Solution Manual for Financial Accounting, 3rd Edition

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SOLUTIONS MANUALto accompanyFINANCIAL andManagerialACCOUNTING2ndEDITIONJerry J. WeygandtPhD, CPAArthur Andersen Alumni Professor of AccountingUniversity of WisconsinMadison, WisconsinPaul D. KimmelPhD, CPAAssociate Professor of AccountingUniversity of Wisconsin—MilwaukeeMilwaukee, WisconsinDonald E. KiesoPhD, CPAKpmg Emeritus Professor of AccountingNorthern Illinois UniversityDeKalb, Illinois

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iiiContentsPreface to the InstructorChapter1Accounting in ActionChapter2The Recording ProcessChapter3Adjusting the AccountsChapter4Completing the Accounting CycleChapter5Accounting for Merchandising OperationsChapter6InventoriesChapter7Fraud, Internal Control, and CashChapter8Accounting for ReceivablesChapter9Plant Assets, Natural Resources, and Intangible AssetsChapter 10LiabilitiesChapter 11Corporations: Organization, Stock Transactions, Dividends, andRetained EarningsChapter 12InvestmentsChapter 13Statement of Cash FlowsChapter 14Financial Statement AnalysisChapter 15Managerial AccountingChapter 16Job Order CostingChapter 17Process CostingChapter 18Activity-Based CostingChapter 19Cost-Volume-ProfitChapter 20Cost-Volume-Profit Analysis: Additional IssuesChapter 21Incremental AnalysisChapter 22Pricing

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ivChapter 23Budgetary PlanningChapter 24Budgetary Control and Responsibility AccountingChapter 25Standard Costs and Balanced ScorecardChapter 26Planning for Capital InvestmentsThe following solutions are available on the WeygandtFinancial and ManagerialAccounting,2einstructorwebsite:AppendixHPayroll AccountingAppendixISubsidiary Ledgers and Special JournalsAppendixJOther Significant LiabilitiesAppendix KStandards of Ethical Conduct for Managerial Accountants

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1-1CHAPTER 1Accounting in ActionASSIGNMENT CLASSIFICATION TABLELearning ObjectivesQuestionsBriefExercisesDo It!ExercisesAProblems1.Identify the activities andusers associated withaccounting.1, 2, 3, 4, 51, 21, 22.Explain the building blocks ofaccounting: ethics, principles,and assumptions.6,7, 8, 9, 101,23,43.State the accountingequation, and define itscomponents.11, 12, 13, 141, 2, 3,4, 5, 8,935, 6, 7, 111A, 2A,4A4.Analyze the effects ofbusiness transactions on theaccounting equation.15, 16, 17, 186, 746, 7, 8, 10, 111A, 2A, 4A,5A5.Understand the four financialstatements and how they areprepared.19, 20, 21,2210, 1158, 9, 11, 12,13, 14, 15, 16,172A, 3A, 4A,5A

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1-2ASSIGNMENT CHARACTERISTICS TABLEProblemNumberDescriptionDifficultyLevelTime Allotted(min.)1AAnalyze transactions and compute net income.Moderate40–502AAnalyze transactions and prepare income statement,retained earnings statement, and balance sheet.Moderate50–603APrepare income statement, retained earnings statement,and balance sheet.Moderate50–604AAnalyze transactions and prepare financial statements.Moderate40–505ADetermine financial statement amounts and prepareretained earnings statement.Moderate40–50

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1-3WEYGANDT FINANCIALAND MANAGERIAL ACCOUNTING2ECHAPTER 1ACCOUNTING IN ACTIONNumberLOBTDifficultyTime (min.)BE13APSimple2–4BE23APSimple3–5BE33APModerate4–6BE43APModerate4–6BE53KSimple2–4BE64CSimple2–4BE74CSimple2–4BE83CSimple2–4BE93CSimple1–2BE105APSimple3–5BE115CSimple2–4DI11, 2KSimple2–4DI21, 2KSimple2–4DI33KSimple2–4DI44APSimple6–8DI55APModerate8–10EX11CModerate5–7EX21CSimple6–8EX32CModerate6–8EX42CModerate6–8EX53CSimple4–6EX63, 4CSimple6–8EX73, 4CSimple4–6EX84, 5APModerate12–15EX95APSimple12–15EX104APModerate8–10EX113, 4, 5APModerate6–8EX125APSimple8–10EX135ANSimple8–10EX145APSimple10–12EX155APSimple6–8EX165APModerate6–8EX175APModerate8–10

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1-4ACCOUNTING IN ACTION (Continued)NumberLOBTDifficultyTime (min.)P1A3,4APModerate40–50P2A3–5APModerate50–60P3A5APModerate50–60P4A3–5APModerate40–50P5A4,5APModerate40–50BYP15ANSimple10–15BYP25AN, ESimple10–15BYP35AN, ESimple10–15BYP42–6C, ANSimple15–20BYP55EModerate15–20BYP65ESimple12–15BYP72ESimple10–12BYP82EModerate15–20BYP95EModerate15–20BYP10–APModerate15–20BYP11–CSimple10–15

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BLOOM’S TAXONOMY TABLE1-5Correlation Chart between Bloom’s Taxonomy,LearningObjectives and End-of-Chapter Exercises and ProblemsLearning ObjectiveKnowledgeComprehensionApplicationAnalysisSynthesisEvaluation1.Identify the activities and usersassociated with accounting.DI1-1DI1-2Q1-1Q1-2Q1-3Q1-4Q1-5E1-1E1-22.Explain the building blocks ofaccounting: ethics, principles,and assumptions.Q1-7Q1-8Q1-9Q1-10DI1-1DI1-2Q1-6E1-3E1-43.State the accounting equation,and define its components.Q1-11Q1-12Q1-13DI1-3BE1-5Q1-11Q1-14BE1-4BE1-5BE1-8BE1-9E1-5E1-6E1-7BE1-1BE1-2BE1-3E1-11P1-1AP1-2AP1-4A4.Analyze the effects of businesstransactions on the accountingequation.Q1-15Q1-16Q1-17Q1-18BE1-6BE1-7DI1-4E1-6E1-7E1-8E1-10E1-11P1-1AP1-2AP1-4AP1-5A5.Understand the four financialstatements and how they areprepared.Q1-19Q1-20BE1-11Q1-21Q1-22BE1-10DI1-5E1-8E1-9E1-11E1-12E1-14E1-15E1-16E1-17P1-2AP1-3AP1-4AP1-5AE1-13Broadening Your PerspectiveReal–World FocusConsideringPeople, Planet,and ProfitFASB CodificationFinancial ReportingComparative AnalysisAll About YouComparative AnalysisDecision–Making Acrossthe OrganizationCommunication ActivityEthics Case

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1-6ANSWERS TO QUESTIONS1.Yes, this is correct. Virtually every organization and person in our society uses accountinginformation. Businesses, investors, creditors, government agencies, and not-for-profit organizationsmust use accounting information to operate effectively.2.Accounting is the process of identifying, recording, and communicating the economic events ofan organization to interested users of the information. The first step of the accounting process istherefore to identify economic events that are relevant to a particular business. Once identifiedand measured, the events are recorded to provide a history of the financial activities of theorganization. Recording consists of keeping a chronological diary of these measured events in anorderly and systematic manner. The information is communicated through the preparation anddistribution of accounting reports, the most common of which are called financial statements.A vital element in the communication process is the accountant’s ability and responsibility toanalyze and interpret the reported information.3.(a)Internal users are those who plan, organize, and run the business and therefore are officersand other decision makers.(b)To assist management, accounting provides internal reports. Examples include financialcomparisons of operating alternatives, projections of income from new sales campaigns,and forecasts of cash needs for the next year.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.5.No, this is incorrect.Bookkeeping usually involves only the recording of economic events andtherefore is just one partof the entire accounting process. Accounting, on the other hand, involvesthe entireprocess of identifying, recording, and communicating economic events.6.HarperTravel Agency should report the land at $85,000 on its December 31,2017balancesheet. This is true not only at the time the land is purchased, but also over the time the land isheld. In determining which measurement principle to use (cost or fair value) companies weigh thefactual nature of cost figures versus the relevance of fair value. In general, companies use cost.Only in situations where assets are actively traded do companies apply the fair value principle.An important concept that accountants follow is the costprinciple.7.The monetary unit assumption requires that only transaction data capable of being expressed interms of money be included in the accounting records. This assumption enables accounting toquantify (measure) economic events.8.The economic entity assumption requires that the activities of the entity be kept separate anddistinct from the activities of its owners and all other economic entities.9.The three basic forms of business organizations are: (1) proprietorship, (2) partnership, and(3) corporation.

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1-7Questions Chapter 1(Continued)10.One ofthe advantageswould enjoyis that ownership ofa corporationis represented bytransferable shares of stock. This would allowJuanatoraise money easily by selling a part of herownershipinthecompany.Anotheradvantageisthatbecauseholdersoftheshares(stockholders) enjoy limited liability, they are not personally liable for the debts of the corporateentity. Also, because ownership can be transferred without dissolving the corporation, the corporationenjoys an unlimited life.11.The basic accounting equation is Assets = Liabilities + Stockholders’ (Owners’) Equity.12.(a)Assets are resources owned by a business. Liabilities are claims against assets—that is,,existing debts and obligations. Stockholders’ equity is the ownership claimon total assets.(b)Stockholders’ equity is affected by stockholders’ investments, dividends, revenues, andexpenses.13.The liabilities are: (b) Accounts payable and (g) Salariesand wagespayable.14.Yes, a business can enter into a transaction in which only the left side of the accounting equationis affected. An example would be a transaction where an increase in one asset is offset bya decrease in another asset. An increase in the Equipment account which is offset by a decreasein the Cash account is a specific example.15.Business transactions are the economic events ofthe enterprise recorded by accountantsbecause they affect the basic equation.(a)No, the death of the president of the company is not a business transaction as it does notaffect the basic equation.(b)Yes, supplies purchased on account is a business transaction as it affects the basic equation.(c)No,an employee being fired is not a business transaction as it does not affect the basicequation.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.17.(a)Income statement.(d)Balance sheet.(b)Balance sheet.(e)Balance sheet and retained earnings statement.(c)Income statement.(f)Balance sheet.18.No, this treatment is not proper. While the transaction does involve a receipt of cash, it does notrepresent revenues. Revenues are the gross increase in stockholders’ equity resulting frombusiness activities entered into for the purpose of earning income. This transaction is simply anadditional investment made by one of the owners of the business.19.Yes. Net income does appear on the income statement—it is the result of subtracting expensesfrom revenues. In addition, net income appears in the retained earnings statement—it is shownas an addition to the beginning-of-period retained earnings. Indirectly, the net income of a companyis also included in the balance sheet. It is included in the Retained Earnings account whichappears in the stockholders’ equity section of the balance sheet.

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1-8Questions Chapter 1(Continued)20.(a)Ending stockholders’ equity balance................................................................$198,000Beginning stockholders’ equity balance............................................................158,000Net income.......................................................................................................$40,000(b)Ending stockholders’ equity balance................................................................$198,000Beginning stockholders’ equity balance............................................................158,00040,000Deduct: Investment.........................................................................................16,000Net income.......................................................................................................$24,00021.(a)Total revenues ($30,000 + $70,000)................................................................$100,000(b)Total expenses ($26,000 + $38,000)................................................................$64,000(c)Total revenues.................................................................................................$100,000Total expenses.................................................................................................64,000Net income.......................................................................................................$36,00022.Apple’s accounting equation at September28,2013was $207,000,000,000 = $83,451,000,000 +$123,549,000,000.

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1-9SOLUTIONS TO BRIEF EXERCISESBRIEF EXERCISE 1-1(a)$78,000–$50,000 = $28,000 (Stockholders’ Equity).(b)$45,000 + $70,000 = $115,000 (Assets).(c)$94,000–$60,000 = $34,000 (Liabilities).BRIEF EXERCISE 1-2(a)$120,000 + $232,000 = $352,000 (Total assets).(b)$190,000–$86,000 = $104,000 (Total liabilities).(c)$600,000–0.5($600,000) = $300,000 (Stockholders’ equity).BRIEF EXERCISE 1-3(a)($870,000 + $150,000)–($500,000–$80,000) = $600,000(Stockholders’ equity).(b)($500,000 + $100,000) + ($870,000–$500,000–$66,000) = $904,000(Assets).(c)($870,000–$80,000)–($870,000–$500,000 + $120,000) = $300,000(Liabilities).BRIEF EXERCISE 1-4Stockholders’ EquityAssets=Liabilities+CommonStock+Retained EarningsRevenues–Expenses–Dividends(a)X=$90,000+$150,000+$450,000–$320,000–$40,000X=$90,000+$240,000X=$330,000(b)$57,000=X+$23,000+$50,000–$35,000–$7,000$57,000=X+$31,000X=$26,000($57,000–$31,000)(c)$600,000=($600,000 x 2/3)+X (Stockholders’ equity)$600,000=$400,000+XX=$200,000

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1-10BRIEF EXERCISE 1-5A(a)Accounts receivableA(d)SuppliesL(b)Salariesand wagespayableSE(e)Owner’s investmentA(c)EquipmentL(f)Notes payableBRIEF EXERCISE 1-6AssetsLiabilitiesStockholders’ Equity(a)++NE(b)+NE+(c)–NE–BRIEF EXERCISE 1-7AssetsLiabilitiesStockholders’ Equity(a)+NE+(b)–NE–(c)NENENEBRIEF EXERCISE 1-8E(a)Advertising expenseD(e)DividendsR(b)ServicerevenueR(f)Rent revenueE(c)Insurance expenseE(g)Utilities expenseE(d)Salariesand wagesexpenseBRIEF EXERCISE 1-9R(a)Received cash for services performedNSE(b)Paid cash to purchase equipmentE(c)Paid employee salaries

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1-11BRIEF EXERCISE 1-10ELLERBYCOMPANYBalance SheetDecember 31,2017AssetsCash..................................................................................................$ 44,000Accounts receivable........................................................................72,500Total assets..............................................................................$116,500Liabilities and Stockholders’ EquityLiabilitiesAccounts payable....................................................................$85,000Stockholders’ equityCommon stock.........................................................................31,500Total liabilitiesand stockholders’ equity......................$116,500BRIEF EXERCISE 1-11BS(a)Notes payableIS(b)Advertising expenseBS(c)Common stockBS(d)CashIS(e)Service revenueRE(f)DividendsSOLUTIONS FOR DO IT! REVIEW EXERCISESDO IT! 1-11.False.The three steps in the accounting process are identification,recording, and communication.2.True3.False.Managerial accounting provides internal reports to help usersmake decisions about their companies.4.True5.True

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1-12DO IT! 1-21.False.Congress passed the Sarbanes-Oxley Act to reduce unethicalbehavior and decrease the likelihood of future corporate scandals.2.False.The standards of conduct by which actions are judged as rightor wrong, honest or dishonest, fair or not fair, are ethics.3.False.The primary accounting standard-setting body in the UnitedStates is the Financial Accounting Standards Board (FASB).4.True.5.True.DO IT! 1-31.Dividends is dividends (D); it decreases stockholders’ equity.2.Rent Revenue is revenue (R); it increases stockholders’equity.3.AdvertisingExpenseis anexpense (E);it decreasesstockholders’equity.4.When stockholders pay cash into the business, they receive shares ofstock (I); it increasesstockholders’ equity.DO IT! 1-4Assets=Liabilities+Stockholders’ EquityCash+AccountsReceivable=AccountsPayable+CommonStock+Retained EarningsRevenues–Expenses–Dividends(1)+$23,000+$23,000(2)+$23,000–$23,000(3)+$1,800–$1,800(4)–$ 5,000–$5,000

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