SOLUTION MANUAL FOR
ACCOUNTING PRINCIPLES, VOLUME 1, 10TH CANADIAN EDITION JERRY
J. WEYGANDT, PAUL D. KIMMEL, JILL E. MITCHELL, VALERIE WARREN,
LORI NOVAK
CHAPTER 1-10
CHAPTER 1
Accounting in Action
IntroductionExams serve as a fundamental tool in evaluating a student's understanding of a subject, particularly in fields as diverse as business, law, and mathematics. These
disciplines not only have distinct areas of focus but also require unique approaches to assessment, with each exam testing different cognitive abilities, analytical skills, and subject-
specific knowledge. In this essay, we will explore the nature of exams in business, law, and mathematics, their format, and how they evaluate students’ comprehension and
application of core concepts. We will also discuss the similarities and differences in these exams and how they prepare students for their respective
careers.________________________________________1. Business Exams1.1. Overview of Business EducationBusiness education prepares students for leadership and management
roles in various industries. It focuses on critical thinking, decision-making, problem-solving, and understanding organizational processes. A typical business program might cover
topics like accounting, finance, marketing, management, economics, entrepreneurship, and international business.1.2. Structure of Business ExamsBusiness exams are often a mix of
theoretical knowledge and practical application. Depending on the subject area, these exams can vary significantly in format. Common types of business exams include:Multiple
Choice Questions (MCQs): These are frequently used to assess students’ understanding of business terminology, theories, and principles.Case Studies: A staple of business exams,
case studies present students with real-world business scenarios and ask them to apply their knowledge to solve complex problems. Case studies evaluate students' ability to think
critically and make strategic decisions.Essay/Short Answer Questions: These types of questions test the student’s ability to explain and analyze business concepts in a detailed and
coherent manner.1.3. Skills Tested in Business ExamsCritical Thinking and Problem-Solving: Business exams often include case studies that
ANSWERS TO QUESTIONS
1. Yes. Accounting is the financial information system that provides useful
financial information to every person who owns and uses economic
resources or otherwise engages in economic activity.
LO 1 BT: C Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
2. Internal users are those who plan, organize, and run businesses and
include managers, supervisors, directors, and company officers. External
users work for other organizations but have reasons to be interested in the
company’s financial position and performance, and include current or
potential investors (owners), and creditors.
Internal users may want answers to several types of questions. For
example, the finance department wants to know if there is enough cash to
pay the bills. The marketing department wants to know what price the
business should use in selling its products to maximize profits. The human
resources department wants to know how many people the business can
afford to hire. The production department wants to know which product
lines make the business the most profit.
External users may want answers to several types of questions. For
example, investors want to know if the company is earning enough to give
them a return on their investment. Creditors want to know if the company
is able to pay its debts as they come due. Labour unions want to know
whether the owners can afford to pay increased wages and benefits.
Customers are interested in whether a company will continue to honour its
product warranties and support its product lines. Taxing authorities want to
know whether the company respects the tax laws. Regulatory agencies
want to know whether the company is respecting established rules.
,LO 1 BT: C Difficulty: M Time: 15 min. AACSB: None CPA: cpa-t001 CM: Reporting
3. The main objective of financial reporting is to provide useful information to
investors and creditors (external users) to make decisions about a
business. Users may be potential investors who need to decide if they
wish to invest in the business or they may be creditors deciding if they
wish to lend money to the business. These users want to know if the
business is running successfully and can generate cash and earn a profit.
LO 1 BT: C Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
QUESTIONS (Continued)
4. Proprietorships, partnerships, and corporations are the three main forms of
business organizations. The main difference among these three forms is
the size of the business. Since a proprietorship is a business owned by
one person, it has limited resources. The size of the business is typically
small and the life of the business is limited to the life of the owner. The size
of businesses can expand in the case of a partnership as more owners are
involved in the day-to-day operations of the business. In order to achieve a
large size, with a diverse group of owners, the corporate form is used to
have easy transferability of the ownership through the issuance of shares.
Another important difference is that the corporation is a separate legal
entity and pays income taxes. In addition, the corporation is the only form
where owners have limited liability with respect to the business. The
following are the main characteristics of each form:
a. A proprietorship is a private business with one owner who has
unlimited liability for the business. The proprietorship has a limited life
tied to the life of the owner. There is transparency between the owner
and the business. Ultimately, the owner is personally responsible to
pay tax on the profit of the business.
b. A partnership has essentially the same characteristics as a
proprietorship except that in a partnership, there is more than one
owner. Partnerships are often used to organize service-type
businesses, including professional practices.
c. For corporations, the owners are one or more shareholders who
enjoy limited liability. The corporation pays income taxes and can
have an indefinite live since its ownership units, in the form of shares,
are easily transferred to other owners.
LO 2 BT: K Difficulty: M Time: 15 min. AACSB: None CPA: cpa-t001 CM: Reporting
5. Ethics is a fundamental business concept. If accountants do not have a
high ethical standard, the information they produce will not have any
credibility.
Ethics are important to statement users because it provides them comfort
, that the financial information they are using is credible and reliable.
LO 3 BT: C Difficulty: S Time: 5 min. AACSB: Ethics CPA: cpa-t001 cpa-e001 CM: Reporting
and Ethics
QUESTIONS (Continued)
6. The users of financial information of publicly accountable companies have
different needs than the users of financial information of private
companies. Publicly traded corporations are required to present financial
information using accounting rules that are consistent with those used
globally. To do this, public traded companies need to follow International
Financial Reporting Standards (IFRS). Doing so helps Canadian
companies compete in a global market. But following this set of policies
and standards is often not essential or cost effective for privately owned
businesses. The users of private company financial statements often do
not require the extensive measurements and disclosures required by IFRS
and thus private companies may report under Accounting Standards for
Private Enterprises (ASPE).
LO 3 BT: K Difficulty: M Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting
7. The reporting entity concept states that economic events can be identified
with a particular unit of accountability. This concept requires that the
activities of the entity be kept separate and distinct from the activities of its
owners and all other economic entities.
LO 3 BT: K Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
8. Accounting information has relevance if it makes a difference in a decision.
Faithful representation shows the economic reality of events rather than
just their legal form. Faithful representation is achieved if the information is
complete, neutral, and free from material error. Complete information
includes all information necessary to show the economic reality of the
transaction. Accounting information is neutral if it is free from bias intended
to attain a predetermined result or encourage a particular behaviour .
LO 3 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
9. Historical cost represents the amount paid in a transaction. The fair value
of an asset is generally the amount an asset could be sold for in the
market. On the date of purchase, fair value and cost are the same. As time
progresses, the fair value changes depending on the nature of the asset.
LO 3 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
10. In order for an event to be recognized in the accounting records, the event
must change the entity’s financial position. Examples of events that are not
transactions include hiring of employees and signing a lease for premises.
, LO 3 BT: C Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
QUESTIONS (Continued)
11. The monetary unit concept states that only transaction data that can be
expressed as an amount of money may be included in the accounting
IntroductionExams serve as a fundamental tool in evaluating a student's understanding of a subject, particularly in fields as diverse as business, law, and mathematics. These
disciplines not only have distinct areas of focus but also require unique approaches to assessment, with each exam testing different cognitive abilities, analytical skills, and
subject-specific knowledge. In this essay, we will explore the nature of exams in business, law, and mathematics, their format, and how they evaluate students’
comprehension and application of core concepts. We will also discuss the similarities and differences in these exams and how they prepare students for their respective
careers.________________________________________1. Business Exams1.1. Overview of Business EducationBusiness education prepares students for leadership
and management roles in various industries. It focuses on critical thinking, decision-making, problem-solving, and understanding organizational processes. A typical
business program might cover topics like accounting, finance, marketing, management, economics, entrepreneurship, and international business.1.2. Structure of Business
ExamsBusiness exams are often a mix of theoretical knowledge and practical application. Depending on the subject area, these exams can vary significantly in format.
Common types of business exams include:Multiple Choice Questions (MCQs): These are frequently used to assess students’ understanding of business terminology,
theories, and principles.Case Studies: A staple of business exams, case studies present students with real-world business scenarios and ask them to apply their
knowledge to solve complex problems. Case studies evaluate students' ability to think critically and make strategic decisions.Essay/Short Answer Questions: These types
of questions test the student’s ability to explain and analyze business concepts in a detailed and coherent manner.1.3. Skills Tested in Business ExamsCritical Thinking
and Problem-Solving: Business exams often include case studies that challenge students to apply theoretical knowledge to real-life situations. These tests assess
decision-making skills, as well as the ability to evaluate various business alternatives.Quantitative Analysis: For subjects like finance or economics, business exams often
require students to perform calculations and interpret data. The ability to analyze financial statements, project revenues, and manage budgets is essential.Communication
and Writing Skills: Business exams may require students to present ideas clearly and concisely. Students must convey complex concepts in a way that demonstrates their
understanding of business principles.1.4. Preparing for Business ExamsPreparing for business exams involves mastering both conceptual understanding and practical
application. Students are encouraged to study theories and frameworks but also to keep up-to-date with current business trends. Case studies from leading businesses
can be helpful, as they illustrate how business concepts are applied in real-world scenarios. Group discussions and practicing sample case studies can aid in refining
analytical skills.________________________________________2. Law Exams2.1. Overview of Law EducationLaw education provides students with the knowledge of
legal principles, case law, legal frameworks, and ethical issues. It prepares students for legal practice, with specializations that may include constitutional law, criminal law,
corporate law, human rights law, or intellectual property law.2.2. Structure of Law ExamsLaw exams typically have a more structured format compared to business exams,
often requiring students to demonstrate knowledge of legal statutes, case law, and their ability to apply legal reasoning. Common types of law exams
records. Consequently, information that cannot be objectively measured in dollars cannot
be included as transactions of the business. It is also assumed that the monetary unit
is stable with respect to the value over several years. In other words, inflation is
ignored.
LO 3 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
12. The basic accounting equation is Assets = Liabilities + Owner's Equity and
the expanded accounting equation is Assets = Liabilities + Owner's Capital
– Owner’s Drawings + Revenue − Expenses. The equation is the basis for
recording and summarizing all the economic events and transactions of a
business.
LO 4 BT: K Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting
13. a. Assets are resources controlled by a business, as a result of past
events, and from which future economic benefits (like cash) have the
potential to flow into the business. Liabilities are existing obligations,
arising from past events, the settlement of which will include an
outflow of economic benefits (such as cash or services) Put more
simply, liabilities are existing debts and obligations. Owner's equity is
the owner’s claim on the residual assets of the company, which is the
assets in a business after deducting liabilities.
b. Revenues and investments by the owner increase owner's equity.
Drawings and expenses decrease owner’s equity.
LO 4 BT: K Difficulty: M Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting
14. Accounts Receivable represent amounts owed to the business by its
customers for services performed or goods provided, but for which
