Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 1
Chapter 1
Accounting in Business
QUESTIONS
1. The purpose of accounting is to provide decision makers with relevant and reliable
information to help them make better decisions. Examples include information for
people making investments, loans, and business plans.
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,
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,
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 earned? Are expenses reasonable for the level of
sales? Are customers’ accounts being promptly collected?
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
7. Accounting professionals offer many services including auditing, management
advice, tax planning, business valuation, and money management.
8. Marketing managers are likely interested in information such as sales volume,
10. Some accounting-related professions include consultant, financial analyst,
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 future transactions to minimize the amount of tax to be paid. They are also
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
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:
17. (a) Assets are resources owned or controlled by a company that are expected to
18. Equity is increased by investments from the owner and by net income (which is the
3
19. Accounting principles consist of (a) general and (b) specific principles. General
principles are the basic assumptions, concepts, and guidelines for preparing
21. Net income (also called income, profit, or earnings) equals revenues minus
22. The four basic financial statements are: income statement, statement of owner’s
equity, balance sheet, and statement of cash flows.
24. Rent expense, utilities expense, administrative expenses, advertising and promotion
25. The statement of owner’s equity explains the changes in equity from net income or
loss, and from any owner contributions and withdrawals over a period of time.
27. The statement of cash flows reports on the cash inflows and outflows from a
company’s operating, investing, and financing activities.
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
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 1
4
31B. An organization’s financing activities (liabilities and equity) pay for investing
32. The dollar amounts in Google’s financial statements are rounded to the nearest
33. The independent auditor for Apple is Ernst & Young, LLP. The auditor expressly
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 1
5
QUICK STUDIES
Quick Study 1-1 (10 minutes)
Quick Study 1-2 (10 minutes)
a.
E
g.
E
Quick Study 1-3 (10 minutes)
1. A. Opportunity
Quick Study 1-4 (5 minutes)
1. c. constraint
6
Quick Study 1-5 (10 minutes)
Attribute Present
Proprietorship
Partnership
Corporation
Business taxed
Business entity
Legal entity
Quick Study 1-6 (10 minutes)
Quick Study 1-7 (5 minutes)
Assets = Liabilities + Equity
Quick Study 1-8 (10 minutes)
1.
Assets = Liabilities + Equity
2.
Assets =
Liabilities
+ Owner,
Capital
– Owner,
Withdrawals
+ Revenues
– Expenses
7
Quick Study 1-9 (10 minutes)
a. For December 31, 2015, the accounts and their dollar amounts (in $
millions) for Google are:
b. Using Google’s amounts from (a) we verify that (in $ millions):
Assets
=
Liabilities
+
Equity
=
+
Quick Study 1-10 (15 minutes)
Assets
=
Liabilities
+
Equity
Cash
+
Accounts
Recble.
=
Accounts
Payable
+
Owner,
Capital
–
Owner,
Withdrawals
+
Revenues
–
Expenses
8
Quick Study 1-11 (15 minutes)
Assets
=
Liabilities
+
Equity
Cash
+
Supplies
+
Equip.
+
Land
=
Accts.
Pay.
+
A. Carr,
Capital
–
A.Carr,
With-
drawals
+
Rev.
–
Exp.
Quick Study 1-12 (10 minutes)
[Code: Income statement (I), Balance sheet (B), Statement of owner’s equity (E), or
Statement of cash flows (CF).]
9
Quick Study 1-13 (5 minutes)
Quick Study 1-14 (5 minutes)
Quick Study 1-15 (10 minutes)
Quick Study 1-16 (10 minutes)
Quick Study 1-17 (10 minutes)
a. For December 31, 2015, the accounts and their dollar amounts (in KRW
millions) for Samsung are:
b. Using Samsung’s amounts from (a) we verify (in KRW millions):
Assets
=
Liabilities
+
Equity
=
+
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 1
10
EXERCISES
Exercise 1-1 (10 minutes)
C 1. Analyzing and interpreting reports.
Exercise 1-2 (20 minutes)
Part A.
1.
I
5.
I
3.
I
7.
I
Part B.
1.
I
5.
I
2.
I
6.
E
4.
E
8.
I
Exercise 1-3 (10 minutes)
11
Exercise 1-4 (10 minutes)
Exercise 1-5 (20 minutes)
1. I
Exercise 1-6 (10 minutes)
a.
(C) Corporation
e.
(C) Corporation
c.
(SP) Sole proprietorship
(C) Corporation
Exercise 1-7 (10 minutes)
Code
Description
Principle/Assumption
H
1.
A company reports details behind financial
statements that would impact users’ decisions.
Full disclosure
principle
G
Financial statements reflect the assumption that
the business continues operating.
Going-concern
assumption
F
3.
A company records the expenses incurred to
generate the revenues reported.
Matching (expense
recognition) principle
A
4.
Derived from long-used and generally accepted
accounting practices.
General accounting
principle
C
5.
its owner or owners.
Business entity
assumption
D
6.
Revenue is recorded when products and
services are delivered.
Revenue recognition
principle
E
7.
Usually created by a pronouncement from an
authoritative body.
Specific accounting
principle
B
8.
Information is based on actual costs incurred in
transactions.
Cost principle
Exercise 1-8 (10 minutes)
Assets
=
Liabilities
+
Equity
13
Exercise 1-9 (20 minutes)
a. Using the accounting equation at the beginning of the year:
Assets
=
Liabilities
+
Equity
$300,000
=
?
+
$100,000
Assets
=
Liabilities
+
Equity
=
+
$380,000
=
+
b. Using the accounting equation:
Assets
=
Liabilities
+
Equity
$123,000
=
+
Assets
=
Liabilities
+
Equity
$190,000
=
+
$190,000
=
+
$125,000
Assets
=
Liabilities
+
Equity
=
+
$130,000
=
+
Exercise 1-10 (20 minutes)
1. d
Exercise 1-11 (20 minutes)
1. f
Exercise 1-12 (15 minutes)
a. 3
Exercise 1-13 (30 minutes)
Assets
=
Liabilities
+
Equity
Cash
+
Accounts
Receivable
+
Equip-
ment
=
Accounts
Payable
+
M.Chen,
Capital
–
M.Chen,
With-
drawals
+
Revenues
–
Expenses
a.
+$60,000
+
$15,000
=
+
$75,000
+
+
=
+
c.
_______
+
10,000
+
+
=
+
+ 2,500
+
+
+
=
+
+
e.
_______
+
+
+
+
=
+
+
+
+
+
=
+
+
+
+
=
+
+
+ 5,000
+
+
=
+
+
+
+
=
0
+
+
16
Exercise 1-14 (10 minutes)
Return on assets
=
Net income / Average total assets
Exercise 1-15 (15 minutes)
ERNST CONSULTING
Income Statement
For Month Ended October 31
Revenues
Consulting revenue ………………………. $14,000
Exercise 1-16 (15 minutes)
ERNST CONSULTING
Statement of Owner’s Equity
For Month Ended October 31
E. Ernst, Capital, October 1 ……………………….. $ 0
17
Exercise 1-17 (15 minutes)
ERNST CONSULTING
Balance Sheet
October 31
Assets Liabilities
Exercise 1-18 (15 minutes)
ERNST CONSULTING
Statement of Cash Flows
For Month Ended October 31
Cash flows from operating activities
Exercise 1-19 (10 minutes)
Exercise 1-20 (20 minutes)
Ford Motor Company
Income Statement
For Year Ended December 31, 2015
($ millions)
Revenues …………………………..……………………………….. $149,558
Exercise 1-21B (10 minutes)
a. Financing
19
Exercise 1-22 (15 minutes)
BMW GROUP
Income Statement
For Year Ended December 31, 2015
(Euros in millions)
Revenues …………………………..……………………………….. € 92,175
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 1
20
PROBLEM SET A
Problem 1-1A (25 minutes)
a.
b.
Balance Sheet
Income
Statement
Statement of Cash Flows
Transaction
Total
Assets
Total
Liab.
Total
Equity
Net
Income
Operating
Activities
Investing
Activities
Financing
Activities
1
Owner invests
$900 cash in
business
+900
+900
+900
6
Buys equipment
for $300 cash
+300
–300
–300
payable
–200
8
Provides $400
provided
3
Pays $500 cash
wages
credit
credit