Survey of Accounting 4th Edition Solution Manual

Preview (16 of 817 Pages)

100%

Survey of Accounting 4th Edition Solution Manual - Page 1 preview image

Loading page ...

1-7ANSWERS TO QUESTIONS-CHAPTER 11.Stakeholdersare the parties that use accounting information.Stakeholders with adirect interestinclude owners, managers,creditors, suppliers, and employees. These individuals are directlyaffected by what happens to the business.Stakeholders with anindirect interestinclude financial analysts,brokers, attorneys, government regulators, and news reporters.These individuals use information in the financial reports to adviseand influence their clients.Students may give many different answers under the abovecategories depending on their level of experience in business.All students are direct users of accounting information related totuition and fees, financial aid, and account balances.2.Accounting provides information that is useful in making decisionsby all participants in the market for resource goods and services,both profit-oriented and nonprofit oriented. Because accounting’srole is so important, it is often called the language of business.3.The primary mechanism used to allocate resources in the U.S. iscompetition for resources in the open market.4.A market is a group of people or organizations that come togetherfor the purpose of exchanging items of value.5.The market for business resources involves three distinctparticipants: consumers, conversion agents, and resource owners.See Exhibit 1-1 that illustrateshow market trilogy is involved inresource allocation.6.Financial Resource: money

Survey of Accounting 4th Edition Solution Manual - Page 2 preview image

Loading page ...

Survey of Accounting 4th Edition Solution Manual - Page 3 preview image

Loading page ...

1-8Physical Resource: natural resources (i.e. land, forests, mine ore,petroleum, etc.), buildings, machinery and equipment, furniture andfixturesLabor Resource: includes both intellectual and physical labor; i.e.employees7.Investors expect adistributionof the business’sprofitsas a returnon their financial investment (capital allocation).Creditors lend financial resources to businesses and receiveinterestas a return or profit on the loan.8.Financial accountingprovides information that is useful to externalresource providers.Managerial accountingprovides information that is useful tomanagers in operating an organization (i.e., internal users).9.Not-for-profit or nonprofit entities provide goods or services toconsumers forhumanitarian or special reasonsrather than to earn aprofit for owners. For example, certain not-for-profit entitiesallocate resources to provide for research of diseases orsocial/environmental welfare; others allocate resources to promotethe arts and provide education.10.The U.S. rules of accounting information measurement are calledgenerally accepted accounting principles (GAAP).11.Careers in public accounting consist of providing services to thegeneral public from a public accounting firm. These services includeauditing, tax and consulting services. Careers in private accountingusually consist of working for a specific company (which would be aclient of the public accounting firm) providing a wide variety ofservices to the company including recording transactions, preparingfinancial statements, internal auditing and others.12.Items reported on the financial statements are organized intoclasses or categories called elements. The ten elements of financialstatements are:

Survey of Accounting 4th Edition Solution Manual - Page 4 preview image

Loading page ...

1-91.Assets2.Liabilities3.Equity (Stockholders’ Equity)4.Investments by Owners (Contributed Capital)5.Revenue6.Expenses7.Distributions (Dividends)8.Net Income9.Gains10.LossesAccounts are specific items or subclassifications of the elements.Examples of accounts include cash, land and common stock.13.Assets, the economic resources of a business, are used to produceearnings.14.The assets of a business belong to that business entity and theremay be claims on the assets. Claims on the assets belong toresource providers.15.Creditors are individuals and/or institutions that have providedgoods or services to the business which are not yet paid for, orloaned money to the business. These parties have first claim to theassets of the business, and the owners have a residual interest in theassets.16.The term “liabilities” is used to describe creditors' claims on theassets of a business.17. The accounting equation is:ASSETS–LIABILITIES = STOCKHOLDERS’ EQUITYorASSETS = LIABILITIES + STOCKHOLDERS’ EQUITYAssetsare the economic resources used by a business for theproduction of revenue.Liabilitiesare obligations of a business torelinquish assets, provide services, or accept other obligations.Equity, also called “residual interest” or “net assets”, is the portion

Survey of Accounting 4th Edition Solution Manual - Page 5 preview image

Loading page ...

1-10of the assets remaining after the creditors' claims have beensatisfied (i.e., Assets–Liabilities).18.Theownersultimately bear the risk and collect the rewardsassociated with operating a business.19.A double-entry bookkeeping system is one in which everytransaction affects at least two accounts. A transaction can affectboth assets and claims (liabilities and equity) or only assets or onlyclaims. In order to “balance” the accounting equation, everytransaction requires a “double entry.”20.Capital is acquired from owners by issuing stock to them. Whenstock is issued, the assets of the business increase and thestockholders’ equity increases.21.Assets that are acquired by issuing common stock are the result ofinvestments by owners. Assets that are acquired by using retainedearnings are assets the business acquires through its earningsactivities.22.Revenueincreases the asset side of the accounting equation andalso increases the retained earnings account in the stockholders’equity section of the equation.23.The three primary sources of assets are (1) investments by owners(issue of stock), (2) borrowing from creditors, and (3) earningsactivities.24.Retained earnings are a result of a business retaining its earnedassets, rather than distributing those earnings to its owners.25.Distributions to owners, called dividends, decrease the asset side ofthe accounting equation and also decrease the retained earningsaccount in the stockholders’ equity section of the equation.26.Dividends and expenses are similar in that they both decrease assetsand affect the accounting equation in the same way (i.e. reduction ofretained earnings). However, dividends differ from expenses

Survey of Accounting 4th Edition Solution Manual - Page 6 preview image

Loading page ...

1-11because of the nature of the decline in assets. Expenses reduceassets as the result of a firm's efforts to earn revenue. Dividendsreduce assets because of a transfer of wealth to the owners.27.(1)Income Statement-measures the difference between the assetincreases and the asset decreases that were associated withoperating a business during a particular accounting period.(2)Statement of Changes in Stockholders’ Equity-explains theeffects of transactions on stockholders’ equity during theaccounting period.(3)Balance Sheet-lists the assets and the corresponding claimsagainst the entity as of a particular date.(4)Statement of Cash Flows-explains how a company obtainedand used cash during the accounting period.28.Thebalance sheetprovides information about the enterprise at aparticular point in time.29.A net loss occurs when expenses exceed revenues in a givenaccounting period.30.(1)Operating activities-explain the cash generated from revenueand the cash paid for expenses.(2)Investing activities-include cash received or spent by thebusiness on productive assets used in the business, andinvestments in debt or equity of other companies.(3)Financing activities-include cash inflows and outflows fromthe company's transactions with its owners and inflows andoutflows from its borrowing activities.31.Asset accounts are arranged on the balance sheet in accordancewith their level ofliquidity(those that can be most quickly convertedto cash are listed first).

Survey of Accounting 4th Edition Solution Manual - Page 7 preview image

Loading page ...

1-1232.Articulation refers to the interrelationships among the variouselements of the financial statements.33.Temporary accounts are used to capture information for a singleaccounting period. The balances in temporary accounts aretransferred out of the accounts at the end of the accounting period.Temporary accounts have zero balances at the beginning of anaccounting period.Temporary accounts include revenue accounts,expense accounts and dividends.Permanent accounts carry overfrom one accounting period to the next. Retained Earnings is apermanent account.34.The historical cost concept requires that most assets be reported atthe amount paid for them regardless of their increase or decrease invalue. It is related to the qualitative characteristic of verifiability inthat information can be independently verified. The historical cost isverified, while a change in value is subjective.35.Anasset sourcetransaction results in an increase in an assetaccount and an increase in one of the claims accounts; i.e.,investments by owners (equity), borrowing funds from creditors(liabilities), or earnings activities (revenue).Anasset usetransaction results in a decrease in an asset accountand a decrease in either liabilities or equity; i.e., the payment of aliability, the payment of an expense, or a dividend.Anasset exchangetransaction is a transaction in which one asset isexchanged for another; i.e., purchase of land with cash.Aclaims exchangetransaction will be covered in a later chapter.36.While the contents of annual reports vary from company tocompany, all annual reports contain:Management’s discussion and analysis (MD&A)Financial statementsNotes to the financial statementsAuditor’s report

Survey of Accounting 4th Edition Solution Manual - Page 8 preview image

Loading page ...

1-1337.U.S. GAAP, generally accepted accounting principles in the UnitedStates, are the measurement rules established by the (FASB)Financial Accounting Standards Board. The FASB is a privatelyfunded organization with the primary authority for establishingaccounting standards in the United States. International FinancialReporting Standards (IFRS) are issued by the InternationalAccounting Standards Board and are an attempttoset a commonstandard to be used in different countries. IFRS is used by globalcompanies and there is a move underway to merge GAAP and IFRS.SOLUTIONS TO EXERCISES-SERIES A-CHAPTER 1EXERCISE 1-1The three types of resources available to conversion agents are:1.Financial resources2.Physical resources3.Labor resourcesNote to instructor:The memo should discuss the fact that the resource owners are thosewho own resources that are desired by others, either in the original formor in a converted form. The conversion agents are the parties that acquirethe resource and supply it to consumers either in the original form or in aconverted form with value added by the conversion. The consumers arethe ultimate users of the resources.It should also include a discussion of the role of the private accountantand the allocation of resources. For example, private accountants preparethe annual reports that businesses (conversion agents) use tocommunicate information to investors and creditors (financial resourceproviders). In other words, they are the information providers. The mostappropriatedesignation for private accountants is theattainmentofaCertified Management Accountant (CMA). However, many privateaccountants get their start in public accounting and are therefore CPAs aswell as CMAs.

Survey of Accounting 4th Edition Solution Manual - Page 9 preview image

Loading page ...

1-14

Survey of Accounting 4th Edition Solution Manual - Page 10 preview image

Loading page ...

1-15EXERCISE 1-2a.The three areas of service provided by public accountantsareauditing, tax and consulting.b.The private accountant generally works for a specific company.Some of the functions performed include classifying and recordingtransactions, billing customers, collecting amounts due, orderingmerchandise, paying suppliers, preparing and analyzing financialstatements, developing budgets, assessing performance and makingdecisions.

Survey of Accounting 4th Edition Solution Manual - Page 11 preview image

Loading page ...

1-16EXERCISE 1-3EntitiesDistribution of CashRay Steen(personalaccount)Personal account was decreased by the $100,000cash deposited in theSteenEnterprises’business account.SteenEnterprisesCash account increased by the $100,000 cashdeposited by Mr.Steen.Cash account increased by $60,000 cashborrowed fromFirst Bank.Cash account increased by $75,000 cash investedbyStan Rhoades.Cash account decreased by $150,000 cash used topurchase building.Cash account increased by $56,000 cash revenueearned.Cash account decreased by $31,000 cash paymentto employees for salaries.First BankCash account decreased by $60,000 cash loanedtoSteenEnterprises.Stan Rhoades, father-in-law, personalaccountCash decreased by $75,000 cash invested inSteenEnterprises.ZoroRealty CompanyCash increased by $150,000 received fromSteenEnterprises to purchase building.SteenEnterprises’customersCash decreased by $56,000 when customers paidfor services performed.SteenEnterprises’employeesCash increased by $31,000 when employeesreceived payment for salaries.

Survey of Accounting 4th Edition Solution Manual - Page 12 preview image

Loading page ...

1-17EXERCISE 1-4Accounting EquationStockholders’ EquityCommonRetainedCompanyAssets=Liabilities+Stock+EarningsA142,000=30,000+50,000+62,000B50,000=15,000+10,000+25,000C85,000=20,000+25,000+40,000D215,000=60,000+100,000+55,000

Survey of Accounting 4th Edition Solution Manual - Page 13 preview image

Loading page ...

1-18EXERCISE 1-5Hansen EnterprisesAccounting EquationStockholders’EquityEventNumberAssets=Liabilities+CommonStockRetainedEarnings1.INAINA2.INANAI3.DNANAD4.DDNANA5.I/DNANANA6.DNANAD

Survey of Accounting 4th Edition Solution Manual - Page 14 preview image

Loading page ...

1-19EXERCISE 1-6a.Foster Corp.Accounting Equation for 2014Assets=Liabilities+Stockholders’ EquityEventCash+Land=NotesPayable+Com.Stock+RetainedEarningsAcct.Title/REBal. 1/1/1330,00016,00010,00020,00016,0001. Pur. Land(20,000)20,000NANANANA2. Issued stk.10,000NANA10,000NANA3. Provide Svc.90,000NANANA90,000Revenue4. Paid Exp.(65,000)NANANA(65,000)Oper. Exp.5. Loan20,000NA20,000NANANA6. Paid Div.(5,000)NANANA(5,000)Dividend7. Land ValueNANANANANANATotals60,000+36,000=30,000+30,000+36,000b.Assets=Liabilities+Stockholders’ Equity$96,000=$30,000+$66,000c.The balances of total assets, liabilities and stockholders’ equity willbe the same on January 1, 2015 as the balances on December 31,2014. (See b. above)

Survey of Accounting 4th Edition Solution Manual - Page 15 preview image

Loading page ...

1-20EXERCISE 1-7a.Assets=Liabilities+Stockholders’ EquityCash=Note Payable+Common Stock+Retained Earnings156,000=85,600+52,400+?Retained Earnings = $156,000–$85,600–$52,400 = $18,000b. & c.Post CompanyEffect of 2014 Transactions on the Accounting EquationAssets=Liabilities+Stockholders’ EquityNotesCommonRetainedEventCash=Payable+Stock+EarningsBeginning Balances156,00085,60052,40018,0001. Earned Revenue36,000NANA36,0002. Paid expenses(20,000)NANA(20,000)3. Paid dividend(3,000)NANA(3,000)Ending Balance169,000=85,600+52,400+31,000d.Cash=Note Payable+Common Stock+Retained Earnings169,000=85,600+52,400+31,000Liabilities + Stockholders’ Equity = $85,600 + $52,400 + $31,000 = $169,000Assets= Liabilities + Stockholders’ Equity$169,000 =$169,000e.The beginning and ending balances in the cash account were $156,000and $169,000 respectively. The beginning balance in the common stockaccount was $52,400. This balance did not change during theaccounting period. The reason the cash balance changed but thecommon stock balance did not was because the accounting events thatPost experienced during the 2014 accounting period affected the cashaccount but not the common stock account.

Survey of Accounting 4th Edition Solution Manual - Page 16 preview image

Loading page ...

1-21EXERCISE 1-8a.Assets=Liabilities+Stockholders’ EquityCashNotes PayableSalaries ExpenseLandAccounts PayableCommon StockOffice FurnitureUtilities PayableService RevenueTrucksInterest ExpenseSuppliesUtilities ExpenseComputersOperating ExpensesBuildingRent RevenueDividendsSupplies ExpenseGasoline ExpenseRetained EarningsDividendsb.No. The number of accounts will vary depending on the level of detailthe reporting entity chooses to provide, as well as the type of companyand industry in which it operates.More accounts provide financialstatement users with more information about the reporting entity.However, the cost of keeping records on many accounts oftenoutweighs the benefit of providing more information. For example, inthis problemthe companykept all of the trucks in one account (i.e.Trucks). Ifthe companywanted to provide more detailthe companycould have created a separate account for each truck. Ifthe companywanted even more detailthe companycould break the truck intodifferent components and provide an account for each component ofthe truck (i.e. engine, frame, wheels, tires, etc.). Providing accounts foreach truck component would be very difficult and time consuming andwould not necessarily change any decision made by a financialstatement user. Therefore, it makes more sense to aggregate all trucksand truck components into one account. Deciding the number ofaccounts to report is a subjective cost/benefit analysis. The goal is toprovide financial statement users with detail (i.e. more accounts) whenthe benefit of the additional information outweighs the cost ofproviding the information. Remember, it is the stockholders who are

Preview Mode

This document has 817 pages. Sign in to access the full document!

Report

Study Now!

Document Details

Related Documents

Solution Manual For Survey of Accounting, 6th Edition

Accounting Principles II – Traditional Cost Systems

Accounting Principles II – Statement of Cash Flows

Accounting Principles II – Partnerships

Accounting Principles II – Managerial and Cost Accounting Concepts

Accounting Principles II – Long-Term Liabilities

Accounting Principles II – Investments

Accounting Principles II – Incremental Analysis

Accounting Principles II – Flexible Budgets and Standard Costs

Accounting Principles II – Financial Statement Analysis

Company

Explore

Study Tools