© 202 1 John Wiley & Sons, Inc. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, record ing or otherwise, except as permitted by law. Advice on how to obtain permission to reuse this material is available at http://www.wiley.com/go/permissions. Complete Solution Manual for Financial and managerial accounting 4th Edition Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso With appendix g,h,I,j,k CHAPTER 1 Accounting in Action ASSIGNMENT CLASSIFICATION TABLE Learning Objectives Questions Brief Exercises Do It! Exercises A Problems 1. Identify the activities and users associated with accounting. 1, 2, 3, 4, 5 1 1, 2 2. Explain the building blocks of accounting: ethics, principles, and assumptions. 6, 7, 8, 9, 10 2 3, 4 3. State the accounting equation, and define its components. 11, 12, 13, 14 . 22 1, 2, 3, 4, 5 3 5 4. Analyze the effects of business transactions on the accounting equation. 15, 16, 18 6, 7, 8, 9 4 6, 7, 8 1A, 2A, 4A, 5A 5. Describe the four financial statements and how they are prepared. 17, 19, 20, 21 , 10, 11 5 8, 9, 10, 11, 12, 13, 14, 15, 16, 17 , 18 2A, 3A, 4A, 5A 1-2 © 2021 John W iley & Sons, Inc. All rights reserved. Weygandt, Financial & Managerial Accounting 4e, Solutions Manual (For Instructor Use Only) ANSWERS TO QUESTIONS 1. True. Virtually every organization and person in our society uses accounting information. Businesses, investors, creditors, government agencies, and not -for-profit organizations must use accounting information to operate effectively. LO 1, BT: K, Diffi culty: Easy, TOT: 2 min., AACSB: None, AICPA FC: Reporting, IMA: Reporting 2. Accounting is the process of identifying, recording, and communicating the economic events of an organization to interested users of the information. The first activity of the accounting process is to identify economic events that are relevant to a particular business. Once identified and measured, the events are recorded to provide a history of the financial activities of the organization. Recording consists of keeping a chrono logical diary of these measured events in an orderly and systematic manner. The information is communicated through the preparation and distribution of accounting reports, the most common of which are called financial statements. A vital element in the co mmunication process is the accountant’s ability and responsibility to analyze and interpret the reported information. LO 1, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA FC: Reporting, IMA: Reporting 3. (a) Internal users are those who plan, o rganize, and run the business and therefore are officers and other decision makers. (b) To assist management, accounting provides internal reports. Examples include financial comparisons of operating alternatives, projections of income from new sales camp aigns, and forecasts of cash needs for the next year. LO 1, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA FC: Reporting, IMA: Reporting 4. (a) Investors (owners) use accounting information to make decisions to buy, hold, or sell stock. (b) Creditors use accounting information to evaluate the risks of granting credit or lending money. LO 1, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: Non e, AICPA FC: Reporting, IMA: Reporting 5. False . Bookkeeping usually involves only the recording of economic events and therefore is just one part of the entire accounting process. Accounting, on the other hand, involves the entire process of identifying , recording, and communicating economic events. LO 1, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA FC: Reporting, IMA: Reporting 6. Harper Travel Agency should report the land at $85,000 on its December 31, 2022 balance sheet. This is true no t only at the time the land is purchased, but also over the time the land is held. In determining which measurement principle to use ( historical cost or fair value) companies weigh the factual nature of cost figures versus the relevance of fair value. In g eneral, co mpanies use historical cost. Only in situations where assets are actively traded do companies apply the fair value pri nciple. LO 2, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA FC: Measurement, Analysis and Interpretation IMA: Report ing 7. The monetary unit assumption requires that only transaction data capable of being expressed in terms of money be included in the accounting records. This assumption enables accounting to quantify (measure) economic events. LO 2, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA FC: Measurement, Analysis and Interpretation IMA: Reporting © 2021 John W iley & Sons, Inc. All rights reserved. Weygandt, Financial & Managerial Accounting 4e, Solutions Manual (For I nstructor Use Only) 1-3 Questions Chapter 1 (Continued) 8. The economic entity assumption requires that the activities of the entity be kept separate and distinct from the act ivities of its owners and all other economic entities. LO 2, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA FC: Measurement, Analysis and Interpretation IMA: Reporting 9. The three basic forms of business organizations are (1) proprietorship, ( 2) partnership, and (3) corporation. LO 2, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA FC: Reporting, IMA: Reporting 10. One of the advantages Juana would enjoy is that ownership of a corporation is repre sented by transferable shares of sto ck. This would allow Juana to raise money easily by selling a part of her ownership in the company. Another advantage is that because holders of the shares (stockholders) enjoy limited liability, they are not personally liable for the debts of the corporat e entity. Also, because ownership can be transferred without dissolving the corporation, the corporation enjoys an unlimited life. LO 2, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA FC: Reporting, IMA: Reporting 11. The basic accounting equati on is Assets = Liabilities + Stockholders’ Equity. LO 3, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA FC: Reporting, IMA: Reporting 12. (a) Assets are resources owned by a business. Liabilities are creditor claims against assets —
that is, existing debts and obligations. Stockholders’ equity is the ownership claim on total assets. (b) Stockholders’ equity is affected by stockholders’ investments, dividends, revenues, and expenses. LO 3, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA FC : Reporting, IMA: Reporting 13. The liabilities are (b) Accounts payable and (g) Salaries and Wages Payable. LO 3, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA FC: Reporting, IMA: Reporting 14. Yes, a business can enter into a transaction in which only the left side of the accounting equation is affected. An example would be a transaction where an increase in one asset is offset by a decrease in another asset. An increase in the Equipment account which is offset by a decrease in the Cash acco unt is a specific example. LO 3, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA FC: Reporting, IMA: Reporting 15. Business transactions are the economic events of the enterprise recorded by accountants because they affect the basic accounting equation. (a) No, the death of the president of the company is not a business transaction as it does not affect the basic accounting equation. (b) Yes, supplies purchased on account is a business transaction as it affects the basic accounting equation . (c) No, an employee being fired is not a business transaction as it does not affect the basic accounting equation. LO 4, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA FC: Reporting, IMA: Reporting 16. (a) Decrease assets and decrease stockholders ’ equity. (b) Increase assets and decrease assets. (c) Increase assets and increase stockholders’ equity. (d) Decrease assets and decrease liabilities. LO 4, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA FC: Reporting, IMA: Reporting 1-4 © 2021 John W iley & Sons, Inc. All rights reserved. Weygandt, Financial & Managerial Accounting 4e, Solutions Manual (For Instructor Use Only) Question s Chapter 1 (Continued) 17. (a) Income statement. (d) Balance sheet. (b) Balance sheet. (e) Balance sheet and retained earnings statement. (c) Income statement. (f) Balance sheet. LO 5, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA FC: Repor ting, IMA: Reporting 18. No, this treatment is not appropriate . While the transaction does involve a receipt of cash, it does not represent revenues. Revenues are the gross increase in stockholders’ equity resulting from business activities entered into f or the purpose of earning income. This transaction is simply an additional investment made by one of the owners of the business. LO 4, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA FC: Reporting, IMA: Reporting 19. Yes. Net income does appear o n the income statement —it is the result of subtracting expenses from revenues. In addition, net income appears on the retained earnings statement —it is shown as an addition to the beginning -of-period retained earnings. Indirectly, the net income of a compa ny is also included on the balance sheet. It is included in the end -of-period retained earnings which appears in the stockholders’ equity section of the balance sheet. LO 5, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA FC: Reporting, IMA: Repor ting 20. (a) Ending stockholders’ equity balance ................................ ................................ $198,000 Beginning stockholders’ equity balance ................................ ............................ 158,000 Net income ................................ ................................ ................................ ....... $ 40,000 (b) Ending stockholders’ equity balance ................................ ................................ $198,000 Beginning stockholders’ equity balance ................................ ............................ 158,000 40,000 Deduct: Investment ................................ ................................ ......................... 16,000 Net income ................................ ................................ ................................ ....... $ 24,000 LO 5, BT: AN, Difficulty: Easy, TOT: 4 min., AACSB: Analytic, AICPA FC: Reporting, IMA: Reporting 21. (a) Total revenues ($ 30,000 + $70,000) ................................ ................................ $100,000 (b) Total expenses ($26,000 + $ 38,000) ................................ ................................ $64,000 (c) Total revenues ................................ ................................ ................................ . $100,000 Total expenses ................................ ................................ ................................ . 64,000 Net income ................................ ................................ ................................ ....... $ 36,000 LO 5, BT: AP, Difficulty: Easy, TOT: 3 min., AACSB: Analytic, AICPA FC: Reporting, IMA: Reporting 22. Apple’s accounting equation (in millions) at September 29, 2018 was $ 365,725 = $258,578 + $107,147 LO 3, BT: AP, Difficulty: Easy, TOT: 4 min., AACSB: Analytic, AICPA FC: Reporting, IMA: Reporting
