SolutionlManuallforlAccountinglPrinciplesl14thlEditionlbylJerrylJ.llWeygandt
,lPaullD.lKimmellAlllChaptersl
CompletelGuidelA+
, CHAPTER 1 l
AccountinglinlAction
LearninglObjectives
1. Identifylthelactivitieslandluserslassociatedlwithlaccounting.
2. Explainlthelbuildinglblocksloflaccounting:lethics,lprinciples,landl assumpti
ons.
3. Statelthelaccountinglequation,landldefinelitslcomponents.
4. Analyzeltheleffectsloflbusinessltransactionslonlthelaccountinglequation.
5. Describelthelfourlfinanciallstatementslandlhowltheylarelprepared.
*6. Explainlthelcareerlopportunitieslinlaccounting.
*Note:l Alll asteriskedl Questions,l Briefl Exercises,l Exercises,l andl Problemsl relatel tol materiall containedlinl
thelappendixl tolthelchapter.
, ANSWERSlTOlQUESTIONS
1. Thisl isl true.l Virtuallyl everyl organizationl andl personl inl ourl societyl usesl accountingl information.l Businesses,lin
vestors,lcreditors,lgovernmentlagencies,landl not-for-
profitlorganizationslmustlusel accountinglinformationl toloperateleffectively.
LO1lBT:lCl Difficulty:lEasyl TOT:l2lmin.llAACSB:lNonellAICPAlFC:lReporting
2. Accountingl isl thel processl ofl identifying,l recording,l andl communicatingl thel economicl eventsl ofl anl organizationl
tol interestedl usersl ofl thel information.l Thel firstl activityl ofl thel accountingl processl isl tol identifyl economicl eventsl t
hatl arel relevantl tol al particularl business.l Oncel identifiedl andl measured,l thel eventsl arelrecordedl tol providela
l historyl ofl thel financiall activitiesl ofl thel organization.l Recordingl consistsl ofl keepingl al chronologicall diaryl ofl th
esel measuredl eventsl inl anlorderlyl andl systematicl manner.l Thel informationl isl communicatedl throughl thel prep
arationl andl distributionl ofl accountingl reports,l thel mostl commonl ofl whichl arel calledl financiall statements.l Al vit
all elementl inl thel communicationl processl isl thel accountant’sl abilityl andl responsibilityl tol analyzel andl interpret
l thel reportedl information.
LO1lBT:lCl Difficulty:lEasyl TOT:l4lmin.l AACSB:lNonel AICPAlFC:lReporting
3. (a)l Internall usersl arel thosel whol plan,l organize,l andl runl thel businessl andl thereforel arel officersl andl otherldecisi
onlmakers.
(b) Tolassistl management,l manageriallaccountinglprovidesl internallreports.l Examplesl includel financiall comp
arisonslofl operatinglalternatives,l projectionslofl incomelfromlnewlsalesl campaigns,landlforecastslofl cashln
eedslforlthelnextlyear.
LO1l BT:lCl Difficulty:lEasyl TOT:l2lmin.l AACSB:lNonellAICPAlFC:lReporting
4. (a)lInvestorsl(owners)luselaccountinglinformationltolmakeldecisionsltolbuy,lhold,lorlselllowner-
lshipl sharesl ofl alcompany.
(b) Creditorsluselaccountinglinformationltolevaluatelthelrisksloflgrantinglcreditlorllendinglmoney.
LO1lBT:lCl Difficulty:lEasyl TOT:l2lmin.llAACSB:lNonel AICPAlFC:lReporting
5. Thislislfalse.lBookkeepinglusuallylinvolveslonlylthelrecordinglofleconomicleventslandlthereforelisjustl onelpartl oflt
helentirelaccountinglprocess.lAccounting,l onlthel otherl hand,l involvesl thelentirel processl oflidentifying,lrecording,l
andl communicatingleconomiclevents.
LO1lBT:lCl Difficulty:lEasyl TOT:l2lmin.l AACSB:lNonellAICPAlFC:lReporting
6. Bentonl Travell Agencyl shouldl reportl thel landl atl $90,000l onl itsl Decemberl 31,l 2022l balancel sheet.l Thisl isl tru
el notl onlyl atl thel timel thel landl isl purchased,l butl alsol overl thel timel thel landl isl held.l Inl determininglwhichl mea
surementl principlel tol usel(historicall costl orl fairl value)l companiesl weighlthel factuall naturel ofl costl figuresl versusl t
hel relevancel ofl fairl value.l Inl general,l companiesl usel historicall cost.lOnlylinlsituationslwherelassetslarelactivelylt
radedldoll companieslapplylthelfairlvaluelprinciple.
LO2l BT:lCl Difficulty:lEasyl TOT:l4lmin.llAACSB:lNonel AICPAlFC:lReporting
7. Thel monetaryl unitl assumptionl requiresl thatl onlyl transactionl datal thatl canl bel expressedlinltermsl ofl moneyl bel inc
ludedl inl thel accountingl records.l Thisl assumptionl enablesl accountingl tol quantifyl (measure)leconomiclevents.
LO2l BT:lKl Difficulty:lEasyl TOT:l2lmin.llAACSB:lNonel AICPAlFC:lReporting
8. Theleconomiclentitylassumptionlrequiresllthatlthelactivitieslofl thelentitylbelkeptl separatelandl distinctlfromlthelact
ivitieslofl itslownerslandlalllotherleconomiclentities.
LO2lBT:lKl Difficulty:lEasyl TOT:l2lmin.l AACSB:lNonellAICPAlFC:lReporting
, QuestionslChapterl1l(Continued)
9. Thel threel basicl formsllofl businessl organizationsl are:l (1)l proprietorship,l (2)l partnership,l and
(3)l corporation.
LO2l BT:lKl Difficulty:lEasyl TOT:1lmin.l AACSB:lNonellAICPAlFC:lReporting
10. Onelofl thel advantagesl Helenl Rupplwouldl enjoyl isl thatl ownershipl ofl al corporationl isl representedl byl transferab
lel sharesl ofl stock.l Thisl wouldl allowl Helenl tol raisel moneyl easilyl byl sellingl al partl ofl herl ownershipl inl thel com
pany.l Anotherl advantagel isl thatl becausel holdersl ofl thel sharesl (stockholders)l enjoyl limitedlliability;l theylarel
notlpersonallylliablel forl theldebtsl ofl thel corporatelentity.l Also,l becausel ownershipl canl bel transferredl without
l dissolvingl thel corporation,l thel corporationlenjoysl anl unlimitedl life.
LO2l BT:lKl Difficulty:lEasyl TOT:l4lmin.llAACSB:lNonellAICPAlFC:lReporting
11. ThelbasiclaccountinglequationlislAssetsl=lLiabilitiesl+lOwner’slEquity.
LO3lBT:lKl Difficulty:lEasyl TOT:l1lmin.llAACSB:lNonellAICPAlFC:lMeasurement
12. (a)lAssetslarelresourcesl ownedlbylalbusiness.lLiabilitieslarelcreditorlclaimsl againstlassets.lPutl morel simply,l liabil
itiesl arel existingl debtsl andl obligations.l Owner’sl equityl isl thel ownershipl claiml onl totallassets.
(b) Owner’slequitylislaffectedlbylowner’slinvestments,ldrawings,lrevenues,landlexpenses.
LO3lBT:lCl Difficulty:lEasyl TOT:l2lmin.l AACSB:lNonellAICPAlFC:lReporting
13. Thelliabilitieslare:l(b)lAccountslpayablelandl(g)lSalarieslandlwageslpayable.
LO3lBT:lCl Difficulty:lEasyl TOT:l1lmin.l AACSB:lNonellAICPAlFC:lReporting
14. Yes,l al businessl canl enterl intol al transactionl inl whichl onlyl thel leftl sidel ofl thel accountingl equationl isl affected.lAnl
examplelwouldl belaltransactionlwherel anlincreaselinlonelassetlisloffsetl bylal decreaselinl anotherlasset.lAnlincre
aselinlthelEquipmentlaccountlwhichlisloffsetlbylaldecreaselinthelCashlaccountl islalspecificlexample.
LO4lBT:lCl Difficulty:lModeratel TOT:l3lmin.l AACSB:lNonel AICPAlFC:lReporting
15. Businessl transactionsl areltheleconomicl eventsl ofl thel enterprisel recordedl bylaccountantsbecausel theylaffect
l thelbasiclaccountinglequation.
(a) Thel deathlofl thelownerlofl thel companylislnotl albusinessl transactionl aslitldoeslnotlaffectl ofthel component
slofl thelbasiclaccountinglequation.
(b) Suppliesl purchasedl onl accountl isl al businessl transactionl asl itl affectsl thel basicl accountingl equation.
(c) Anllemployeel beingllfiredll isllnotllal businesslltransactionllasllitlldoesllnotllaffectlanyl ofllthel componen
tsloflthelbasiclaccountinglequation.
(d) Alwithdrawalloflcashlbylthelownerlfromlthelbusinesslislalbusinessltransactionlaslitlaffectslthel basiclaccou
ntinglequation.
LO4lBT:lCl Difficulty:lModeratel TOT:l4lmin.l AACSB:lNonel AICPAlFC:lReporting
16. (a) Decreaselassetslandldecreaselowner’slequity.
(b) Increaselassetslandldecreaselassets.
(c) Increaselassetslandlincreaselowner’slequity.
(d) Decreaselassetslandldecreaselliabilities.
LO4lBT:lCl Difficulty:lModeratel TOT:l3lmin.l AACSB:lNonel AICPAlFC:lReporting
,lPaullD.lKimmellAlllChaptersl
CompletelGuidelA+
, CHAPTER 1 l
AccountinglinlAction
LearninglObjectives
1. Identifylthelactivitieslandluserslassociatedlwithlaccounting.
2. Explainlthelbuildinglblocksloflaccounting:lethics,lprinciples,landl assumpti
ons.
3. Statelthelaccountinglequation,landldefinelitslcomponents.
4. Analyzeltheleffectsloflbusinessltransactionslonlthelaccountinglequation.
5. Describelthelfourlfinanciallstatementslandlhowltheylarelprepared.
*6. Explainlthelcareerlopportunitieslinlaccounting.
*Note:l Alll asteriskedl Questions,l Briefl Exercises,l Exercises,l andl Problemsl relatel tol materiall containedlinl
thelappendixl tolthelchapter.
, ANSWERSlTOlQUESTIONS
1. Thisl isl true.l Virtuallyl everyl organizationl andl personl inl ourl societyl usesl accountingl information.l Businesses,lin
vestors,lcreditors,lgovernmentlagencies,landl not-for-
profitlorganizationslmustlusel accountinglinformationl toloperateleffectively.
LO1lBT:lCl Difficulty:lEasyl TOT:l2lmin.llAACSB:lNonellAICPAlFC:lReporting
2. Accountingl isl thel processl ofl identifying,l recording,l andl communicatingl thel economicl eventsl ofl anl organizationl
tol interestedl usersl ofl thel information.l Thel firstl activityl ofl thel accountingl processl isl tol identifyl economicl eventsl t
hatl arel relevantl tol al particularl business.l Oncel identifiedl andl measured,l thel eventsl arelrecordedl tol providela
l historyl ofl thel financiall activitiesl ofl thel organization.l Recordingl consistsl ofl keepingl al chronologicall diaryl ofl th
esel measuredl eventsl inl anlorderlyl andl systematicl manner.l Thel informationl isl communicatedl throughl thel prep
arationl andl distributionl ofl accountingl reports,l thel mostl commonl ofl whichl arel calledl financiall statements.l Al vit
all elementl inl thel communicationl processl isl thel accountant’sl abilityl andl responsibilityl tol analyzel andl interpret
l thel reportedl information.
LO1lBT:lCl Difficulty:lEasyl TOT:l4lmin.l AACSB:lNonel AICPAlFC:lReporting
3. (a)l Internall usersl arel thosel whol plan,l organize,l andl runl thel businessl andl thereforel arel officersl andl otherldecisi
onlmakers.
(b) Tolassistl management,l manageriallaccountinglprovidesl internallreports.l Examplesl includel financiall comp
arisonslofl operatinglalternatives,l projectionslofl incomelfromlnewlsalesl campaigns,landlforecastslofl cashln
eedslforlthelnextlyear.
LO1l BT:lCl Difficulty:lEasyl TOT:l2lmin.l AACSB:lNonellAICPAlFC:lReporting
4. (a)lInvestorsl(owners)luselaccountinglinformationltolmakeldecisionsltolbuy,lhold,lorlselllowner-
lshipl sharesl ofl alcompany.
(b) Creditorsluselaccountinglinformationltolevaluatelthelrisksloflgrantinglcreditlorllendinglmoney.
LO1lBT:lCl Difficulty:lEasyl TOT:l2lmin.llAACSB:lNonel AICPAlFC:lReporting
5. Thislislfalse.lBookkeepinglusuallylinvolveslonlylthelrecordinglofleconomicleventslandlthereforelisjustl onelpartl oflt
helentirelaccountinglprocess.lAccounting,l onlthel otherl hand,l involvesl thelentirel processl oflidentifying,lrecording,l
andl communicatingleconomiclevents.
LO1lBT:lCl Difficulty:lEasyl TOT:l2lmin.l AACSB:lNonellAICPAlFC:lReporting
6. Bentonl Travell Agencyl shouldl reportl thel landl atl $90,000l onl itsl Decemberl 31,l 2022l balancel sheet.l Thisl isl tru
el notl onlyl atl thel timel thel landl isl purchased,l butl alsol overl thel timel thel landl isl held.l Inl determininglwhichl mea
surementl principlel tol usel(historicall costl orl fairl value)l companiesl weighlthel factuall naturel ofl costl figuresl versusl t
hel relevancel ofl fairl value.l Inl general,l companiesl usel historicall cost.lOnlylinlsituationslwherelassetslarelactivelylt
radedldoll companieslapplylthelfairlvaluelprinciple.
LO2l BT:lCl Difficulty:lEasyl TOT:l4lmin.llAACSB:lNonel AICPAlFC:lReporting
7. Thel monetaryl unitl assumptionl requiresl thatl onlyl transactionl datal thatl canl bel expressedlinltermsl ofl moneyl bel inc
ludedl inl thel accountingl records.l Thisl assumptionl enablesl accountingl tol quantifyl (measure)leconomiclevents.
LO2l BT:lKl Difficulty:lEasyl TOT:l2lmin.llAACSB:lNonel AICPAlFC:lReporting
8. Theleconomiclentitylassumptionlrequiresllthatlthelactivitieslofl thelentitylbelkeptl separatelandl distinctlfromlthelact
ivitieslofl itslownerslandlalllotherleconomiclentities.
LO2lBT:lKl Difficulty:lEasyl TOT:l2lmin.l AACSB:lNonellAICPAlFC:lReporting
, QuestionslChapterl1l(Continued)
9. Thel threel basicl formsllofl businessl organizationsl are:l (1)l proprietorship,l (2)l partnership,l and
(3)l corporation.
LO2l BT:lKl Difficulty:lEasyl TOT:1lmin.l AACSB:lNonellAICPAlFC:lReporting
10. Onelofl thel advantagesl Helenl Rupplwouldl enjoyl isl thatl ownershipl ofl al corporationl isl representedl byl transferab
lel sharesl ofl stock.l Thisl wouldl allowl Helenl tol raisel moneyl easilyl byl sellingl al partl ofl herl ownershipl inl thel com
pany.l Anotherl advantagel isl thatl becausel holdersl ofl thel sharesl (stockholders)l enjoyl limitedlliability;l theylarel
notlpersonallylliablel forl theldebtsl ofl thel corporatelentity.l Also,l becausel ownershipl canl bel transferredl without
l dissolvingl thel corporation,l thel corporationlenjoysl anl unlimitedl life.
LO2l BT:lKl Difficulty:lEasyl TOT:l4lmin.llAACSB:lNonellAICPAlFC:lReporting
11. ThelbasiclaccountinglequationlislAssetsl=lLiabilitiesl+lOwner’slEquity.
LO3lBT:lKl Difficulty:lEasyl TOT:l1lmin.llAACSB:lNonellAICPAlFC:lMeasurement
12. (a)lAssetslarelresourcesl ownedlbylalbusiness.lLiabilitieslarelcreditorlclaimsl againstlassets.lPutl morel simply,l liabil
itiesl arel existingl debtsl andl obligations.l Owner’sl equityl isl thel ownershipl claiml onl totallassets.
(b) Owner’slequitylislaffectedlbylowner’slinvestments,ldrawings,lrevenues,landlexpenses.
LO3lBT:lCl Difficulty:lEasyl TOT:l2lmin.l AACSB:lNonellAICPAlFC:lReporting
13. Thelliabilitieslare:l(b)lAccountslpayablelandl(g)lSalarieslandlwageslpayable.
LO3lBT:lCl Difficulty:lEasyl TOT:l1lmin.l AACSB:lNonellAICPAlFC:lReporting
14. Yes,l al businessl canl enterl intol al transactionl inl whichl onlyl thel leftl sidel ofl thel accountingl equationl isl affected.lAnl
examplelwouldl belaltransactionlwherel anlincreaselinlonelassetlisloffsetl bylal decreaselinl anotherlasset.lAnlincre
aselinlthelEquipmentlaccountlwhichlisloffsetlbylaldecreaselinthelCashlaccountl islalspecificlexample.
LO4lBT:lCl Difficulty:lModeratel TOT:l3lmin.l AACSB:lNonel AICPAlFC:lReporting
15. Businessl transactionsl areltheleconomicl eventsl ofl thel enterprisel recordedl bylaccountantsbecausel theylaffect
l thelbasiclaccountinglequation.
(a) Thel deathlofl thelownerlofl thel companylislnotl albusinessl transactionl aslitldoeslnotlaffectl ofthel component
slofl thelbasiclaccountinglequation.
(b) Suppliesl purchasedl onl accountl isl al businessl transactionl asl itl affectsl thel basicl accountingl equation.
(c) Anllemployeel beingllfiredll isllnotllal businesslltransactionllasllitlldoesllnotllaffectlanyl ofllthel componen
tsloflthelbasiclaccountinglequation.
(d) Alwithdrawalloflcashlbylthelownerlfromlthelbusinesslislalbusinessltransactionlaslitlaffectslthel basiclaccou
ntinglequation.
LO4lBT:lCl Difficulty:lModeratel TOT:l4lmin.l AACSB:lNonel AICPAlFC:lReporting
16. (a) Decreaselassetslandldecreaselowner’slequity.
(b) Increaselassetslandldecreaselassets.
(c) Increaselassetslandlincreaselowner’slequity.
(d) Decreaselassetslandldecreaselliabilities.
LO4lBT:lCl Difficulty:lModeratel TOT:l3lmin.l AACSB:lNonel AICPAlFC:lReporting
