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Solution Manual for Financial Accounting, 3rd Edition

Solution Manual for Financial Accounting, 3rd Edition helps you retain textbook concepts through organized explanations.

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    SOLUTIONS MANUAL to accompany FINANCIAL and Managerial ACCOUNTING 2 nd EDITION Jerry J. Weygandt PhD, CPA Arthur Andersen Alumni Professor of Accounting University of Wisconsin Madison, Wisconsin Paul D. Kimmel PhD, CPA Associate Professor of Accounting University of Wisconsin — Milwaukee Milwaukee, Wisconsin Donald E. Kieso PhD, CPA Kpmg Emeritus Professor of Accounting Northern Illinois University DeKalb, Illinois

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    iii Contents Preface to the Instructor Chapter 1 Accounting in Ac tion Chapter 2 The Recording Process Chapter 3 Adjusting the Accounts Chapter 4 Completing the Accounting Cycle Chapter 5 Accounting for Merchandising Operations Chapter 6 Inventories Chapter 7 Fraud, Internal Control, and Cash Chapter 8 Accounting for Receivables Chapter 9 Plant Assets, Natural Resources, and Intangible Assets Chapter 10 Liabilities Chapter 11 Corporations: Organization, Stock Transactions, Dividends, and Retained Earnings Chapter 12 Investments Chapter 13 Sta tement of Cash Flows Chapter 14 Financial Statement Analysis Chapter 15 Managerial Accounting Chapter 16 Job Order Costing Chapter 17 Process Costing Chapter 18 Activity - Based Costing Chapter 19 Cost - Volume - Profit Chapter 20 Cost - Volume - Profit Analy sis: Additional Issues Chapter 21 Incremental Analysis Chapter 22 Pricing

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    iv Chapter 23 Budgetary Planning Chapter 24 Budgetary Control and Responsibility Accounting Chapter 25 Standard Costs and Balanced Scorecard Chapter 26 Planning for Capital Investments The following solutions are available on the Weygandt Financial and Managerial Accounting , 2 e instructor website : Appendix H Payroll Accoun ting Appendix I Subsidiary Ledgers and Special Journals Appendix J Other Significant Liabilities Appendix K Standards of Ethical Conduct for Managerial Accountants

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    1 - 1 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 , 2 1, 2 2. Explain the building blocks of accounting: ethics, principles, and assumptions. 6, 7, 8, 9, 10 1, 2 3, 4 3 . State the accoun t ing equation, and define its components. 11, 12, 13, 14 1, 2, 3, 4, 5, 8, 9 3 5, 6, 7, 11 1A, 2A, 4A 4 . Analyze the effects of business transactions on the accounting equation. 15, 16, 17, 18 6, 7 4 6, 7, 8, 10, 11 1A, 2A, 4A, 5A 5 . Understand the four financial statements and how they are pr e pared. 19, 20, 21 , 22 10, 11 5 8, 9, 11, 12, 13, 14, 15, 16, 17 2A, 3A, 4A, 5A

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    1 - 2 ASSIGNMENT CHARACTERISTICS TABLE Problem Number Description Difficulty Level Time Allotted (min.) 1A Analyze transactions and compute net income. Moderate 40 – 50 2A Analyze transactions and prepare income statement, retained earnings statement, and balance sheet. Moderate 50 – 60 3A Prepare income statement, retained earnings statement, and balance sheet. Moderate 50 – 60 4A Analyze transactions and prepare financial statements. Moderate 40 – 50 5A Determine financial statement amounts and prepare retained earnings statement. Moderate 40 – 50

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    1 - 3 WEYGANDT FINANCIAL AND MANAGERIAL ACCOUNTING 2E CHAPTER 1 ACCOUNTING IN ACTION Number L O BT Difficulty Time (min.) BE1 3 AP Simple 2 – 4 BE2 3 AP Simple 3 – 5 BE3 3 AP Moderate 4 – 6 BE4 3 AP Moderate 4 – 6 BE5 3 K Simple 2 – 4 BE6 4 C Simple 2 – 4 BE7 4 C Simple 2 – 4 BE8 3 C Simple 2 – 4 BE9 3 C Simple 1 – 2 BE10 5 AP Simple 3 – 5 BE11 5 C Simple 2 – 4 DI1 1 , 2 K Simple 2 – 4 DI2 1, 2 K Simple 2 – 4 DI3 3 K Simple 2 – 4 DI4 4 AP Simple 6 – 8 DI5 5 AP Moderate 8 – 10 EX1 1 C Moderate 5 – 7 EX2 1 C Simple 6 – 8 EX3 2 C Moderate 6 – 8 EX4 2 C Moderate 6 – 8 EX5 3 C Simple 4 – 6 EX6 3, 4 C Simple 6 – 8 EX7 3, 4 C Simple 4 – 6 EX8 4, 5 AP Moderate 12 – 15 EX9 5 AP Simple 12 – 15 EX10 4 AP Moderate 8 – 10 EX11 3, 4, 5 AP Moderate 6 – 8 EX12 5 AP Simple 8 – 10 EX13 5 AN Simple 8 – 10 EX14 5 AP Simple 10 – 12 EX15 5 AP Simple 6 – 8 EX16 5 AP Moderate 6 – 8 EX17 5 AP Moderate 8 – 10

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    1 - 4 ACCOUNTING IN ACTION (Continued) Number L O BT Difficulty Time (min.) P1A 3 , 4 AP Moderate 40 – 50 P2A 3 – 5 AP Moderate 50 – 60 P3A 5 AP Moderate 50 – 60 P4A 3 – 5 AP Moderate 40 – 50 P5A 4 , 5 AP Moderate 40 – 50 BYP1 5 AN Simple 10 – 15 BYP2 5 AN, E Simple 10 – 15 BYP3 5 AN, E Simple 10 – 15 BYP4 2 – 6 C, AN Simple 15 – 20 BYP5 5 E Moderate 15 – 20 BYP6 5 E Simple 12 – 15 BYP7 2 E Simple 10 – 12 BYP8 2 E Moderate 15 – 20 BYP9 5 E Moderate 15 – 20 BYP10 – AP Moderate 15 – 20 BYP11 – C Simple 10 – 15

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    BLOOM’ S TAXONOMY TABLE 1 - 5 Correlation Chart between Bloom’s Taxonomy, Learning Objectives and End - of - Chapter Exercises and Problems Learning Objective Know l edge Comprehe n sion Application Analysis Synth e sis Evaluation 1. Identify the activities and users associated with accounting. DI1 - 1 DI1 - 2 Q1 - 1 Q1 - 2 Q1 - 3 Q1 - 4 Q1 - 5 E1 - 1 E1 - 2 2. Explain the building blocks of accounting: ethics, principles, and assumptions. Q1 - 7 Q1 - 8 Q1 - 9 Q1 - 10 DI1 - 1 DI1 - 2 Q1 - 6 E1 - 3 E1 - 4 3. State the accounting equ a tion, and define its components. Q1 - 11 Q1 - 12 Q1 - 13 DI1 - 3 BE1 - 5 Q1 - 11 Q1 - 14 BE1 - 4 BE1 - 5 BE1 - 8 BE1 - 9 E1 - 5 E1 - 6 E1 - 7 BE1 - 1 BE1 - 2 BE1 - 3 E1 - 11 P1 - 1A P1 - 2A P1 - 4A 4. Analyze the effects of business transactions on the accounting equation. Q1 - 15 Q1 - 16 Q1 - 17 Q1 - 18 BE1 - 6 BE1 - 7 DI1 - 4 E1 - 6 E1 - 7 E1 - 8 E1 - 10 E1 - 11 P1 - 1A P1 - 2A P1 - 4A P1 - 5A 5. Understand the four fina n cial statements and how they are pr e pared. Q1 - 19 Q1 - 20 BE1 - 11 Q1 - 21 Q1 - 22 BE1 - 10 DI1 - 5 E1 - 8 E1 - 9 E1 - 11 E1 - 12 E1 - 14 E1 - 15 E1 - 16 E1 - 17 P1 - 2A P1 - 3A P1 - 4A P1 - 5A E1 - 13 Broadening Your Perspective Real – World Focus Considering People, Planet, and Profit FASB Codification Financial Reporting Comparative Anal y sis All About You Comparative Anal y sis D e cision – Making Across the Organiz a tion Commun i cation Acti v ity Ethics Case

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    1 - 6 ANSWERS TO QUESTIONS 1. Yes, this is correct. Virtually every organization and person in our society uses accounting information. Businesses, investors, creditors, government agencies, and not - for - profit organ i zations must use a c counting information to operate effectively. 2. Accounting is the process of identifying, recording, and communicating the economic events of an organization to interested users of the information. The first step of the accounting process is therefore 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 chronological diary of these measured events in an orderly and systematic manner. The inform a tion is communicated through the preparation and distribution of accounting reports, the most common of which are called financial statements. A vital element in the communication process is the accoun t ant’s ability and responsibility to analyze and interpret the reported info r mation. 3. (a) Internal users are those who plan, organize, 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 alternative s, projections of income from new sales campaigns, and for e casts 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 th e risks of granting credit or lending money. 5. No, this is incorrect. 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 pro c ess of identifying, recording, and communicating economic events. 6. Harper Travel Agency should report the land at $85,000 on its December 31, 2017 balance sheet. This is true not only at the time the land is purchased, but also over the time the la nd is held. In determining which measurement principle to use (cost or fair value) companies weigh the factual nature of cost figures versus the relevance of fair value. In general, co m panies use cost. Only in situations where assets are actively traded do companies apply the fair value pri n ciple. An important concept that accountants fo l low is the cost principle . 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. 8 . The economic entity assu mption requires that the activities of the entity be kept separate and distinct 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) corpo ration.

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    1 - 7 Questions Chapter 1 (Continued) 1 0 . One of the advantages would enjoy is that ownership of a corporation is repre sented by transferable shares of stock. 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 corporate entity. Also, because ownership can be transferred without dissolving the co r poration, the corpor a tion enjoys an u n limited life. 1 1 . The basic accounting equation is Assets = Liabilities + Stockholders’ (Owners’) Equity. 1 2 . (a) Assets are resources owned by a business. Liabilities are claims against a s sets — that is , , existing debts and obligations. Stockholders’ equity is the owne r ship claim on total assets. (b) Stockholders’ equity is affected by stockholders’ investments, dividends, revenues, and e x penses. 1 3 . The liabilities are: (b) Accounts payable and (g) Salaries and wages payable. 1 4 . 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 a c count is a specific example. 1 5 . Business transactions are the economic events of the enterprise recorded by accountants because they affect the basic equation. (a) No, the death of the president of the company is not a business transaction as it does not affect the basic equation. (b) Yes, supplies purchased on account is a business transaction as it affects the basic equ a tion . (c) No, an employee being fired is not a business transaction as it does not affect the basic equ a tion. 1 6 . (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. 1 7 . (a) Income statement. (d) Balance sheet. (b) Balance sheet. (e) Balance sheet and retained earnings stat e ment. (c) Income statement. (f) Balance sheet. 1 8 . No, this treatment is not proper. 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 for the purpose of earning income. This transaction is simply an additional i n ves t ment 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 e x penses from revenues. In addition, net income appears in the retained earnings statement — it is shown as an addition to the beginning - of - period retained earnings. Indirectly, the net income of a company is also included in the balance sheet. It is included in the Retained Earnings account which a p pears in the stockholders’ e q uity section of the balance sheet.

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    1 - 8 Questions Chapter 1 (Continued) 2 0 . (a) Ending stockholders’ equity balance ................................ ................................ $198,000 Beginning stockholders’ equity balance ................................ ............................ 158 ,000 Net income ................................ ................................ ................................ ....... $ 4 0,000 (b) Ending stockholders’ equity balance ................................ ................................ $198,000 Beginning stockholders’ equity balance ................................ ............................ 158 ,000 4 0,000 Deduct: Investment ................................ ................................ ......................... 16 ,000 Net income ................................ ................................ ................................ ....... $ 24 ,00 0 2 1 . (a) Total revenues ($ 30 ,000 + $70,000) ................................ ................................ $ 10 0,000 (b) Total expenses ($26,000 + $ 38 ,000) ................................ ................................ $ 64 ,000 (c) Total revenues ................................ ................................ ................................ . $ 100 ,000 Total expenses ................................ ................................ ................................ . 6 4 ,000 Net income ................................ ................................ ................................ ....... $ 36 ,000 2 2 . Apple’s accounting equation at September 28 , 2013 was $ 207 , 000 ,000,000 = $ 83 , 451 ,000,000 + $ 123 , 549 ,000,000.

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    1 - 9 SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE 1 - 1 (a) $ 78 ,000 – $50,000 = $ 28 ,000 (Stockholders’ Equity). (b) $4 5 ,000 + $70,000 = $11 5 ,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) $ 6 00,000 – 0.5 ($ 6 00,000) = $ 3 00,000 (Stockholders’ equity). BRIEF EXERCISE 1 - 3 (a) ($8 7 0,000 + $150,000) – ($500,000 – $80,000) = $ 60 0,000 (Stockholders’ equity). (b) ($500,000 + $100,000) + ($ 870 ,000 – $500,000 – $ 66 ,000) = $ 904 ,000 (Assets). (c) ($8 7 0,000 – $80,000) – ($8 7 0,000 – $500,000 + $120,000) = $300,000 (Liabilities). BRIEF EXERCISE 1 - 4 Stockholders’ Equity Assets = Liabilities + Common Stock + Retained Earnings Revenues – Expenses – Dividends (a) X = $90,000 + $150,000 + $450,000 – $320,000 – $40,000 X = $90,000 + $240,000 X = $330,000 (b) $57,000 = X + $2 3 ,000 + $50,000 – $35,000 – $7,000 $57,000 = X + $3 1 ,000 X = $2 6 ,000 ($57,000 – $3 1 ,000) (c) $600,000 = ($600,000 x 2/3) + X (Stockholders’ equity) $600,000 = $400,000 + X X = $200,000

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    1 - 10 BRIEF EXERCISE 1 - 5 A (a) Accounts receivable A (d) S upplies L (b) Salaries and wages payable SE (e) Owner’s investment A (c) Equipment L (f) Notes payable BRIEF EXERCISE 1 - 6 Assets Liabi l ities Stockholders’ E q uity (a) + + NE (b) + NE + (c) – NE – BRIEF EXERCISE 1 - 7 Assets Liabi l ities Stockholders’ E q uity (a) + NE + (b) – NE – (c) NE NE NE BRIEF EXERCISE 1 - 8 E (a) Advertising expense D (e) Dividends R (b) Service revenue R (f) Rent revenue E (c) Insurance expense E (g) Utilities expense E (d) Salaries and wages expense BRIEF EXERCISE 1 - 9 R (a) Received cash for services performed NSE (b) Paid cash to purchase equipment E (c) Paid employee salaries

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    1 - 11 BRIEF EXERCISE 1 - 10 ELLERBY COMPANY Balance Sheet December 31, 2017 Assets Cash ................................ ................................ ................................ .. $ 4 4 ,000 Accounts receivable ................................ ................................ ........ 72,500 Total assets ................................ ................................ .............. $11 6 ,500 Liabilities and Stockholders’ Equity Liabilities Accounts payable ................................ ................................ .... $ 85 ,000 Stockholders’ equity Common stock ................................ ................................ ......... 31,500 Total liabilities and stockholders’ equity ...................... $11 6 ,500 BRIEF EXERCISE 1 - 11 BS (a) Notes payable IS (b) Advertising expense BS (c) Common stock BS (d) Cash IS (e) Service revenue RE (f) Dividends SOLUTIONS FOR DO IT! REVIEW EXERCISES DO IT! 1 - 1 1. False. The three steps in the accounting process are identification, recording, and communication. 2. True 3. False. Managerial accounting provides internal reports to help users make decisions about their companies. 4. True 5. True

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    1 - 12 DO IT! 1 - 2 1 . False. Con gress passed the Sarbanes - Oxley Act to reduce unethical behavior and decrease the likelihood of future corporate scandals. 2. False. The standards of conduct by which actions are judged as right or wrong, honest or dishonest, fair or not fair, are ethics. 3 . False. The primary accounting standard - setting body in the United States is the Financial Accounting Standards Board (FASB). 4 . True. 5. True. DO IT! 1 - 3 1. Dividends is dividends (D); it decreases stockholders’ equity. 2. Rent Revenue is revenue (R ); it increases stockholders ’ equity. 3. Advertising Expense is an expense (E); it decreases stockholders’ equity. 4. When stockholders pay cash into the business, they receive shares of stock (I); it increases stockholder s’ equity. DO IT! 1 - 4 Assets = Liabilities + Stockholders’ Equity Cash + Accounts Receivable = Accounts Payable + Common Stock + Retained Earnings Revenues – Expenses – Dividends (1) +$2 3 ,000 +$2 3 ,000 (2) +$2 3 ,000 – $2 3 ,000 (3) +$ 1 , 800 – $ 1 , 800 (4) – $ 5,000 – $5,000

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