Weygandt Financial Accounting IFRS 4e – Matcha Creations Instructor Manual with Solutions

MC1 MATCHA CREATIONS 1




(a) Mei-
ling has a choice between a sole proprietorship and a corporation. A partners
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hip is not an option since she is the sole owner of the business.
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A proprietorship is the easiest to create and operate because there
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are no formal procedures involved in creating the proprietorship. However,
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1if she operates the business as a proprietorship she will personally have u
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nlimited liability for the debts of the business. Operating the business as a
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corporation would limit her liability to her investment in the business. Mei-
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ling will in all likelihood require the services of a lawyer to incorporate. Cos
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ts to incorporate as well as additional ongoing costs to administrate and ope
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rate the business as a corporation may be costly.
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My recommendation is that Mei-
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ling choose the corporate form of business organization. If she expands th
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e business after graduation, she can raise additional capital by issuing mor
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e shares. In addition, she limits her liability to her investment in the busines
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s. If she decides to transfer ownership to another student, she can do so wi
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thout dissolving the corporation.
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111111111Weygandt1Financial1Accounting1IFRS14e1Solutions1to1Matcha1Creations
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,MC1 (Continued)
1




(b) Yes, Mei- 1


ling will need accounting information to help her operate her business. She
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will need information on her cash balance on a daily or weekly basis to hel
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p her determine if she can pay her bills. She will need to know the cost of he
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r services so she can establish her prices. She will need to know revenue a
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nd expenses so she can report her net income for corporate income tax pur
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poses, on an annual basis. If she borrows money, she will need financial st
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atements so lenders can assess the liquidity, solvency, and profitability of t
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he business. Mei-
1 1


ling would also find financial statements useful to better understand her bu
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siness and identify any financial issues as early as possible. Monthly finan
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cial statements would be best because they are more timely, but they are al
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so more work to prepare.
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(c)
Assets: Cash, Accounts Receivable, Supplies, Equipment, Prepaid Insura
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nce

Liabilities: Accounts Payable, Unearned Service Revenue, Notes Payable
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Equity: Share Capital—Ordinary, Retained Earnings, Dividends
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Revenue: Service Revenue 1 1




Expenses: Advertising Expense, Supplies Expense, Utilities Expense, Dep
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reciation Expense 1




(d) Mei-
ling should have a separate bank account. This will make it easier to prepar
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e financial statements for her business. The business is a separate entity fr
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om Mei-ling and must be accounted for separately.
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Copyright1©120191John1Wiley1&1Sons,1Inc. 1111111111111111111111111111111111111111111111111
111111111Weygandt1Financial1Accounting1IFRS14e1Solutions1to1Matcha1Creations
(For1Instructor1Use1Only)

, MC2 MATCHA CREATIONS 1




(a) GENERAL JOURNAL 1 J1
Account Titles and Explanation
1 1 1 Debit Credit

Nov. 8 No entry required for selling her
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investments—
this is a personal
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transaction.

.......................................................................................... 8 Cash
...................................................................................... 500
............................................................................................ Share Capital—
1


Ordinary ..............................................................................
...................................................................................... 500

........................................................................................ 11Advertising Expense
1 65
............................................................................................ Cash
............................................................................................ 65

........................................................................................ 13 Supplies
...................................................................................... 125
Cash ..................................................... 125

........................................................................................ 14 Equipment
...................................................................................... 300
Share Capital—Ordinary .....................
1 300

........................................................................................ 16 Cash
................................................................................... 2,000
Notes Payable ......................................
1 2,000


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Copyright1©120191John1Wiley1&1Sons,1Inc. 1111111111111111111111111111111111111111111111111
111111111Weygandt1Financial1Accounting1IFRS14e1Solutions1to1Matcha1Creations
(For1Instructor1Use1Only)

, ........................................................................................ 17 Equipment
...................................................................................... 900
Cash ..................................................... 900

........................................................................................ 20 Cash
...................................................................................... 125
Service Revenue ..................................
1 125

........................................................................................ 25 Cash 30
Unearned Service Revenue .................
1 1 30
1


........................................................................................ 30Prepaid Insurance
1


................................................................................... 1,320
............................................................................................ Cash
............................................................................................ 1,320




_____________________________________________________________________________________________
Copyright1©120191John1Wiley1&1Sons,1Inc. 1111111111111111111111111111111111111111111111111
111111111Weygandt1Financial1Accounting1IFRS14e1Solutions1to1Matcha1Creations
(For1Instructor1Use1Only)