting the data in ways that make it useful for decision making by stakeholders.

FIGURE 1.1
The Accounting
System

Gather Process and

Communicate
Data Organize
Information
Data

While this definition of accounting may seem straightforward, it’s not. When designing an ac-
counting system, accountants and managers have to make many decisions about what data should
be gathered and how it should be organized. Communicating using accounting information pre-
sents the same complexities people face with any form of communication. Just as writers choose
words to influence readers, accountants can use legitimate, alternative ways of reporting the eco-
nomic activity of an entity to influence how people perceive financial information.

INSIGHT

Bookkeeping Is Not the Same as Accounting

It’s important not to confuse accounting and bookkeeping. When most people think of accounting,
what they are really thinking of is bookkeeping. For those of you who have taken an “accounting”
course in the past, what you may have been studying was bookkeeping—the process of recording
financial transactions and maintaining financial records. Bookkeeping is part of accounting, but only
one part. Accounting involves the design and management of information systems, how to account
for and report an entity’s economic activity, and the analysis and interpretation of financial information.
4 CHAPTER 1

LO 1 Why Does Accounting Matter?

Accounting matters because it has economic consequences—it affects people’s wealth—and it
can have an impact on the decisions they make. For example, suppose you owned a small busi-
ness, and you could choose between two legitimate and legal ways to account for a particular
transaction. One accounting method will result in paying less tax than the other. Which method
would you choose? Almost everyone would choose the one that involves paying the least amount
of tax. The economic consequence of your choice is that you keep more money and the govern-
ment gets less. Choose the other accounting method and the economic consequence is that you
have less money.
Does this example surprise you? In reality, accountants and managers can often choose among
alternative ways of accounting for transactions and economic events, and often the method
chosen has significant economic consequences. Indeed, how an entity accounts for its trans-
actions and economic events can have economic consequences for all the decisions described in
Table 1.1. One of the main themes of this book is explaining the choices available to accountants
and managers so that you can be a savvy user of accounting information and avoid unexpected
negative economic consequences.

LO 1 WHY DO PEOPLE NEED AND WANT

ACCOUNTING INFORMATION?
More and better information allows for better decisions. Without information, a “decision” is
nothing more than a guess. For example, suppose you wanted to take a vacation over the winter
break. You see an advertisement in the newspaper promoting Aruba as a fabulous winter des-
tination. Assuming you have never been to Aruba and know little about it, would you simply
accept the advertisement’s claims at face value? Most wouldn’t. Most people would probably
want to find out whether Aruba offered what they wanted from a winter vacation. They might
ask friends and relatives if they know anything about Aruba, do research in the library or on the
Internet, or consult with expert sources that specialize in travel information, such as a good
travel agent or a guide published by an independent company. They would gather information
until they were comfortable making a decision. Not all information is equal; in making a deci-
sion, you would generally give more weight to the information that is most reliable and most
relevant to your needs.
What does a trip to Aruba have to do with accounting? To make good decisions, whether
about a winter vacation or a business strategy, people need good information. Every day people
make important decisions, both for themselves and on behalf of other entities: individuals decide
how to invest their retirement money, bankers decide whether to lend money to struggling busi-
nesses. Table 1.1 lists other decisions people have to make.

INSIGHT

The Cost-Benefit Trade-off

While more information leads to better decisions, there are limits. It’s usually not possible or worth-
while to collect all the information available on a subject. First, gathering and analyzing information is
costly and takes time. At some point the benefit isn’t worth the cost. The concept of comparing the
benefits of an action with its costs, and of taking the action only if the benefits are greater, is known
as the cost-benefit trade-off. Information should be collected only if the benefit from it exceeds its
cost. (For example, it’s probably not worth the cost in time and money to call a university to find out
the colour of the carpeting in its lecture halls.) Second, there are limits to the amount of information
people can effectively manage and process. Too much information or “information overload” can
impair a person’s ability to make decisions.
 The Accounting Environment: What Is Accounting and Why Is It Done? 5

QUESTION FOR CONSIDERATION

Explain why a potential vacationer to Aruba would likely find travel information published by Aruba’s gov-
ernment travel department less credible than information provided by an independent travel company.

ANSWER: The objective of the government travel department is to encourage people to visit the is-
land. Its publications will likely emphasize the favourable qualities of the island and downplay or ig-
nore negative ones. In contrast, an independent travel company’s objective (if it’s truly independent)
should be to provide a useful service to its customers that will encourage them to use the company’s
services again (the company will make more money if it can generate repeat business). As a result,
its information is less likely to be biased. This doesn’t mean the information provided by Aruba’s gov-
ernment travel department wouldn’t be useful. It means that a user should recognize the probable
bias, and its implications, when assessing the information.

Let’s consider an example of how information can improve a business decision. Suppose you
were approached by a recent acquaintance who asked you to lend a significant amount of your
own money to her business. What would you want to know before you agree? Your first key ques-
tion would probably be, “Will the company be able to pay back the money borrowed, plus interest?”
A second question would be, “If the company were unable to pay me back, what resources does it
have that I could take and sell to recover my money?”
This is where accounting comes in. In answer to the first question, accounting information might
be helpful in telling you how well the business has performed in the past and how much cash it has
been able to generate. This information might help you predict how the business will do in the fu-
ture. To help answer the second question you might want a list of the resources the business owns
and a list of other entities it owes money to so you can see what would be available to you if the loan
weren’t repaid. You can probably think of more examples. Of course, non-accounting information,
perhaps about the people managing the business, might also be helpful in making your decision.

KNOWLEDGE CHECK 1.1

What is accounting?
What is meant by the statement “accounting has economic consequences”?
What is the cost-benefit trade-off? Why is it usually not appropriate to collect all possible infor-
mation that might be useful in making a decision?
Explain the difference between data and information.

THE ACCOUNTING ENVIRONMENT LO 2

How an entity reports its economic activity in its financial statements or other type of accounting
report is influenced by the circumstances under which the activity is occurring. Accounting was cre-
ated to provide a record of economic activity and information useful in decision making, so it makes
sense that accounting should be responsive to the environment and the people using the informa-
tion. To say that all economic activity should be accounted for in the same way makes no more sense
than saying that everyone should live in the same type of house or drive the same type of car. There
are different types of houses and cars because people have different needs, dictated by factors around
them such as climate, family, wealth, and employment, as well as personal preferences.
Therefore, before we start our examination of accounting information we will explore the
accounting environment and consider the factors that can affect how an entity approaches its
6 CHAPTER 1

financial reporting. There are four key components of the accounting environment: overall en-
vironment, entities, stakeholders, and constraints. These components are displayed in Figure 1.2
and discussed below.

Environment
The character of a county’s institutions influence the way its citizens live their lives. Canada, for
example, is a constitutional democracy with a mixed economy and a legal system based on British
common law (except for Quebec, which uses the civil code). The environment “umbrella” at the
top of Figure 1.2 identifies some of the important factors that establish the structure of a society:
political, cultural, economic, competitive, regulatory, and legal parameters. The differences in
these between countries help explain why accounting rules vary from country to country.

FIGURE 1.2
Economic * Competitive * Regulat
The Accounting ca l * Cultural * ory * L
Polit i egal
Environment
ENVIRONMENT

CHARACTERISTICS OF ENTITIES CONSTRAINTS

• Size • Customers • Contractual Limits to Managers’ Reporting Choices
• Industry • Suppliers obligations • Contracts • Income Tax Act
• Risk • Distribution • Public vs. private • Accounting • Demands of powerful
• Ownership channels • Stage in lifecycle standards stakeholders
structure • Capital structure • Moral and ethical • Securities legislation
• Labour force • Need for financing considerations • Other
• Other • Law

ENTITY
Types of Entities
• Individual • Not-for-profit
• Corporation organization
• Partnership • Government
• Proprietorship • Industry
• Other

Other
Managers decide how to report
sources
of Information
information

STAKEHOLDERS
• Shareholders • Unions • Potential shareholders • Governments • Public
• Partners • Regulators • Managers • Politicians • Competitors
• Proprietors • Creditors • Donors • Analysts • Bond raters
• Employees • Tax authorities • Customers • Communities • Journalists
• Other

DECISIONS
 The Accounting Environment: What Is Accounting and Why Is It Done? 7

Entities
Entities are at the centre of the accounting environment because stakeholders are looking for in-
formation about them and it’s the entities that typically provide the accounting information stake-
holders need. There are three categories of business entities—corporations, proprietorships, and
partnerships—as well as not-for-profit organizations, governments, and individuals. Let’s take a
brief look at some of the different types of entities.

Corporations A corporation is a separate legal entity created under the corporation laws of
either Canada, one of the provinces, or some other jurisdiction in the world. Corporations have
many of the same rights and responsibilities as individuals. For example, they must file tax re-
turns, can be sued, and can enter into contracts (to borrow money, to provide goods or services to
customers, etc.).
Ownership in a corporation is represented by shares, and owners of shares are called share-
holders. Shares are issued to investors when a company is formed, and they can be issued at any
time during a corporation’s life.
One of the most important features of a corporation is that it provides limited liability to its
shareholders, which means that shareholders aren’t liable for the obligations of the corporation or the
losses it suffers. For example, if a corporation borrows money and is unable to repay the loan, the
lender can’t demand repayment from shareholders. Another attractive feature of corporations is that
share ownership is easily transferred without affecting the corporation, which simply carries on busi-
ness with new owners. For other types of entities a transfer of ownership can be more difficult.
Shares of public corporations can be purchased by anyone interested in owning part of the
company. The shares are usually traded on a stock exchange—a place (physical or virtual) where
the shares of publicly traded entities can be bought and sold. Examples of exchanges are the Toronto
Stock Exchange (TSX), the TSX Venture Exchange, and the New York Stock Exchange (NYSE). www.tsx.ca
In contrast, the shares of private corporations can’t be purchased unless the entity or its share-
holders agree. If you set up your small business as a corporation, and you are the sole shareholder,
no one could obtain shares unless you wanted to sell them. Most corporations in Canada are pri-
vate. Examples of Canadian public and private corporations are given in Table 1.2.

Proprietorships A proprietorship is an unincorporated business with one owner. Unlike a cor-

poration, a proprietorship isn’t a separate legal entity. It doesn’t pay taxes; instead, the proprietor
(the owner of the proprietorship) includes the money made by the proprietorship in his or her
personal tax return, along with income from other sources, such as employment. If a proprietor-
ship doesn’t meet its obligations any entities that are owed money can attempt to recover it by
seizing the proprietor’s personal assets, such as his or her house, car, or bank account. An attract-
ive feature of proprietorships is that, unlike corporations, they are easy and inexpensive to set up.

TABLE 1.2 Examples of Public and Private Canadian Corporations

Name of Corporation Ownership Type of Business Web Site
Canadian Tire Corporation Public Retail www.canadiantire.ca
Loblaw Companies Limited Public Food distribution www.loblaw.ca
Research In Motion Limited Public Technology www.rim.com
Royal Bank of Canada Public Bank www.rbc.com
WestJet Airlines Ltd. Public Transportation www.westjet.com
Maple Leaf Sports and Entertainment Limited Private Sports and entertainment www.mlse.com
McCain Foods Limited Private Food processing www.mccain.com
McDonald’s Restaurants of Canada Ltd. Private Food services www.mcdonalds.ca
Home Hardware Stores Limited Private Retail www.homehardware.ca
Irving Oil Limited Private Fuel oil dealer www.irvingoil.com
Another random document with
no related content on Scribd:
wird; jede der beiden Auslegungen über den ursprünglichen Zweck
kann mit derselben Berechtigung für richtig gelten. Es ist ein
quadratischer Erdhaufen mit genau nach den Punkten des Kompaß
gerichteten Seiten; er erhebt sich 40-50 Fuß über die Ebene und
wird von einem Graben umgeben, dessen Ecken noch scharf sind.
Kapitäle in dem Tempel des Jupiter, Ba'albek.
 Wir ritten auf die Spitze und fanden, daß es eine ungefähr eine
Achtelmeile im Geviert messende Plattform war; die vier ein wenig
erhabenen Ecken mochten wohl Türme getragen haben, und Turm
sowohl als Wall und Plattform waren mit aufsprießendem Getreide
bedeckt. Der Schöpfer — ob Patriarch oder Assyrer — mag eine
mühevolle Arbeit gehabt haben, aber solange man nicht mit
Nachgrabungen begonnen hat, muß es dahingestellt bleiben,
welchem Ziel sein Schaffen diente. Wir ritten an den See hinunter,
um bei dem Lecken der plätschernden Wellen auf einer Bank aus
sauberen Muscheln zu frühstücken. In der Nähe der Ufer befanden
sich noch zwei weitere Erhöhungen, und eine dritte etwa eine Meile
vor Homs, während die Burg Homs selbst auf einer vierten errichtet
worden war. Sie scheinen alle von Menschenhand geschaffen und
bergen mutmaßlich Überreste von Schwesterstädten Kadeschs. Die
fruchtbare Ebene östlich vom Orontes muß von jeher imstande
gewesen sein, eine große Bevölkerung zu ernähren; vielleicht war
dieselbe zu der Hittiter Zeit größer als in unseren Tagen. Diesen Tag
hatte unser Ritt von 8½-2 Uhr gedauert mit einer dreiviertelstündigen
Rast bei Tell Nebi Mendu und einer halbstündigen am See.
 Brunnen im großen Hof, Ba'albek.

Fragment eines Gebälkes, Ba'albek.

 Wir zogen in Homs durch den Friedhof ein. Daß sich schon vor
demselben auf eine Viertelmeile hin Gräber befanden, ist nicht etwa
lediglich eine Eigentümlichkeit Homs', sondern den Städten des
Orients überhaupt eigen. Jede Stadt wird durch Bataillone Toter
bewacht, und durch ein Regiment beturbanter Grabsteine flutet das
Leben der Stadt hin und her. Nun war es gerade Donnerstag, als wir
in Homs eintrafen, der allwöchentliche Allerseelentag in der
mohammedanischen Welt. Gruppen verschleierter Frauen legten
Blumen auf die Gräber oder saßen munter plaudernd auf den
Hügeln — sind doch die Grabstätten für die Frauen des Orients ein
Vergnügungsort, ein Spielplatz für die Kinder, und die düstere
Bestimmung des Ortes vermag den Besuchern den Frohsinn nicht
zu rauben. Mein Lager wurde außerhalb der Stadt auf einer
Rasenfläche zwischen den Ruinen der Garnison aufgeschlagen, die
von Ibrahim Pascha erbaut und von den Syrern sofort nach seinem
Tode zerstört worden war. Jede Spur seiner verhaßten Besetzung
des Landes sollte vernichtet werden. Alles war bereit für mich; schon
kochte das Wasser zum Tee, und der Kāimakām hatte einen Boten
geschickt, um versichern zu lassen, daß jeder meiner Wünsche auf
der Stelle beachtet werden würde. Trotzdem gefiel mir die Stadt
Homs nicht, und freiwillig werde ich nie wieder dort kampieren. An
diesem Entschluß war das Betragen der Einwohner schuld, von dem
ich jetzt reden will. Dem Benehmen des Kāimakām, den ich nach der
Teestunde besuchte, kann ich das beste Lob spenden; er erwies
sich als ein angenehmer Türke, der, ein wenig der arabischen
Sprache mächtig, mir sehr freundlich entgegenkam. Es waren noch
verschiedene andere Leute anwesend, beturbante Muftis und ernste
Senatoren, und wir unterhielten uns beim Kaffee höchst angenehm.
Als ich mich Abschied nehmend erhob, erbot sich der Kāimakām,
mir einen Soldaten zum Schutze durch die Stadt mitzugeben; ich
lehnte jedoch mit der Bemerkung ab, daß ich der arabischen
Sprache mächtig sei und daher nichts zu fürchten brauche. Aber da
hatte ich mich getäuscht: keinerlei Kenntnis der Sprache könnte den
Fremdling in Homs instand setzen, den Leuten seine Meinung
klarzumachen. Die Verfolgung begann schon, ehe ich den Fuß nur in
den Bazar gesetzt hatte. Ich hätte der Rattenfänger von Hameln sein
können, so heftete sich eine Schar kleiner Knaben an meine Fersen.
Ein Weilchen ließ ich mir ihre Neugierde gefallen, dann begann ich
zu schelten und nahm schließlich meine Zuflucht zu den
Geschäftsleuten im Bazar. Das wirkte eine Weile; aber als ich wagte,
eine Moschee zu betreten, drängten sich nicht nur die kleinen
Burschen nach, sondern (so erschien es wenigstens meiner erregten
Phantasie), überhaupt jedes männliche Individuum aus Homs. Nicht
etwa, daß sie ärgerlich gewesen wären, mich hätten zurückhalten
wollen, sie wünschten im Gegenteil sehnlichst mein langes Bleiben,
um mich desto länger beobachten zu können. Das war mehr, als ich
ertragen konnte, und ich floh zu meinen Zelten zurück, wobei mir
etwa 200 Paar neugieriger Augen das Geleit gaben, und ließ einen
Zaptieh holen, den ich, nun klüger geworden, anderen Tags gleich
zu Anfang mitnahm. Wir erklommen die Spitze des Burgberges, um
einen Überblick über die Stadt zu gewinnen. Homs hat zwar nichts
von großer architektonischer Schönheit aufzuweisen, trägt aber
dafür ein ganz spezielles Gepräge. Es ist aus Tuffstein erbaut; die
großen Häuser umschließen Höfe, deren schwarze Mauern mit
einfachen aber schönen Mustern in weißem Kalkstein geziert sind.
Hier und da sieht man den weißen Stein, mit dem schwarzen
abwechselnd, in geraden Linien gelegt, wie die Fassade der
Kathedrale zu Siena. Auch durch die Minarets fühlt man sich nach
Italien versetzt, diese schlanken, viereckigen Türme, die so völlig
denen in San Gimignano gleichen, nur daß sie in Homs so hübsch
und wirkungsvoll durch eine weiße Kuppel gekrönt sind. Die
Überreste des Kastells waren arabischen Ursprungs, wie auch die
Befestigungswerke um die Stadt herum, nur an einer Stelle, im
Osten, schien der arabische Bau auf älteren Fundamenten zu ruhen.
Ich sah nur ein einziges Bauwerk aus der mohammedanischen Zeit,
nämlich eine Ziegelruine vor dem Tripolitor; sie war unzweifelhaft
römisch, die einzige Reliquie der Römerstadt Emesa. Auch der
Burgwall befindet sich außerhalb der Stadt. Als ich meine Überschau
beendet hatte, traten wir durch das Westtor ein, um uns umzusehen.
Diese Tätigkeit erfordert Zeit; alle Augenblicke wird man durch die
dringliche Einladung unterbrochen, hereinzukommen und Kaffee zu
trinken. Wir kamen am Turkmān Djāmi'a vorüber, wo sich ein paar
griechische Inschriften in das Minaret eingebaut finden, und ein als
Brunnen dienender Sarkophag mit eingemeißelten Stierköpfen und
Girlanden. Da der Zaptieh dafür war, daß ich unter allen Umständen
dem Bischof der griechisch-katholischen Kirche meine Aufwartung
machen sollte, begab ich mich nach seinem Palast, kam jedoch zu
früh, um Seine Herrlichkeit zu sehen. Indes wurde ich mit
Marmelade, Wasser und Kaffee bewirtet und durfte den Klageliedern
zuhören, die des Bischofs Sekretär den Siegen der Japaner
widmete. So oft die Nachricht von einer Niederlage der Russen
eintraf, hielt die griechisch-katholische Kirche einen
Trauergottesdienst, und eben jetzt flehten sie andächtig zum
Allmächtigen, die Feinde des Christentums zu strafen. Der Sekretär
beauftragte einen Diener, mir die kleine Kirche Mār Eliās und einen
interessanten Marmorsarkophag darin zu zeigen, auf dessen Boden
ich lateinische Kreuze eingemeißelt fand, während der Deckel
griechische aufwies; ich halte dafür, daß es spätere Ergänzungen
eines aus klassischer Zeit stammenden Grabmals sind. Vor der
Kirche traf ich einen gewissen 'Abd ul Wahhāb Beg, den ich bei
einem Besuche beim Kāimakām in Serāya getroffen. Er lud mich in
sein Haus. Ich fand darin die Homs eigene Innenarchitektur schön
vertreten: den Hof des Harem in reizenden Mustern aus Kalkstein
und Basalt dekoriert. Inzwischen war der Zaptieh
dahintergekommen, was ich eigentlich zu sehen wünschte, und er
verkündete mir, daß er mich in das Haus eines gewissen Hassan
Beg Nā'i führen würde, es sei das älteste in Homs. Als wir durch die
engen aber auffallend reinlichen Straßen dem Ziele zuwanderten,
bemerkte ich fast in jedem Hause einen Webstuhl, an dem ein Mann
geschäftig jenen gestreiften Seidenstoff webte, für den Homs
berühmt ist. In den meisten Gassen war auch Seidengarn
ausgespannt. Der Zaptieh erzählte, die Leute würden nach dem
Stück bezahlt und verdienten täglich 7–12 Piaster (etwa 1–2 Mark),
— ein hübscher Verdienst im Osten. Der Lebensunterhalt wäre billig,
fügte mein Cicerone hinzu, für 100 Piaster könnte ein armer Mann
ein Haus — das heißt, ein einziges Zimmer — mieten, um eine
Familie zu ernähren, genügten 30–40 Piaster, ja noch weniger, wenn
keine Kinder vorhanden wären.
Basilika des Konstantin, Ba'albek.
 Steinlager, Ba'albek.

Hassan Beg Nā'i war ein rothaariger und rotbärtiger Mann mit
den harten Zügen des schottischen Hochländertypus. Er war freilich
gar nicht entzückt, mich zu sehen, aber auf die Bitten des Zaptieh
kroch er doch aus seiner Klause hervor, wo er mit seinen Freunden
den Freitagsmorgenkaffee trank, führte mich über die Straße in
seinen Harem und überließ mich den Frauen, die ebenso freundlich
waren, wie er sich sauertöpfisch gezeigt hatte. Sie zeigten sich in
der Tat höchst erfreut über den Besuch, denn Hassan Beg ist ein gar
gestrenger Herr, welcher weder Frau noch Mutter oder irgend einer
anderen Angehörigen erlaubt, die Nase aus der Tür zu stecken;
nicht einmal ein Spaziergang im Friedhof oder eine Fahrt am
Orontesufer an einem schönen Sommernachmittag ist ihnen
gestattet. Der Harem war ehemals ein sehr schönes arabisches
Haus nach Art der Häuser von Damaskus. Zimmer und Liwān
(Sprechzimmer im Hintergrund des Hofes) waren gewölbt, aber der
Stuck blätterte sich ab, und Fußboden sowie Treppen knirschten
unter den Füßen der Dahinschreitenden. In die eine Mauer war eine
Marmorsäule mit einem Akanthuskapitäl gebaut, und auf dem
Fußboden des Liwān stand ebenfalls ein großes, in seiner Art
hübsches, wenn auch einfaches Kapitäl. Es war jetzt in ein
Wasserbecken verwandelt worden, mag aber wohl als Taufstein
gedient haben, ehe die Araber Emesa einnahmen, und nachdem die
älteren Gebäude der Römerstadt in Verfall geraten waren, und ihr
Material zu anderen Zwecken genommen wurde. Auf meinem
Heimweg kam ich an einem schönen Minaret vorbei, das
abwechselnd schwarze und weiße Streifen zeigte. Die Moschee
oder christliche Kirche, zu welcher der Turm gehört hatte, war
eingefallen; wie mein Zaptieh berichtete, soll der Turm für den
ältesten der Stadt gelten. Sicherlich war die Moschee am Eingang
zum Bazar von nicht geringem architektonischen Wert.

Rās ul 'Ain, Ba'albek.

Da Homs weiter nichts Sehenswertes bot, und der Nachmittag

schön war, ritt ich nach dem Anger am Orontes hinab, der in
Frühlings- und Sommertagen einen beliebten Schauplatz für alle
Feiertagsbelustigungen abgibt. Der Orontes läßt Homs eine gute
Meile südlich liegen, und die Versorgung mit Wasser ist, nach
Beschaffenheit und auch Menge, unbefriedigend, da sie einem
Kanal entstammt, der am Nordende des Sees seinen Anfang nimmt.
Der Orontesanger, Mardj ul 'Asi, gibt einen guten Begriff von den
Örtlichkeiten, wo der Orientale, mag er Türke, Syrer oder Perser
sein, seine Mußestunden zuzubringen liebt. »Drei Dinge sind es,«
sagt das arabische Sprichwort, »die das Herz von Kummer befreien:
Wasser, grünes Gras und Frauenschönheit.« Der hurtige Orontes
strömte durch die bereits mit Gänseblumen besternten grünen
Flächen, unter Weidenbäumen, die schon der Hauch des Frühlings
gestreift hatte, stiegen leicht verschleierte Christendamen von ihren
Mauleseln. Das Wasser drehte eine große Na'oura (persisches
Rad), sein angenehmes Rauschen erfüllte die Luft. Ein Kaffeekocher
hatte an der Straße sein Kohlenbecken aufgestellt, ein
Zuckerwarenhändler breitete am Ufer seine Schätze aus, und auf
der breiteren Rasenfläche tummelten buntgekleidete Jünglinge ihre
Araberstuten. Der Osten hielt in der ihm eigenen, zufriedenen Weise
Feiertag, und seine eigene Sonne spendete ihre Wärme dazu.
 Zedern des Libanon.

Der übrige Nachmittag wurde der Geselligkeit und den

fruchtlosen Bemühungen gewidmet, der Neugierde der Städter zu
entgehen. Es war ein Freitagnachmittag, und wie hätte man ihn
besser anwenden können, als sich in einer Schar von vielen
Hunderten rings um meine Zelte aufzustellen und jede Bewegung
jeder einzelnen Person im Lager zu beobachten? Trieben es die
Männer schon schlimm genug, so übertrafen die Frauen sie noch,
und die Kinder waren am schlimmsten. Nichts konnte sie
zurückschrecken, und die Aufregung erreichte ihren Gipfel, als Abd
ul Hamed Pascha Druby, der reichste Mann von Homs, vorsprach
und den Kādi Mohammed Sāid ul Chāni mitbrachte. Bei dem uns
umgebenden Auf- und Abwogen der Menge konnte ich unmöglich
der interessanten, geistreichen Unterhaltung die gebührende
Aufmerksamkeit widmen; als ich eine Stunde drauf den Besuch in
des Paschas schönem neuen Hause am Stadttor erwiderte, war ich
von mindestens 300 Personen begleitet. Ich muß einen Seufzer der
Erleichterung ausgestoßen haben, als die Tür sich hinter meiner
eignen Begleitung schloß, denn nachdem ich mich in dem kühlen,
ruhigen Liwān niedergelassen, sagte 'Abd ul Hamed:
»Möge Gott geben, daß das Volk Ew. Exzellenz nicht belästigt,
ich werde sonst ein Regiment Soldaten ausschicken.«
Ich murmelte eine mir nur halb von Herzen kommende
Ablehnung, hätte ich doch mit Befriedigung jene kleinen Burschen
von einer ganzen Musketensalve niedergestreckt gesehen. Darauf
bemerkte der Pascha nachdenklich:
»Als der deutsche Kaiser in Damaskus weilte, gab er Befehl, daß
niemandem untersagt würde zu kommen und ihn sich anzusehen.«
 Kamūa Hurmul.

Mit diesem erhabenen Vorbild vor Augen ward mir klar, daß ich
die Buße für Größe und fremde Herkunft klaglos auf mich nehmen
mußte.
Das Gespräch ging auf religiöses Gebiet über. Ich fragte nach
den Nosairijjeh, aber der Kādi verzog den Mund und erwiderte:
»Es sind keine angenehmen Leute. Einige geben vor, 'Ali
anzubeten, andre verehren die Sonne. Sie glauben, daß, wenn sie
sterben, ihre Seele in den Körper von anderen Menschen, ja sogar
Tieren übergeht, wie es der Glaube in Indien oder China lehrt.«
 Worauf ich sagte: »Ich habe von einer Geschichte gehört, die
unter ihnen geht. Ein Mann hatte einen Weinberg, und als er starb,
hinterließ er ihn seinem Sohn. Der junge Mann arbeitete in dem
Weinberg, aber als die Trauben reif waren, kam jeden Abend ein
Wolf hinein und fraß die Frucht. Der junge Mann versuchte ihn zu
verjagen, aber er kehrte jeden Abend wieder. Und in einer Nacht rief
der Wolf laut: ‚Soll ich nicht von den Trauben essen dürfen, ich, der
ich den Weinberg pflanzte?’ Da staunte der Mann und fragte: ‚Wer
bist du denn?’ Der Wolf antwortete: ‚Ich bin dein Vater.’ Und der
junge Mann fragte: ‚Wenn du wirklich mein Vater bist, so sprich, wo
hast du denn das Gartenmesser hin? Denn ich habe es nicht
gesehen, nachdem deine Seele deinen Körper floh!’ Da führte ihn
der Wolf an den Ort, wo er das Messer hingelegt hatte, und der
junge Mann glaubte, ja wußte nun, daß der Wolf sein Vater war.«
Der Kādi ließ den Beweis unbeachtet.
»Sie sind ohne Zweifel große Lügner,« sprach er.
Später fragte ich ihn, ob er mit den Behā'is bekannt wäre. Er
erwiderte:
»Wie Ew. Exzellenz wissen, hat der Prophet (Gott schenke ihm
ewigen Frieden!) gesagt, daß es 72 falsche und nur ein wahres
Glaubensbekenntnis gibt; ich aber weiß, daß von diesen 72
wenigstens 50 in unserm Lande zu finden sind. So viel von den
Behā'is und ihresgleichen.«
Ich erwiderte, daß Propheten allein befähigt wären, echten und
falschen Glauben zu unterscheiden, und daß wir in Europa, denen
keine solchen zur Seite stehen, es für eine schwere Sache halten.
»Es ist mir gesagt worden,« entgegnete der Kādi, »daß in Europa
die Gelehrten die Propheten sind.«
»Und sie gestehen ein, daß sie nichts wissen,« gab ich zur
Antwort. »Ihre Augen haben die Sterne erforscht, und doch können
sie uns nicht die Bedeutung des Wortes Unendlichkeit erklären.«
»Wenn Sie damit das unendliche Himmelsgewölbe meinen, so
wissen wir, daß es von den sieben Himmeln ausgefüllt wird.«
 »Und was befindet sich jenseits des siebenten Himmels?«
»Wissen Ew. Exzellenz nicht, daß die Zahl Eins der Anfang aller
Dinge ist? Können Sie mir angeben, was vor der Zahl Eins kommt,
so will ich ihnen sagen, was sich hinter dem siebenten Himmel
befindet.«
Der Pascha lachte und erkundigte sich, ob der Kādi mit seiner
Beweisführung zu Ende sei. Dann fragte er mich, was man in
Europa vom Gedankenlesen hielte. »Denn,« fuhr er fort, »vor einem
Monat wurde ein wertvoller Ring in meinem Haus gestohlen, und ich
konnte den Dieb nicht finden. Da kam ein gewisser, mir befreundeter
Effendi, der von der Sache gehört hatte, zu mir und sagte: ‚Ich kenne
einen Mann im Libanon, der sich auf diese Dinge versteht.’ Ich bat,
ihn holen zu lassen. Der Mann kam und forschte in Homs nach, bis
er eine Frau gefunden hatte, die das zweite Gesicht besaß. Dank
seinen Beschwörungsformeln sagte sie endlich aus: ‚Der Dieb heißt
so und so; er hat den Ring in seinem Hause.’ Wir suchten und
fanden das Juwel. Dies sind meine Erfahrungen, denn die Sache hat
sich unter meinen Augen zugetragen.«
 Ein Feiertag im Orient.

Auf meine Erwiderung, daß die Gedankenleser im Libanon einen

besseren Gebrauch von ihrer Gabe zu machen verstünden als die in
London, entgegnete der Pascha nachdenklich:
»Vielleicht hatte die Frau irgend etwas gegen den Mann, in
dessen Hause wir den Ring gefunden haben — Gott allein weiß es,
sein Name sei gelobt!«
Damit verließen wir das Thema.
 Straße in Homs.

Bei meiner Rückkehr in mein Zelt fand ich eine Visitenkarte auf
dem Tische, die folgenden Namen und Titel trug: »Hanna Chabbaz,
Prediger an der protestantischen Kirche in Homs.« Darunter stand
geschrieben: »Madame, meine Frau und ich sind gern bereit, Ihnen
jeden Dienst zu leisten, dessen Sie im Dienste Christi und der
Menschlichkeit benötigen. Wir würden Sie gern besuchen, wenn Sie
uns annehmen wollen. Ihr gehorsamer Diener.« Ich schickte sofort
die Botschaft, daß ich mich sehr über ihren Besuch freuen würde,
und so kamen sie denn gerade vor Sonnenuntergang, die beiden
guten Leute. Dringend boten sie mir ihre Gastfreundschaft an, von
der Gebrauch zu machen, ich jedoch keine Gelegenheit hatte. Ich
bedauerte dies um so weniger, als ich in dem Pascha und dem Kādi
so überaus angenehme Gesellschafter für den Nachmittag gefunden
hatte, und wenn ich an meinen sehr unruhigen Aufenthalt in Homs
zurückdenke, erscheint mir die mit den beiden höflichen, gebildeten
Mohammedanern verbrachte Stunde immer wie eine ruhige,
geschützte Insel in einem stürmischen, brandenden Meere.
 Neuntes Kapitel.
Wir brachen am andern Morgen sehr zeitig auf, aber die Leute in
Homs standen früh auf, um uns abreisen zu sehen. Nur der feste
Entschluß, ihnen nicht mehr Vergnügen zu bereiten, als unbedingt
nötig war, hielt mich äußerlich ruhig. Eine Viertelstunde später hatten
wir das Tripolitor und den römischen Ziegelbau hinter uns und waren
damit außerhalb des Gesichtskreises selbst des scharfäugigsten der
kleinen Buben angelangt. Die friedliche Schönheit des Morgens
beruhigte auch unsre Gemüter, und ich ging nun daran, die
Bekanntschaft der Gefährten zu machen, die der Kāimakām mir
zugesellt hatte. Es waren ihrer vier; zwei gingen frei, die anderen in
Fesseln. Die beiden ersteren waren kurdische Zaptiehs, der eine war
beauftragt, mich nach Kal'at el Husn zu geleiten, der andere hatte
das zweite Paar meiner Reisegenossen zu bewachen. Dies waren
Gefangene, die der Kāimakām schon einige Tage in seinem
Gewahrsam hatte, bis ihm meine Reise endlich günstige
Gelegenheit bot, sie nach der Festung im Djebel Nosairijjeh zu
senden, von wo aus sie dann weiter in das große Gefängnis zu
Tripoli befördert wurden. Sie waren in zerlumpte
Baumwollengewänder gekleidet und aneinandergefesselt, diese
Ärmsten. Wie sie so tapfer durch Schmutz und Schlamm
dahintrotteten, äußerte ich ein Wort des Mitgefühls; darauf
erwiderten sie, Gott möge mir langes Leben schenken, aber es sei
der Wille ihres Herrn, des Sultans, daß sie in Ketten gingen. Einer
der Kurden unterbrach sie mit der Erklärung:
»Es sind Deserteure aus dem Heere des Sultans: Gott vergelte
ihnen nach ihren Taten! Übrigens sind sie Ismailiten aus Selemijjeh
und beten einen fremden Gott an, der im Lande Hind wohnt. Es wird
gesagt, dieser Gott sei eine Frau, und daß sie sie aus diesem
Grunde anbeten. Jedes Jahr läßt sie durch Abgesandte auch in
diesem Lande das ihr gebührende Geld einsammeln, und auch die
ärmsten Ismailiten spenden ihr einige Piaster. Trotzdem behaupten
sie, Moslemiten zu sein: Gott allein weiß, was sie glauben. Komm,
Chudr, sage uns, was du glaubst!«
Der also aufgeforderte Gefangene erwiderte verstockt:
»Wir sind Moslemiten.« Aber die Worte des Soldaten waren mir
ein Fingerzeig gewesen, dem ich folgte, als die beiden
Unglücklichen, sich nahe an mein Pferd drängend, mir zuflüsterten:
»Meine Dame, meine Dame, sind Sie im Lande Hind gewesen?«
»Ja,« sagte ich.
»Gott segne Sie für dieses Ja! Haben Sie auch von dem großen
König gehört, den sie König Mohammed nennen?«
Wieder konnte ich bejahend antworten und sogar hinzufügen,
daß ich ihn selbst kannte und mit ihm gesprochen habe, denn ihr
König Mohammed war niemand anders als mein Mituntertan, der
Agha Chān, und die Religion der Gefangenen konnte sich eines
ehrwürdigen Alters rühmen, da sie von dem gegründet ist, den wir
den ‚Alten vom Berge’ nennen. Die beiden waren demütige Vertreter
der vielgefürchteten (und wohl auch vielverleumdeten) Sekte der
Assassinen.
Chudr faßte meinen Steigbügel mit der freien Hand und fragte
eifrig:
»Ist er nicht ein großer König?«
Diesmal antwortete ich vorsichtig. Obzwar der Agha Chān wohl
im modernen Sinne, das heißt um seines außerordentlichen
Reichtums willen, ein großer König genannt werden kann, würde es
mir doch sehr schwer geworden sein, seinen Jüngern das Wesen
dieses gewandten, wohlunterrichteten Weltmannes genau zu
erklären, den ich zuletzt in London bei einem Diner gesehen, und
der mir den Marlborough-Club als seine Adresse angegeben hatte.
Nicht daß ihnen solche Dinge, selbst, wenn sie sie verstanden
hätten, anstößig erschienen wären; ist doch der Agha Chān sich
selbst Gesetz, und sollte er sich auch größeren Ausschweifungen
als Diners u. dgl. hingeben, so würde doch jede seiner Handlungen
schon dadurch gerechtfertigt sein, daß e r sie begeht. Sein Vater