SOLUTION MANUAL
financial accounting tools for business decision
making 10th edition
kimmel, weygandt j
all chapters 1-13
Copyright©JohnWiley&Sons,Inc. SolutionsManual (ForInstructorUseOnly) 1
, CHAPTER1
IntroductiontoFinancialStatements
LearningObjectives
1. Identifytheformsofbusinessorganizationandtheusesofaccountinginformation.
2. Explainthethreeprincipaltypesofbusinessactivity.
3. Describethe fourfinancialstatementsandhowtheyareprepared.
*4. Explainthecareer opportunitiesinaccounting.
ANSWERSTOQUESTIONS
1. Thethreebasicformsofbusinessorganizationsare(1)soleproprietorship,(2)partnership,and
(3)corporation.
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2. Advantagesofacorporationarelimitedliability(stockholdersnotbeingpersonallyliableforcor-
poratedebts),easytransferabilityofownership,andeaseofraisingfunds.Disadvantagesofacorporationareincrease
d taxationandgovernmentregulations.
LO1 BT:K Difficulty:E TOT:1min.AACSB:KnowledgeAICPABC:GovernancePerspective
3. Proprietorshipsandpartnershipsreceivefavorabletaxtreatmentcompared
tocorporationsandareeasiertoformthancorporations.Theyarealsoownercontrolled.Disadvantagesofproprietorship
sandpartnershipsareunlimitedliability(proprietors/partnersarepersonallyliablefor alldebts)
anddifficultyinobtainingfinancingcomparedtocorporations.
LO1 BT:K Difficulty:E TOT:1min.AACSB:KnowledgeAICPABC:GovernancePerspective
4.Yes.Companiescanchooseoneofthehybridbusinessforms,limitedliabilitycorporations(LLCs)orsubchapterScorporations
,whichcombinethetaxadvantagesofpartnershipswiththelimitedliabilityofcorporations.
LO1 BT:K Difficulty:E TOT:1 min.AACSB:KnowledgeAICPABC:GovernancePerspective
5. Yes.Apersoncannotearnaliving,spendmoney,buyoncredit,makeaninvestment,orpaytaxeswithoutreceiving,using,o
rdispensingfinancialinformation.Accountingprovidesfinancialinformationtointerestedusersthroughthe
preparationanddistribution offinancialstatements.
LO1 BT:C Difficulty:E TOT:1min.AACSB:KnowledgeAICPAAC:Reporting
6. Internalusersaremanagerswhoplan,organize,andrunabusiness.Toassistmanagement,accountingprovidestimelyint
ernalreports.Examplesincludefinancialcomparisonsofoperating
2 Copyright©JohnWiley&Sons,Inc. SolutionsManual (ForInstructorUseOnly)
, alternatives,projectionsofincomefromnewsalescampaigns,forecastsofcashneedsforthenextyear,andfinancialsta
tements.
LO1 BT:C Difficulty:E TOT:1min.AACSB:KnowledgeAICPAAC:Reporting
7. Externalusersarethoseoutsidethebusinesswhohaveeitherapresentorpotentialdirectfinancialinterest(investorsandc
reditors) oranindirectfinancialinterest(taxingauthorities,regu-latoryagencies,labor
unions,customers,andeconomicplanners).
LO1 BT:C Difficulty:E TOT:1min.AACSB:KnowledgeAICPAAC:Reporting
8.Thefourmostcommontypesofdataanalyticsandthebasicquestioneachaddressesare:Descriptive(Whathappened?),Dia
gnostic(Whydidithappen?),Predictive(Whatislikelytohappen?),andPrescriptive(Whatshouldwe doaboutit?).
LO1 BT:K Difficulty:E TOT:2min.AACSB:nowledgeAICPAAC:MeasurementAnalysisandInterpretation
QuestionsChapter1(Continued)
9.Thethreetypesofbusinessactivitiesarefinancingactivities,investingactivities,andoperatingactivities.Financingactivitiesi
ncludeborrowingmoneyandsellingsharesofstock.Investingactivitiesincludethepurchaseandsaleofproperty,plant,a
ndequipment.Operatingactivitiesincludeselling goods,performingservices, andpurchasing inventory.
LO2 BT:C Difficulty:M TOT:2min.AACSB:KnowledgeAICPAAC:Reporting
10.(a) Incomestatement. (d) Balancesheet.
(b) Balancesheet. (e) Balancesheet.
(c) Incomestatement. (f) Balancesheet.
LO3 BT:K Difficulty:M TOT:2min.AACSB:KnowledgeAICPAAC:Reporting
11. Whenacompanypaysdividends,itreducestheamountofassetsavailabletopaycreditors.Therefore,banksandotherc
reditorsmonitordividendpaymentstoensuretheydonotputacompany’sabilitytomake debtpaymentsatrisk.
LO3 BT:C Difficulty:M TOT:2min.AACSB:KnowledgeAICPAAC:MeasurementAnallysisandInterpretation
12. Yes.Netincomedoesappearontheincomestatement—
itistheresultofsubtractingexpensesfromrevenues.Inaddition,netincomeappearsintheretainedearningsstatement—
itisshownasanadditiontothebeginning-of-
periodretainedearnings.Indirectly,thenetincomeofacompanyisalsoincludedinthebalancesheet.Itisincludedintheret
ainedearningsaccountwhichappearsinthestockholders’equitysectionofthebalancesheet.
LO3 BT:C Difficulty:E TOT:1min.AACSB:KnowledgeAICPAAC:Reporting
13. Theprimarypurposeofthestatementofcashflowsistoprovidefinancialinformationaboutthecashreceiptsandcashpay
mentsofabusinessforaspecificperiod oftime.
LO3 BT:K Difficulty:E TOT:1min.AACSB:KnowledgeAICPAAC:Reporting
Copyright©JohnWiley&Sons,Inc. SolutionsManual (ForInstructorUseOnly) 3
, 14. Thethreecategoriesofthestatementofcashflowsareoperatingactivities,investingactivities,andfinancingactivities.Th
ecategorieswerechosenbecausetheyrepresentthethreeprincipaltypesofbusinessactivities.
LO3 BT:C Difficulty:E TOT:1min.AACSB:KnowledgeAICPAAC:Reporting
15. Retainedearningsisthenetincomeretainedinacorporation.Retainedearningsisincreasedbynetincome
andisdecreasedbydividendsandanetloss.
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16. ThebasicaccountingequationisAssets=Liabilities+Stockholders’Equity.
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17. (a)Assetsareresourcesownedbyabusiness.Liabilitiesareamountsowedtocreditors.Putmoresimply,liabilitiesareexisting
debtsandobligations.Stockholders’equityistheownershipclaimonnetassets.
(b) The items that affectstockholders’ equityareissuance of common stock and thecomponents
ofretainedearnings(dividends,revenues,andexpenses).
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18. Theliabilitiesare(b) Accountspayableand(g)Salariesandwagespayable.
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19. (a)
Netincomefromtheincomestatementisreportedasanincreasetoretainedearningsontheretainedearningsst
atement.
(b) Theendingamountontheretainedearningsstatementisreportedastheretainedearningsamountonthebalances
heet.
(c) Theendingamountonthestatementofcashflowsisreportedasthecashamountonthebalancesheet.
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20. Thepurposeofthemanagementdiscussionandanalysissectionistoprovidemanagement’sviewsonitsabilitytopaysho
rt-termobligations,itsabilitytofundoperationsandexpansion,anditsresultsofoperations.The MD&Asectionisa
requiredpartoftheannualreport.
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21. Anunqualifiedopinionshowsthat,intheopinionofanindependentauditor,thefinancialstate-
mentshavebeenpresentedfairly,inconformitywithgenerallyacceptedaccountingprinciples.Thisgivesinvestorsmore
confidencethattheycanrelyonthefiguresreportedinthefinancialstatements.
LO3 BT:C Difficulty:E TOT:2min.AACSB:KnowledgeAICPAAC:Reporting
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