Solution Manual for Financial Accounting Tools For Business
Decision Making, 10th Edition, Paul D. Kimmel, Jerry J.
Weygandt
sole proprietorship - ANSWER:a business owned by one person
Pros of a sole proprietorship - ANSWER:•It is simple to set up
• It gives you control over the business, and
• More favorable tax treatment than corporations
Cons of forming a sole proprietorship - ANSWER:The proprietor is personally liable
for all debts and legal obligations of the business
Partnership - ANSWER:A business owned by two or more persons associated as
partners.
Reason for setting up a partnership - ANSWER:One individual does not have enough
economic resources to initiate or expand the business.
Pros of forming a partnership - ANSWER:• Partners sometimes bring unique skills or
resources to the partnership
• More favorable tax treatment than corporations
Cons of forming a partnership - ANSWER:Partners are personally liable for all debts
and legal obligations of the business
Corporation - ANSWER:A business organized as a separate legal entity owned by
stockholders
Pros of forming a corporation - ANSWER:• Shares of stock are easy to sell (transfer
ownership)
• Individuals can become stock holders by investing relatively small amounts of
money
• It is easier for corporations to raise funds
• Corporate stockholders have no personal legal liability
Cons of forming a corporation - ANSWER:• Corporate stockholders generally pay
higher taxes
What is the purpose of financial information? - ANSWER:To provide inputs for
decision-making.
What is accounting? - ANSWER:The information system that identifies, records and
communicates the economic events of an organization to interested users.
, Who are the users of financial information? - ANSWER:They can be divided broadly
into two groups: internal users and external users.
Who are internal users? - ANSWER:Managers who plan, organize and run a business.
What information does accounting provide to its internal users? -
ANSWER:Accounting provides internal reports, such as financial comparisons of
operating alternatives, projections of income from new sales campaigns, and
forecasts of cash needs for the next year.
Who are the external users? - ANSWER:• Investors
• Creditors
• Taxing authorities
• Customers
• Labour unions
• Regulatory agencies
Why do investors use accounting information? - ANSWER:To make decisions to buy,
hold, or sell stocks.
Why do creditors use accounting information? - ANSWER:To evaluate the risks of
selling on credit or lending money.
Why do taxing authorities use accounting information? - ANSWER:To know whether
the company complies with the tax laws.
Why do customers use accounting information? - ANSWER:To know whether a
company will continue to honor product warranties and otherwise support its
product line.
Why do labour unions use accounting information? - ANSWER:To know whether the
owners have the ability to pay increased wages and benefits.
Why do regulatory agencies use accounting information? - ANSWER:To know
whether the company is operating within prescribed rules.
What are the steps to solving an ethical dilemma? - ANSWER:• Recognize an ethical
situation and the ethical issues involved
• Identify end analyze the principal elements in the situation
• Identify the alternatives and weigh the impact of each alternative on various
stakeholders
What are the three principal types of business activity? - ANSWER:Financing,
investing, and operating.
What are financing activities? - ANSWER:Transactions with creditors or investors
used to fund either company operations or expansions.
Decision Making, 10th Edition, Paul D. Kimmel, Jerry J.
Weygandt
sole proprietorship - ANSWER:a business owned by one person
Pros of a sole proprietorship - ANSWER:•It is simple to set up
• It gives you control over the business, and
• More favorable tax treatment than corporations
Cons of forming a sole proprietorship - ANSWER:The proprietor is personally liable
for all debts and legal obligations of the business
Partnership - ANSWER:A business owned by two or more persons associated as
partners.
Reason for setting up a partnership - ANSWER:One individual does not have enough
economic resources to initiate or expand the business.
Pros of forming a partnership - ANSWER:• Partners sometimes bring unique skills or
resources to the partnership
• More favorable tax treatment than corporations
Cons of forming a partnership - ANSWER:Partners are personally liable for all debts
and legal obligations of the business
Corporation - ANSWER:A business organized as a separate legal entity owned by
stockholders
Pros of forming a corporation - ANSWER:• Shares of stock are easy to sell (transfer
ownership)
• Individuals can become stock holders by investing relatively small amounts of
money
• It is easier for corporations to raise funds
• Corporate stockholders have no personal legal liability
Cons of forming a corporation - ANSWER:• Corporate stockholders generally pay
higher taxes
What is the purpose of financial information? - ANSWER:To provide inputs for
decision-making.
What is accounting? - ANSWER:The information system that identifies, records and
communicates the economic events of an organization to interested users.
, Who are the users of financial information? - ANSWER:They can be divided broadly
into two groups: internal users and external users.
Who are internal users? - ANSWER:Managers who plan, organize and run a business.
What information does accounting provide to its internal users? -
ANSWER:Accounting provides internal reports, such as financial comparisons of
operating alternatives, projections of income from new sales campaigns, and
forecasts of cash needs for the next year.
Who are the external users? - ANSWER:• Investors
• Creditors
• Taxing authorities
• Customers
• Labour unions
• Regulatory agencies
Why do investors use accounting information? - ANSWER:To make decisions to buy,
hold, or sell stocks.
Why do creditors use accounting information? - ANSWER:To evaluate the risks of
selling on credit or lending money.
Why do taxing authorities use accounting information? - ANSWER:To know whether
the company complies with the tax laws.
Why do customers use accounting information? - ANSWER:To know whether a
company will continue to honor product warranties and otherwise support its
product line.
Why do labour unions use accounting information? - ANSWER:To know whether the
owners have the ability to pay increased wages and benefits.
Why do regulatory agencies use accounting information? - ANSWER:To know
whether the company is operating within prescribed rules.
What are the steps to solving an ethical dilemma? - ANSWER:• Recognize an ethical
situation and the ethical issues involved
• Identify end analyze the principal elements in the situation
• Identify the alternatives and weigh the impact of each alternative on various
stakeholders
What are the three principal types of business activity? - ANSWER:Financing,
investing, and operating.
What are financing activities? - ANSWER:Transactions with creditors or investors
used to fund either company operations or expansions.
