SOLUTION MANUAL FOR l l
Financial Accounting Tools for Business Decision Making, 9th Canadian Edition
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Paul D. Kimmel, Jerry J. Weygandt, Jill E. Mitchell, Barbara Trenholm, Wayne Irvine,
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Christopher D. Burnley
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Chapter 1-14 l
CHAPTER 1 l
THE PURPOSE AND USE OF FINANCIAL STATEMENTS
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LEARNING OBJECTIVES l
1. Identify the uses and users of accounting information.
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2. Describe the primary forms of business organization.
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3. Explain the three main types of business activity.
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4. Describe the purpose and content of each of the financial statements.
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SUMMARY OF QUESTIONS BY LEARNING OBJECTIVES AND l l l l l l
BLOOM’S TAXONOMY
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Item LO BT Item LO BT Item LO BT Item LO BT Item LO BT
Questions
1. 1 K 7. 2 C 13. 3 C 19. 4 K 25. 4 C
2. 1 C 8. 2 C 14. 3 C 20. 4 K 26. 4 C
3. 1 K 9. 2 C 15. 3 C 21. 4 AP 27. 4 K
4. 1 C 10. 2 C 16. 3 C 22. 4 C 28. 4 C
5. 1 C 11. 2 C 17. 3 C 23. 4 K 29. 4 C
6. 1 C 12. 2 K 18. 3 C 24. 4 C 30. 4 C
Brief Exercises l
1. 1 C 4. 3 C 7. 4 AP 10. 4 C
2. 1 C 5. 3 C 8. 4 K 11. 4 AN
3. 2 K 6. 4 AP 9. 4 K
Exercises
1. 1 C 4. 3 C 7. 4 AN 10. 4 AP 13. 4 AP
2. 2 C 5. 4 K 8. 4 AN 11. 4 AP 14. 4 AN
3. 3 K 6. 4 AP 9. 4 AP 12. 4 AP
Problems: Set A and B l l l l
1. 1 C 3. 3 C 5. 4 AP 7. 4 AP 9. 4 AN
2. 2 C 4. 4 K 6. 4 AN 8. 4 AN 10. 4 AN
Cases
1. 3,4 C 3. 3,4 AN 5. 3,4 AN 7. 4 AN 9 1,3 C
2. 1 C 4. 3,4 AN 6. 1 C 8. 1 E
Solutions Manual 1-1 Chapter 1
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, Legend: The following abbreviations will appear throughout the solutions manual file.
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LO Learning objective l
BT Bloom's Taxonomy l
K Knowledge
C Comprehension
AP Application
AN Analysis
S Synthesis
E Evaluation
Difficulty: Level of difficulty
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S Simple
M Moderate
C Complex
Time: Estimated time to prepare in minutes l l l l l
AACSB Association to Advance Collegiate Schools of Business
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Communication Communication
Ethics Ethics
Analytic Analytic
Tech. Technology
Diversity Diversity
Reflec. Thinking Reflective Thinking
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CPA CM l CPA Canada Competency
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cpa-e001 Ethics Professional and Ethical Behaviour l l l
cpa-e002 PS and DM
l Problem-SolvingandDecision-Making
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cpa-e003 Comm. Communication
cpa-e004 Self-Mgt. Self-Management
cpa-e005 Team & Lead l Teamwork and Leadership
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cpa-t001 Reporting FinancialReporting l
cpa-t002 Stat. & Gov.
l Strategy and Governance
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cpa-t003 Mgt. Accounting
l Management Accounting l
cpa-t004 Audit Audit and Assurance l l
cpa-t005 Finance Finance
cpa-t006 Tax Taxation
Solutions Manual 1-2 Chapter 1
Copyright © 2023 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.
, ANSWERS TO QUESTIONS l l
1. Accounting is the information system that identifies and records the l l l l l l l l l
economic events of an organization, and then communicates them to a wide
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variety of interested users.
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LO 1 BT: K Difficulty: S TIME: 3 min. AACSB: None CPA: cpa-t001 CM: Reporting
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2. (a) l Internal users of accounting information work for the company and l l l l l l l l l
linclude finance directors, marketing managers, human resource l l l l l l
lpersonnel, production supervisors, and company officers. Internal l l l l l l
lusers have access to company information that is not available to
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lexternal users. l
(b) Some external users may be individuals who are employees of the
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company but are not directly involved in managing the company. As a
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result, they do not have access to much information. External users of
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accounting information generally do not work for the company. The
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primary external users are investors and creditors. Other external users
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include labour unions, customers, the Canada Revenue Agency
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(CRA), and securities commissions.
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LO 1 BT: C Difficulty: M TIME: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
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3. Internal users may want the following questions answered:
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• Is there enough cash to purchase a new piece of equipment?
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• What price should we sell our product for to cover costs and
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to maximize net income?
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• How many employees can we afford to hire this year?
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• Which product line is the most profitable? l l l l l l
• How much of a pay raise can the company afford to give me?
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External users may want the following questions answered:
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• Is the company earning enough to give me my required return on
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investment?
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• Will the company be able to repay its debts as the debts come due?
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• Will the company stay in business long enough to service the products I
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buy from it?
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LO 1 BT: K Difficulty: M TIME: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
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Solutions Manual 1-3 Chapter 1
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, 4. Primary users of accounting information include investors and creditors.
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These external users need to make decisions concerning their ongoing
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business relationship with the company. They need to be able to assess the
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company‘s performance and financial health because they intend to start,
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continue, or discontinue having transactions with the company. Other
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decision makers who have specific needs for certain financial information,
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such as the amount of taxes paid by the company, are not considered primary
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users.
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LO 1 BT: C Difficulty: M TIME: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
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5. Decision makers rely on financial statement information and expect the
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accounting information to have been prepared ethically. Without the
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expectation of ethical behaviour, the information presented in the financial
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statements would have no credibility for the users of the accounting
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information. Without credibility, financial statement information would be
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useless to financial statement users.
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LO 1 BT: C Difficulty: M TIME: 5 min. AACSB: None Ethics CPA: cpa-t001 CM: Reporting and Ethics
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6. Descriptive data analytic provides information about what happened. On the l l l l l l l l l
other hand, predictive data analytics helps the organization look into the
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future and gives some visibility into what is likely to happen. Predictive data
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analytics is of the most use to management
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LO 1 BT: C Difficulty: M TIME: 5 min. AACSB: None Ethics CPA: cpa-t001 CM: Reporting and Ethics
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7. (a) Proprietorship: Proprietorships are easier to form (and dissolve) than other
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types of business organizations. They are not taxed as separate entities;
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rather, the proprietor pays personal income tax on the company‘s net income.
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Depending on the circumstances, this may be an advantage or
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disadvantage.
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Disadvantages of a proprietorship include unlimited liability (proprietors are l l l l l l l l
personally liable for all debts of the business) and difficulty in obtaining
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financing compared to other forms of organization. In addition, the life of the
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proprietorship is limited as it is dependent on the willingness and capability of
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the proprietor to continue operations.
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Solutions Manual 1-4 Chapter 1
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