Fundamental Accounting Principles , 24th Edition Solution Manual

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Wild, Shaw, Chiappetta, FAP 23eSolutions Manual: Chapter11Chapter 1Accounting in BusinessQUESTIONS1.The purpose of accounting is to provide decision makers with relevant and reliableinformation to help them make better decisions. Examples include information forpeople making investments, loans, and business plans.2.Technology reduces the time, effort, and cost of recordkeeping. There is still ademand for people who can design accounting systems, supervise their operation,analyze complex transactions, and interpret reports. Demand also exists for peoplewho can effectively use computersto prepare and analyze accounting reports.Technology will never substitute for qualified people with abilities to prepare, use,analyze, and interpret accounting information.3.External users and their uses of accounting information include: (a) lenders, tomeasure the risk and return of loans; (b) shareholders, to assess whether to buy,sell, or hold their shares; (c) directors, to oversee their interests in the organization;(d) employees and labor unions, to judge the fairness of wages and assess futureemployment opportunities; and (e) regulators, to determine whether the organizationiscomplyingwithregulations.Otherusersarevoters,legislators,governmentofficials, contributors to nonprofits, suppliers,and customers.4.Businessownersandmanagersuseaccountinginformationtohelpanswerquestions such as: What resources does an organization own? What debts areowed? How much income is earned? Are expenses reasonable for the level ofsales? Are customers’ accounts being promptly collected?5.Service businesses include:Standard and Poor’s, Dun & Bradstreet, Merrill Lynch,Southwest Airlines, CitiCorp, Humana, Charles Schwab, and Prudential.Businessesoffering products include Nike, Reebok, Gap, Apple, Ford Motor Co., Philip Morris,Coca-Cola, Best Buy, andWalMart.6.The internal role of accounting is to serve the organization’s internal operatingfunctions.Itdoesthisbyprovidingusefulinformationforinternalusersincompleting their tasks more effectively and efficiently. Byproviding this information,accounting helps the organization reach its overall goals.7.Accountingprofessionalsoffermanyservicesincludingauditing,managementadvice, tax planning, business valuation, and money management.8.Marketingmanagersarelikelyinterestedin information suchas salesvolume,advertisingcosts,promotioncosts,salariesofsalespersonnel,andsalescommissions.

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Wild, Shaw, Chiappetta, FAP 23eSolutions Manual: Chapter129.Accounting is described as a service activity because it serves decision makers byproviding information to help them make better business decisions.10.Someaccounting-relatedprofessionsincludeconsultant,financialanalyst,underwriter, financial planner, appraiser, FBI investigator, market researcher, andsystem designer.11.Ethics rules require that auditors avoid auditing clients in which they have a directinvestment, or if the auditor’s fee is dependent on the figures in the client’s reports.This will help prevent others from doubting the quality of the auditor’s report.12.In addition to preparing tax returns, tax accountants help companies and individualsplan future transactions to minimize the amount of tax to be paid.They are alsoactively involved in estate planning and in helping set up organizations. Some taxaccountants work for regulatory agencies such as the IRS or the various statedepartments of revenue. These tax accountants help to enforce tax laws.13.The objectivity concept means that financial statement information is supported byindependent, unbiased evidence other than someone’s opinion or imagination. Thisconcept increases the reliability and verifiability of financial statement information.14.Thistreatmentisjustifiedbyboththecostprincipleandthegoing-concernassumption.15.The revenue recognition principle provides guidance for managers and auditors sothey know when to recognize revenue.If revenue is recognized too early, thebusinesslooksmoreprofitablethanitis.Ontheotherhand,ifrevenueisrecognized too late the business looks less profitable than it is.This principledemandsthatrevenuebe recognized when itisboth earned (when serviceorproduct provided) and can be measured reliably.The amount of revenue shouldequalthevalueoftheassetsreceivedorexpectedtobereceivedfromthebusiness’s operating activities covering a specific time period.16.Businessorganizationscanbeorganizedinoneofthreebasicforms:soleproprietorship, partnership, or corporation. These forms have implications for legalliability, taxation, continuity, number of owners, and legal status as follows:ProprietorshipPartnershipCorporationBusiness entityyesyesyesLegal entitynonoyesLimited liabilityno*no*yesUnlimited lifenonoyesBusiness taxednonoyesOne owner allowedyesnoyes*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 toyieldfuturebenefits.(b)Liabilitiesarecreditors’claimsonassetsthatreflectobligations to provide assets, products,or services to others. (c) Equity is theowner’s claim on assets and is equal to assets minus liabilities. (d) Net assets referto equity.18.Equity is increased by investments from the owner and by net income (which is theexcess of revenues over expenses).It is decreased by withdrawals by the ownerand by a net loss (which is the excess of expenses over revenues).

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Wild, Shaw, Chiappetta, FAP 23eSolutions Manual: Chapter1319.Accounting principles consist of (a)generaland (b)specificprinciples.Generalprinciplesarethebasicassumptions,concepts,andguidelinesforpreparingfinancialstatements.Theystemfromlong-usedaccountingpractices.Specificprinciples are detailed rules used in reporting on business transactions and events.They usually arise from the rulings of authoritative and regulatory groups such astheFinancialAccountingStandardsBoardortheSecuritiesandExchangeCommission.20.Revenue (or sales) is the amount received from selling products and services.21.Netincome(alsocalledincome,profit,orearnings)equalsrevenuesminusexpenses (if revenues exceed expenses). Net income increases equity. If expensesexceed revenues, the company has a net loss. Net loss decreases equity.22.The four basic financial statements are: income statement, statement of owner’sequity, balance sheet, and statement of cash flows.23.An income statement reports a company’s revenues and expenses along with theresulting net income or loss over a period of time.24.Rent expense, utilities expense, administrative expenses, advertising and promotionexpenses,maintenanceexpense,andsalariesandwagesexpensesaresomeexamples of business expenses.25.The statement of owner’s equity explains the changes in equity from net income orloss, and from any owner contributions and withdrawals over a period of time.26.The balance sheet describes a company’s financial position (types and amounts ofassets, liabilities, and equity) at a point in time.27.The statement of cash flows reports on the cash inflows and outflows from acompany’s operating, investing, and financing activities.28.Return on assets, also called return on investment, is a profitability measure that isuseful in evaluating management, analyzing andforecasting profits, and planningactivities. It is computed as net income divided by the average total assets. Forexample, if we have an average annual balance of $100 in a bank account and itearns interest of $5 for the year, then our return on assets is $5 / $100 or 5%. Thereturn on assets is a popular measure for analysis because it allows us to comparecompanies of different sizes and in different industries.29A.Return refers to income, and risk is the uncertainty about the return we expect tomake. The lower the risk of an investment, the lower the expected return. Forexample, savings accounts pay a low return because of the low risk of a bank notreturning the principal with interest. Higher risk implies higher, but riskier, expectedreturns.30B. Organizations carry out three major activities: financing, investing, and operating.Financing provides the means used to pay for resources. Investing refers to theacquisition and disposing of resources necessary to carry out the organization’splans. Operating activities are the actual carrying out of these plans.(Planning is theglue that connects these activities, including the organization’s ideas, goals,andstrategies.)

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Wild, Shaw, Chiappetta, FAP 23eSolutions Manual: Chapter1431B.Anorganization’sfinancingactivities(liabilitiesandequity)payforinvestingactivities(assets).Anorganizationcannothavemoreorlessassetsthanitsliabilities and equity combined and, similarly, it cannot have more or less liabilitiesand equity than its total assets. This means: assets = liabilities + equity. Thisrelation is called the accounting equation (also called thebalance sheet equation),and it applies to organizations at all times.32.The dollar amounts inGoogle’s financial statements are rounded to the nearestmillion($1,000,000).Google’sconsolidatedstatementofincome(orincomestatement) covers thecalendar-year endedDecember 31, 2015.Googlealso reportscomparative income statements for the previous two years.33.The independent auditor for Apple isErnst & Young, LLP. The auditor expresslystates that “our responsibility is to express an opinion on these financial statementsbased on our audits.” The auditor also states that “these financial statements arethe responsibility of the Company’s management.”

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Wild, Shaw, Chiappetta, FAP 23eSolutions Manual: Chapter15QUICK STUDIESQuick Study 1-1(10 minutes)1.f.Technology2.c.Recording3.h.Recordkeeping (bookkeeping)Quick Study 1-2(10 minutes)a.Eg.Eb.Eh.Ec.Ei.Id.Ej.Ee.Ik.Ef.El.EQuick Study 1-3(10minutes)1.A.Opportunity2.B.Pressure3.C.Rationalization4.A.Opportunity5.B.Pressure6.C.RationalizationQuick Study 1-4(5minutes)1.c.constraint2.b.assumption3.c.constraint4.a.principle

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Wild, Shaw, Chiappetta, FAP 23eSolutions Manual: Chapter16Quick Study 1-5(10 minutes)Attribute PresentProprietorshipPartnershipCorporation1.Business taxednonoyes2.Business entityyesyesyes3.Legal entitynonoyesQuick Study 1-6(10 minutes)1.D.Revenuerecognition principle2.B.Measurement (cost)principle3.C.Business entity assumptionQuick Study 1-7(5minutes)Assets=Liabilities+Equity$700,000(a)$280,000$420,000$500,000(b)$250,000(b)$250,000Quick Study 1-8(10 minutes)1.Assets=Liabilities+Equity$75,000(a)$35,000$40,000(b)$95,000$25,000$70,000$85,000$20,000(c)$65,0002.Assets=Liabilities+Owner,Capital-Owner,Withdrawals+ Revenues-Expenses$40,000$16,000$20,000$0(a)$12,000$8,000$80,000$32,000$44,000(b)$2,000$24,000$18,000

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Wild, Shaw, Chiappetta, FAP 23eSolutions Manual: Chapter17Quick Study 1-9(10 minutes)a.For December 31, 2015, the accountsandtheirdollar amounts(in$millions) forGoogleare:(1)Assets=$147,461(2)Liabilities=$27,130(3)Equity=$120,331b.UsingGoogle’s amounts from (a) we verify that (in$millions):Assets=Liabilities+Equity147,461=27,130+120,331Quick Study 1-10(15minutes)Assets=Liabilities+EquityCash+AccountsRecble.=AccountsPayable+Owner,Capital-Owner,Withdrawals+Revenues-Expenses(a)$5,500=$5,500Consulting(b)+$4,000=+4,000CommissionBal.5,500+4,000=+9,500(c)-1,400=-$1,400WagesBal.4,100+4,000=+9,500-1,400(d)+1,000+-1,000=-Bal.5,100+3,000=+9,500-1,400(e)-700+=-700CleaningBal.$4,400+$3,000=+$9,500-$2,100

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Wild, Shaw, Chiappetta, FAP 23eSolutions Manual: Chapter18Quick Study 1-11(15minutes)Assets=Liabilities+EquityCash+Supplies+Equip.+Land=Accts.Pay.+A. Carr,Capital-A.Carr,With-drawals+Rev.-Exp.(a)$15,000=$15,000(b)-500+$500=Bal.14,500+500=+15,000(c)+$10,000=10,000Bal.14,500+500+10,000=+25,000(d)+200=+$200Bal.14,500+700+10,000=200+25,000(e)-9,000+$9,000=Bal.$5,500+$700+$10,000+$9,000=$200+$25,000Quick Study 1-12(10 minutes)[Code:Income statement (I), Balance sheet (B), Statement ofowner’s equity(E), orStatement of cash flows (CF).]a.Bd.Bg.CFb.CFe.Ih.Ic.Eand CFf.Bi.B

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Wild, Shaw, Chiappetta, FAP 23eSolutions Manual: Chapter19Quick Study 1-13(5minutes)1.EX5.EX2.R6.R3.EX7.EX4.W8.RQuick Study 1-14(5minutes)1.A4.L2.EQ5.A3.A6.AQuick Study 1-15(10 minutes)Return on assets ===15.0%Interpretation: Its return of15.0% exceedsthe11% of its competitors. HomeDepot’s performance can bejudgedas above average.Quick Study 1-16(10 minutes)1.D3.A2.E4.CQuick Study 1-17(10 minutes)a.For December 31, 2015, theaccountsandtheirdollar amounts(inKRWmillions) forSamsungare:(1)Assets=242,179,521(2)Liabilities=63,119,716(3)Equity=179,059,805b.UsingSamsung’s amounts from (a) we verify (inKRWmillions):Assets=Liabilities+Equity242,179,521=63,119,716+179,059,805$6 billion$40 billionNet incomeAverage total assets

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Wild, Shaw, Chiappetta, FAP 23eSolutions Manual: Chapter110EXERCISESExercise 1-1(10 minutes)C1.Analyzing and interpreting reports.C2.Presenting financial information.R3.Keeping a log of service costs.R4.Measuring the costs of aproduct.C5.Preparing financial statements.I6.Seeingrevenues generated from aservice.I7.Observingemployee tasks behind aproduct.R8.Registeringcash sales of products sold.Exercise 1-2(20 minutes)PartA.1.I5.I2.E6.E3.I7.I4.EPartB.1.I5.I2.I6.E3.E7.I4.E8.IExercise 1-3(10 minutes)1.B5.C2.A6.C3.B7.A4.B8.A

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Wild, Shaw, Chiappetta, FAP 23eSolutions Manual: Chapter111Exercise 1-4(10 minutes)1.A2.G3.D4.F5.CExercise 1-5(20 minutes)1.I2.H3.G4.F5.E6.D7.C8.B9.AExercise 1-6(10 minutes)a.(C)Corporatione.(C)Corporationb.(P)Partnershipf.(SP)Sole proprietorshipc.(SP)Sole proprietorshipg.(C)Corporationd.(SP)Sole proprietorship

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Wild, Shaw, Chiappetta, FAP 23eSolutions Manual: Chapter112Exercise 1-7(10 minutes)CodeDescriptionPrinciple/AssumptionH1.A company reports details behind financialstatements that would impact users' decisions.Full disclosureprincipleG2.Financial statements reflect the assumption thatthebusiness continues operating.Going-concernassumptionF3.A company records the expenses incurred togenerate the revenues reported.Matching (expenserecognition) principleA4.Derived from long-used and generally acceptedaccounting practices.General accountingprincipleC5.Eachbusiness is accounted for separately fromits owner or owners.Business entityassumptionD6.Revenue is recorded whenproducts andservices are delivered.Revenue recognitionprincipleE7.Usually created by a pronouncement from anauthoritative body.Specific accountingprincipleB8.Information is based on actual costs incurred intransactions.Cost principleExercise 1-8(10 minutes)Assets=Liabilities+Equity(a)$ 65,000=$ 20,000+$45,000$100,000=$ 34,000+(b)$66,000$154,000=(c)$114,000+$40,000

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Wild, Shaw, Chiappetta, FAP 23eSolutions Manual: Chapter113Exercise 1-9(20 minutes)a.Using the accounting equation at thebeginningof the year:Assets=Liabilities+Equity$300,000=?+$100,000Thus,beginningliabilities = $200,000Using the accounting equation at theendof the year:Assets=Liabilities+Equity$300,000 + $80,000=$200,000+ $50,000+?$380,000=$250,000+?Thus,endingequity = $130,000Alternative approach to solving part (b):Assets($80,000) =Liabilities($50,000) +Equity(?)where “” refers to “change in.”Thus:EndingEquity = $100,000 + $30,000 = $130,000b.Using the accounting equation:Assets=Liabilities+Equity$123,000=$47,000+?Thus, equity = $76,000c.Using the accounting equation at theendof the year:Assets=Liabilities+Equity$190,000=$70,000-$5,000+?$190,000=$65,000+$125,000Using the accounting equation at thebeginningof the year:Assets=Liabilities+Equity$190,000-$60,000=$70,000+?$130,000=$70,000+?Thus:BeginningEquity=$60,000

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Wild, Shaw, Chiappetta, FAP 23eSolutions Manual: Chapter114Exercise 1-10(20 minutes)1.d2.e3.a4.f5.hExercise 1-11(20 minutes)1.f2.a3.g4.h5.bExercise 1-12(15 minutes)a.3b.2c.6d.1e.4f.5

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Wild, Shaw, Chiappetta, FAP 23eSolutions Manual: Chapter115Exercise 1-13(30 minutes)Assets=Liabilities+EquityCash+AccountsReceivable+Equip-ment=AccountsPayable+M.Chen,Capital–M.Chen,With-drawals+Revenues–Expensesa.+$60,000+$15,000=+$75,000b.–1,500____________–$1,500Bal.58,500++15,000=+75,000–1,500c._______+10,000+$10,000___________Bal.58,500++25,000=10,000+75,000–1,500d.+2,500___________________+$2,500_____Bal.61,000++25,000=10,000+75,000+2,500–1,500e._______+$8,000___________________+8,000_____Bal.61,000+8,000+25,000=10,000+75,000+10,500–1,500f.–6,000______+6,000_______________________Bal.55,000+8,000+31,000=10,000+75,000+10,500–1,500g.–3,000______________________________–3,000Bal.52,000+8,000+31,000=10,000+75,000+10,500–4,500h.+5,000-5,000_____________________________Bal.57,000+3,000+31,000=10,000+75,000+10,500–4,500i.–10,000____________–10,000________________Bal.47,000+3,000+31,000=0+75,000+10,500–4,500j.–1,000_________________________–$1,000__________Bal.$46,000+$3,000+$31,000=$0+$75,000–$1,000+$10,500–$4,500

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