Financial and Managerial
Accounting, 5th Edition
by Paul D. Kimmel
Complete Chapter Solutions Manual
are included (Ch 1 to 25)
** Immediate Download
** Swift Response
** All Chapters included
** Cases solutions included
** Exercises and Problems
** Challenge Exercise Solutions
** Excel File Solutions
, CHAPTER 1
Accounting in Action
Learning Objectives
1. Identify the activities and users associated with accounting.
2. Explain the building blocks of accounting: ethics, principles, and assumptions.
3. State the accounting equation and define its components.
4. Analyze the effects of business transactions on the accounting equation.
5. Describe the four financial statements and how they are prepared.
*6. Explain the career opportunities in accounting.
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, ANSWERS TO QUESTIONS
1. True. Virtually every organization and person in our society uses accounting information. Businesses,
investors, creditors, government agencies, and not-for-profit organizations must use accounting
information to operate effectively.
LO 1, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA FC: Reporting, IMA: Reporting
2. The four most common types of data analytics and the basic question each addresses are: Descriptive
(What happened?), Diagnostic (Why did it happen?), Predictive (What is likely to happen?), and
Prescriptive (What should we do about it?).
LO 1 BT: K Difficulty: Easy TOT: 2 min. AACSB: None AICPA FC: Measurement , IMA: Performance Measurement
3. Accounting is the process of identifying, recording, and communicating the economic events of an
organization to interested users of the information. The first activity of the accounting process is 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
information 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
accountant’s ability and responsibility to analyze and interpret the reported information.
LO 1, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA FC: Reporting, IMA: Reporting
4. (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 alternatives, projections of income from new sales campaigns, and forecasts of cash
needs for the next year.
LO 1, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA FC: Reporting, IMA: Reporting
5. (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.
LO 1, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA FC: Reporting, IMA: Reporting
6. False. 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 process of identifying,
recording, and communicating economic events.
LO 1, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA FC: Reporting, IMA: Reporting
7. Harper Travel Agency should report the land at $85,000 on its December 31, 2027 balance sheet. This is
true not only at the time the land is purchased, but also over the time the land is held. In determining
which measurement principle to use (historical cost or fair value) companies weigh the factual nature of
cost figures versus the relevance of fair value. In general, companies use historical cost. Only in situations
where assets are actively traded do companies apply the fair value principle.
LO 2, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA FC: Measurement, Analysis and Interpretation IMA: Reporting
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, Questions Chapter 1 (Continued)
8. 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.
LO 2, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA FC: Measurement IMA: Reporting
9. The economic entity assumption requires that the activities of the entity be kept separate and distinct
from the activities of its owners and all other economic entities.
LO 2, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA FC: Measurement IMA: Reporting
10. The three basic forms of business organizations are (1) proprietorship, (2) partnership, and
(3) corporation.
LO 2, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA FC: Reporting, IMA: Reporting
11. One of the advantages Juana would enjoy is that ownership of a corporation is represented 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 corporation, the corporation enjoys an unlimited life.
LO 2, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA FC: Reporting, IMA: Reporting
12. The basic accounting equation is Assets = Liabilities + Stockholders’ Equity.
LO 3, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA FC: Reporting, IMA: Reporting
13. (a) Assets are resources owned by a business. Liabilities are creditor claims against assets—that is,
existing debts and obligations. Stockholders’ equity is the ownership claim on total assets.
(b) Stockholders’ equity is affected by stockholders’ investments, dividends, revenues, and expenses.
LO 3, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA FC: Reporting, IMA: Reporting
14. The liabilities are (b) Accounts Payable and (g) Salaries and Wages Payable.
LO 3, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA FC: Reporting, IMA: Reporting
15. 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 account is a specific example.
LO 3, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA FC: Reporting, IMA: Reporting
16. Business transactions are the economic events of the enterprise recorded by accountants because they
affect the basic accounting equation.
(a) No, the death of the president of the company is not a business transaction as it does not affect the
basic accounting equation.
(b) Yes, supplies purchased on account is a business transaction as it affects the basic accounting
equation.
(c) No, an employee being fired is not a business transaction as it does not affect the basic accounting
equation.
LO 4, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: None, AICPA FC: Reporting, IMA: Reporting
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