978-0077862275 Chapter 1 Solution Manual Part 1

Chapter 1

Accounting in Business

QUESTIONS

1. The purpose of accounting is to provide decision makers with relevant and reliable

2. Technology reduces the time, effort, and cost of recordkeeping. There is still a demand for

people who can design accounting systems, supervise their operation, analyze complex

3. External users and their uses of accounting information include: (a) lenders, to measure the

risk and return of loans; (b) shareholders, to assess whether to buy, sell, or hold their shares;

4. Business owners and managers use accounting information to help answer questions such as:

What resources does an organization own? What debts are owed? How much income is

5. Service businesses include: Standard and Poor’s, Dun & Bradstreet, Merrill Lynch,

6. The internal role of accounting is to serve the organization’s internal operating functions. It

does this by providing useful information for internal users in completing their tasks more

1-1

Education.

8. Marketing managers are likely interested in information such as sales volume, advertising

10. Some accounting-related professions include consultant, financial analyst, underwriter,

11. Ethics rules require that auditors avoid auditing clients in which they have a direct

12. In addition to preparing tax returns, tax accountants help companies and individuals plan

13. The objectivity concept means that financial statement information is supported by

14. This treatment is justified by both the cost principle and the going-concern assumption.

15. The revenue recognition principle provides guidance for managers and auditors so they know

when to recognize revenue. If revenue is recognized too early, the business looks more

16. Business organizations can be organized in one of three basic forms: sole proprietorship,

partnership, or corporation. These forms have implications for legal liability, taxation,

continuity, number of owners, and legal status as follows:

Proprietorship Partnership Corporation

Business entity yes yes yes

Legal entity no no yes

*Proprietorships and partnerships that are set up as LLCs provide limited liability.

17. (a) Assets are resources owned or controlled by a company that are expected to yield future

18. Equity is increased by investments from the owner and by net income (which is the excess of

1-2

Education.

19. Accounting principles consist of (a) general and (b) specific principles. General principles are

the basic assumptions, concepts, and guidelines for preparing financial statements. They stem from

20. Revenue (or sales) is the amount received from selling products and services.

21. Net income (also called income, profit or earnings) equals revenues minus expenses (if

22. The four basic financial statements are: income statement, statement of owner’s equity,

24. Rent expense, utilities expense, administrative expenses, advertising and promotion expenses,

28. Return on assets, also called return on investment, is a profitability measure that is useful in

evaluating management, analyzing and forecasting profits, and planning activities. It is

29A. Return refers to income, and risk is the uncertainty about the return we expect to make. The

30B. Organizations carry out three major activities: financing, investing, and operating. Financing

provides the means used to pay for resources. Investing refers to the acquisition and disposing

31B. An organization’s financing activities (liabilities and equity) pay for investing activities

(assets). An organization cannot have more or less assets than its liabilities and equity

1-3

Education.

32. The dollar amounts in Apple’s financial statements are rounded to the nearest million

34. Confirmation of Samsung’s accounting equation follows (numbers in KRW millions):

Assets = Liabilities + Equity

35. The independent auditor for Apple, is Ernst & Young, LLP. The auditor expressly states that

1-4

Education.