Horngren’s Accounting 11th Edition TEST BANK A
b b b b b b
ND SOLUTIONS MANUAL 2025 Miller-
b b b bb
Nobles Mattison Matsumura
b b b
Chapter 1 b b
Accounting and the Business Environment
b b b b b
b
Review Questions
b b
b
1. Accountingbisbthebinformationbsystembthatbmeasuresbbusinessbactivities,bprocessesbthebinformationbint
obreports,bandbcommunicatesbthebresultsbtobdecisionbmakers.bAccountingbisbtheblanguagebofbbusiness.bb
b
2. Financialbaccountingbprovidesbinformationbforbexternalbdecisionbmakers,bsuchbasboutsidebinvestors,ble
nders,bcustomers,bandbthebfederalbgovernment.bbManagerialbaccountingbfocusesbonbinformationbforbint
ernalbdecisionbmakers,bsuchbasbthebcompany’sbmanagersbandbemployees.b
b
3. Individualsbusebaccountingbinformationbtobhelpbthembmanagebtheirbmoney,bevaluatebabnewbjob,bandbbe
tterbdecidebwhetherbtheybcanbaffordbtobmakebabnewbpurchase.bbBusinessbownersbusebaccountingbinform
ationbtobsetbgoals,bmeasurebprogressbtowardbthosebgoals,bandbmakebadjustmentsbwhenbneeded.bbInvesto
rsbusebaccountingbinformationbtobhelpbthembdecidebwhetherborbnotbabcompanybisbabgoodbinvestmentban
dboncebtheybhavebinvested,btheybusebabcompany’sbfinancialbstatementsbtobanalyzebhowbtheirbinvestmen
tbisbperforming.bbCreditorsbusebaccountingbinformationbtobdecidebwhetherbtoblendbmoneybtobabbusinessb
andbtobevaluatebabcompany’sbabilitybtobmakebthebloanbpayments.bbTaxingbauthoritiesbusebaccountingbin
formationbtobcalculatebthebamountbofbincomebtaxbthatbabcompanybhasbtobpay.bb
b
4. CertifiedbPublicbAccountantsb(CPAs)bareblicensedbprofessionalbaccountantsbwhobservebthebgeneralbpu
blic.bbTheybworkbforbpublicbaccountingbfirms,bbusinesses,bgovernment,borbeducationalbinstitutions.bbTo
bbebcertifiedbtheybmustbmeetbeducational band/orbexperiencebrequirementsbandbpassbanbexam.bbCertified
bManagementbAccountantsb(CMAs)bspecializebinbaccountingbandbfinancialbmanagement bknowledge.bb
Theybworkbforbabsinglebcompany.bbb
b
5. ThebFASBboverseesbthebcreationbandbgovernancebofbaccountingbstandards.bbTheybworkbwithbgovernme
ntalbregulatorybagencies,bcongressionallybcreatedbgroups,bandbprivatebgroups.bbb
b
6. ThebguidelinesbforbaccountingbinformationbarebcalledbGAAP.bbItbisbthebmainbU.S.baccountingbrulebbook
bandbisbcurrentlybcreatedbandbgovernedbbybthebFASB.bbInvestors bandblendersbmustbhavebinformationbth
atbisbrelevantbandbhasbfaithfulbrepresentationbinborderbtobmakebdecisionsbandbGAAPbprovidesbthebfram
eworkbforbthisbfinancialbreporting.b
b
7. Absolebproprietorshipbhasbabsinglebowner,bterminatesbuponbthebowner’sbdeathborbchoice,bthebownerbhasb
personalbliabilitybforbthebbusiness’sbdebts,bandbitbisbnotbabseparatebtaxbentity.bbAbpartnershipbhasbtwoborb
morebowners,bterminatesbatbpartner’sbchoiceborbdeath,bthebpartnersbhavebpersonalbliability,bandbitbisbnot
b 1-1
,babseparatebtaxbentity.bbAbcorporationbisbabseparateblegalbentity,bhasboneborbmorebowners,bhasbindefinitebl
ife,bthebstockholdersbarebnotbpersonallybliablebforbthebbusiness’sbdebts,bandbitbisbabseparatebtaxbentity.bb
Ablimited-
liabilitybcompanybhasboneborbmorebmembersbandbeachbisbonlybliablebforbhisborbherbownbactions,bhasbanb
indefiniteblife,bandbisbnotbabseparatebtaxbentity.bb b
b 1-2
,8. Theblandbshouldbbebrecordedbatb$5,000.bbThebcostbprinciplebstatesbthatbassetsbshouldbbebrecordedbatbthei
rbhistoricalbcost.b
b
9. Thebgoingbconcernbassumptionbassumesbthatbthebentitybwillbremainbinbbusinessbforbthebforeseeablebfut
urebandblongbenoughbtobusebexistingbresourcesbforbtheirbintendedbpurpose.b
b
10. Thebfaithfulbrepresentationbconceptbstatesbthatbaccountingbinformationbshouldbbebcomplete,bneutral,ba
ndbfreebfrombmaterialberror.b
b
11. Thebmonetarybunitbassumptionbstatesbthatbitemsbonbthebfinancialbstatementsbshouldbbebmeasuredbinbter
msbofbabmonetarybunit.b
b
12. ThebIASBbisbtheborganizationbthatbdevelopsbandbcreatesbIFRSbwhichbarebabsetbofbglobalbaccountingbsta
ndardsbthatbwouldbbebusedbaroundbthebworld.b
b
13. Assetsb=bLiabilitiesb+bEquity.bbAssetsbarebeconomicbresourcesbthatbarebexpectedbtobbenefitbthebbusiness
binbthebfuture.bbTheybarebthings bofbvaluebthatbabbusinessbownsborbhasbcontrolbof.bbLiabilitiesbarebdebts bth
atbarebowedbtobcreditors.bbTheybarebonebsourcebofbclaimsbagainstbassets.bbEquitybisbthebotherbsourcebofbcl
aimsbagainstbassets.bbEquitybisbthebowner’sbclaimsbagainstbassetsbandbisbthebamountbofbassetsbthatbisbleft
boverbafterbthebcompanybhasbpaidbitsbliabilities.bbItbrepresents bthebnetbworthbofbthebbusiness.b
b
14. Equitybincreasesbwithbowner’sbcontributionsbandbrevenue.bbEquitybdecreasesbwithbexpensesbandbowne
r’sbwithdrawals.b
b
15. Revenuesb–
bExpensesb=bNetbIncome.bbRevenuesbarebearningsbresultingbfrombdeliveringbgoodsborbservicesbtobcusto
mers.bbExpensesbarebthebcostbofbsellingbgoodsborbservice.b
b
16. Stepb1:bIdentifybthebaccountsbandbthebaccountbtype.bbStepb2:bDecidebifbeachbaccountbincreasesborbdecrea
ses.bbStepb3:bDeterminebifbthebaccountingbequationbisbinbbalance.b
b
17. IncomebStatementb–
bShowsbthebdifferencebbetweenbanbentity’sbrevenuesbandbexpensesbandbreportsbthebnetbincomeborbnetblo
ssbforbabspecificbperiod.b
StatementbofbOwner’sbEquityb–
bShowsbthebchangesbinbthebowner’sbcapitalbaccountbforbabspecificbperiodbincludingbownerbcontribution
s,bnetbincomeb(loss)bandbowner’sbwithdrawals.b
BalancebSheetb–bShowsbthebassets,bliabilities,bandbowner’sbequitybofbthebbusinessbasbofbabspecificbdate.b
StatementbofbCashbFlowsb–
bShowsbabbusiness’sbcashbreceipts bandbcashbpaymentsbforbabspecificbperiod.b
b
18. ReturnbonbAssetsb=bNetbincomeb/bAveragebtotalbassets.bbROAbmeasuresbhowbprofitablybabcompanybuse
sbitsbassets.bbb
Short Exercises
b b
b
S1-1b
b
a.FAb e.MAb
b.bFAb f.FAb
c.bFAb g.MAb
d.MAb h.FAb
b
b
b 1-3
, S1-2b
b
ThebFinancialbAccountingbStandardsbBoardbgovernsbthebmajoritybofbguidelines,bcalledbGenerallybAcce
ptedbAccountingbPrinciplesb(GAAP),bthatbthebCPAbwillbusebtobpreparebfinancialbstatementsbforbWhollyb
Shirts.b
b
b
S1-3b b
b
Chloe’sbneedswillbbestbbebmetbbyborganizingbabcorporationbsincebabcorporationbhasanbunlimitedblifeband
bisbabseparatebtaxbentity.bInbaddition,bthebownersb(stockholders)bhaveblimitedbliability. bChloebcouldbalso b
considerbablimitedbliabilitybcompanyb(LLC)basbanboption.bbAbLLCbmeetsbtwobofbthebthreebcriteria.bbItbhas
banbunlimitedblifebandblimitedbliabilitybforbthebowner.bbHowever, babLLC bisbnotbabseparatebtaxbentity.b
b
b
S1-4b b
b
Advantages:b
1. Easybtoborganize.b
2. Unificationbofbownershipbandbmanagement.b
3. Lessbgovernmentbregulation.b
4. Ownerbhasbmorebcontrolboverbbusiness.b
Disadvantages:b
1. Thebownerbpaysbtaxesbsincebitbisbnotbabseparatebtaxbentity.b
2. Nobcontinuousblifeborbtransferabilitybofbownership.b
3. Unlimitedbliabilitybofbownerbforbbusiness’sbdebts.b
b
b
S1-5bb
b
a. Thebeconomicbentitybassumptionb
b. Thebcostbprinciple.b
c. Thebmonetarybunitbassumption.b
d. Thebgoingconcernbassumption.b
b
b b
S1-6bbRequirementb1b
b
KenmorebHandymanbServicesbhasbequitybofb$7,720.b
Assetsb =b Liabilitiesb +b Equityb
$16,400b =b $8,680b +b ?b
$16,400b =b $8,680b +b $7,720b
b
Requirementb2b
b
KenmorebHandymanbServicesbhasbliabilitiesbofb$14,760.b
b
Assetsb =b Liabilitiesb +b Equityb
$16,400b+b$3,500b =b ?b +b $7,720–b$2,580b
$19,900b =b $14,760b +b $5,140b
b
b
S1-7b Requirementb1b
b
b
b 1-4
b b b b b b
ND SOLUTIONS MANUAL 2025 Miller-
b b b bb
Nobles Mattison Matsumura
b b b
Chapter 1 b b
Accounting and the Business Environment
b b b b b
b
Review Questions
b b
b
1. Accountingbisbthebinformationbsystembthatbmeasuresbbusinessbactivities,bprocessesbthebinformationbint
obreports,bandbcommunicatesbthebresultsbtobdecisionbmakers.bAccountingbisbtheblanguagebofbbusiness.bb
b
2. Financialbaccountingbprovidesbinformationbforbexternalbdecisionbmakers,bsuchbasboutsidebinvestors,ble
nders,bcustomers,bandbthebfederalbgovernment.bbManagerialbaccountingbfocusesbonbinformationbforbint
ernalbdecisionbmakers,bsuchbasbthebcompany’sbmanagersbandbemployees.b
b
3. Individualsbusebaccountingbinformationbtobhelpbthembmanagebtheirbmoney,bevaluatebabnewbjob,bandbbe
tterbdecidebwhetherbtheybcanbaffordbtobmakebabnewbpurchase.bbBusinessbownersbusebaccountingbinform
ationbtobsetbgoals,bmeasurebprogressbtowardbthosebgoals,bandbmakebadjustmentsbwhenbneeded.bbInvesto
rsbusebaccountingbinformationbtobhelpbthembdecidebwhetherborbnotbabcompanybisbabgoodbinvestmentban
dboncebtheybhavebinvested,btheybusebabcompany’sbfinancialbstatementsbtobanalyzebhowbtheirbinvestmen
tbisbperforming.bbCreditorsbusebaccountingbinformationbtobdecidebwhetherbtoblendbmoneybtobabbusinessb
andbtobevaluatebabcompany’sbabilitybtobmakebthebloanbpayments.bbTaxingbauthoritiesbusebaccountingbin
formationbtobcalculatebthebamountbofbincomebtaxbthatbabcompanybhasbtobpay.bb
b
4. CertifiedbPublicbAccountantsb(CPAs)bareblicensedbprofessionalbaccountantsbwhobservebthebgeneralbpu
blic.bbTheybworkbforbpublicbaccountingbfirms,bbusinesses,bgovernment,borbeducationalbinstitutions.bbTo
bbebcertifiedbtheybmustbmeetbeducational band/orbexperiencebrequirementsbandbpassbanbexam.bbCertified
bManagementbAccountantsb(CMAs)bspecializebinbaccountingbandbfinancialbmanagement bknowledge.bb
Theybworkbforbabsinglebcompany.bbb
b
5. ThebFASBboverseesbthebcreationbandbgovernancebofbaccountingbstandards.bbTheybworkbwithbgovernme
ntalbregulatorybagencies,bcongressionallybcreatedbgroups,bandbprivatebgroups.bbb
b
6. ThebguidelinesbforbaccountingbinformationbarebcalledbGAAP.bbItbisbthebmainbU.S.baccountingbrulebbook
bandbisbcurrentlybcreatedbandbgovernedbbybthebFASB.bbInvestors bandblendersbmustbhavebinformationbth
atbisbrelevantbandbhasbfaithfulbrepresentationbinborderbtobmakebdecisionsbandbGAAPbprovidesbthebfram
eworkbforbthisbfinancialbreporting.b
b
7. Absolebproprietorshipbhasbabsinglebowner,bterminatesbuponbthebowner’sbdeathborbchoice,bthebownerbhasb
personalbliabilitybforbthebbusiness’sbdebts,bandbitbisbnotbabseparatebtaxbentity.bbAbpartnershipbhasbtwoborb
morebowners,bterminatesbatbpartner’sbchoiceborbdeath,bthebpartnersbhavebpersonalbliability,bandbitbisbnot
b 1-1
,babseparatebtaxbentity.bbAbcorporationbisbabseparateblegalbentity,bhasboneborbmorebowners,bhasbindefinitebl
ife,bthebstockholdersbarebnotbpersonallybliablebforbthebbusiness’sbdebts,bandbitbisbabseparatebtaxbentity.bb
Ablimited-
liabilitybcompanybhasboneborbmorebmembersbandbeachbisbonlybliablebforbhisborbherbownbactions,bhasbanb
indefiniteblife,bandbisbnotbabseparatebtaxbentity.bb b
b 1-2
,8. Theblandbshouldbbebrecordedbatb$5,000.bbThebcostbprinciplebstatesbthatbassetsbshouldbbebrecordedbatbthei
rbhistoricalbcost.b
b
9. Thebgoingbconcernbassumptionbassumesbthatbthebentitybwillbremainbinbbusinessbforbthebforeseeablebfut
urebandblongbenoughbtobusebexistingbresourcesbforbtheirbintendedbpurpose.b
b
10. Thebfaithfulbrepresentationbconceptbstatesbthatbaccountingbinformationbshouldbbebcomplete,bneutral,ba
ndbfreebfrombmaterialberror.b
b
11. Thebmonetarybunitbassumptionbstatesbthatbitemsbonbthebfinancialbstatementsbshouldbbebmeasuredbinbter
msbofbabmonetarybunit.b
b
12. ThebIASBbisbtheborganizationbthatbdevelopsbandbcreatesbIFRSbwhichbarebabsetbofbglobalbaccountingbsta
ndardsbthatbwouldbbebusedbaroundbthebworld.b
b
13. Assetsb=bLiabilitiesb+bEquity.bbAssetsbarebeconomicbresourcesbthatbarebexpectedbtobbenefitbthebbusiness
binbthebfuture.bbTheybarebthings bofbvaluebthatbabbusinessbownsborbhasbcontrolbof.bbLiabilitiesbarebdebts bth
atbarebowedbtobcreditors.bbTheybarebonebsourcebofbclaimsbagainstbassets.bbEquitybisbthebotherbsourcebofbcl
aimsbagainstbassets.bbEquitybisbthebowner’sbclaimsbagainstbassetsbandbisbthebamountbofbassetsbthatbisbleft
boverbafterbthebcompanybhasbpaidbitsbliabilities.bbItbrepresents bthebnetbworthbofbthebbusiness.b
b
14. Equitybincreasesbwithbowner’sbcontributionsbandbrevenue.bbEquitybdecreasesbwithbexpensesbandbowne
r’sbwithdrawals.b
b
15. Revenuesb–
bExpensesb=bNetbIncome.bbRevenuesbarebearningsbresultingbfrombdeliveringbgoodsborbservicesbtobcusto
mers.bbExpensesbarebthebcostbofbsellingbgoodsborbservice.b
b
16. Stepb1:bIdentifybthebaccountsbandbthebaccountbtype.bbStepb2:bDecidebifbeachbaccountbincreasesborbdecrea
ses.bbStepb3:bDeterminebifbthebaccountingbequationbisbinbbalance.b
b
17. IncomebStatementb–
bShowsbthebdifferencebbetweenbanbentity’sbrevenuesbandbexpensesbandbreportsbthebnetbincomeborbnetblo
ssbforbabspecificbperiod.b
StatementbofbOwner’sbEquityb–
bShowsbthebchangesbinbthebowner’sbcapitalbaccountbforbabspecificbperiodbincludingbownerbcontribution
s,bnetbincomeb(loss)bandbowner’sbwithdrawals.b
BalancebSheetb–bShowsbthebassets,bliabilities,bandbowner’sbequitybofbthebbusinessbasbofbabspecificbdate.b
StatementbofbCashbFlowsb–
bShowsbabbusiness’sbcashbreceipts bandbcashbpaymentsbforbabspecificbperiod.b
b
18. ReturnbonbAssetsb=bNetbincomeb/bAveragebtotalbassets.bbROAbmeasuresbhowbprofitablybabcompanybuse
sbitsbassets.bbb
Short Exercises
b b
b
S1-1b
b
a.FAb e.MAb
b.bFAb f.FAb
c.bFAb g.MAb
d.MAb h.FAb
b
b
b 1-3
, S1-2b
b
ThebFinancialbAccountingbStandardsbBoardbgovernsbthebmajoritybofbguidelines,bcalledbGenerallybAcce
ptedbAccountingbPrinciplesb(GAAP),bthatbthebCPAbwillbusebtobpreparebfinancialbstatementsbforbWhollyb
Shirts.b
b
b
S1-3b b
b
Chloe’sbneedswillbbestbbebmetbbyborganizingbabcorporationbsincebabcorporationbhasanbunlimitedblifeband
bisbabseparatebtaxbentity.bInbaddition,bthebownersb(stockholders)bhaveblimitedbliability. bChloebcouldbalso b
considerbablimitedbliabilitybcompanyb(LLC)basbanboption.bbAbLLCbmeetsbtwobofbthebthreebcriteria.bbItbhas
banbunlimitedblifebandblimitedbliabilitybforbthebowner.bbHowever, babLLC bisbnotbabseparatebtaxbentity.b
b
b
S1-4b b
b
Advantages:b
1. Easybtoborganize.b
2. Unificationbofbownershipbandbmanagement.b
3. Lessbgovernmentbregulation.b
4. Ownerbhasbmorebcontrolboverbbusiness.b
Disadvantages:b
1. Thebownerbpaysbtaxesbsincebitbisbnotbabseparatebtaxbentity.b
2. Nobcontinuousblifeborbtransferabilitybofbownership.b
3. Unlimitedbliabilitybofbownerbforbbusiness’sbdebts.b
b
b
S1-5bb
b
a. Thebeconomicbentitybassumptionb
b. Thebcostbprinciple.b
c. Thebmonetarybunitbassumption.b
d. Thebgoingconcernbassumption.b
b
b b
S1-6bbRequirementb1b
b
KenmorebHandymanbServicesbhasbequitybofb$7,720.b
Assetsb =b Liabilitiesb +b Equityb
$16,400b =b $8,680b +b ?b
$16,400b =b $8,680b +b $7,720b
b
Requirementb2b
b
KenmorebHandymanbServicesbhasbliabilitiesbofb$14,760.b
b
Assetsb =b Liabilitiesb +b Equityb
$16,400b+b$3,500b =b ?b +b $7,720–b$2,580b
$19,900b =b $14,760b +b $5,140b
b
b
S1-7b Requirementb1b
b
b
b 1-4
