1.1 K 6.1 C 10.3 C 14.3 K 18.3 K

1-1 Copyright © 2016John Wiley & Sons, Inc. Kimmel,Financial Accounting,8/e,Solutions Manual (For Instructor Use Only)

CHAPTER 1

Introduction to Financial Statements Learning Objectives 1.Identify the forms of business organization and the uses of accounting information.

• Explain the three principal types of business activity.
• Describe the four financial statements, and how they are prepared.

Summary of Questions by Learning Objectives and Bloom’s Taxonomy Item LO BT Item LO BT Item LO BT Item LO BT Item LO BT Questions

1.1 K 6.1 C 10.3 C 14.3 K 18.3 K

2.1 K 7.2 C 11.3 K 15.3 K 19.3 C

3.1 K 8.3 K 12.3 C 16.3 AP 20.3 K

4.1 C 9.3 C 13.3 AP 17.3 C 21.3 C

5.1 C Brief Exercises

1.1 K 4.3 C 6.3 K 8.3 AP 10.3 K

2.1 K 5. 3AP 7.3 K 9.3 AP 11.3 K

3.2 K Do It! Exercises 1.1 C 2.2 K 3a. 3 AP 3b. 3 K Exercises

1.1, 2, 3 K 5.3 AP 9.3 AN 12.3 AP 15.3 AP

2.2 C 6.3 AP 10.3 AP 13.3 AP 16.3 AN

3.2, 3 C 7.3 AP 11.3 AP 14.3 AP 17.3 K

4.3 AP 8.3 C

Problems: Set A

1.1 C 2.3 C 3.3 AP 4.3 AP 5.3 AN

Financial Accounting Tools for Business Decision Making 8e Paul Kimmel Jerry Weygandt Donald Kieso (Solutions Manual All Chapters, 100% Original Verified, A+ Grade) 1 / 4

Copyright © 2016 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 8/e, Solutions Manual (For Instructor Use Only) 1-2

ASSIGNMENT CHARACTERISTICS TABLE

Problem Number

Description Difficulty Level Time Allotted (min.) 1A Determine forms of business organization. Simple 15–20 2A Identify users and uses of financial statements. Simple 15–20 3A Prepare an income statement, retained earnings statement, and balance sheet; discuss results.Moderate 40–50 4A Determine items included in a statement of cash flows, prepare the statement, and comment.Moderate 30–40 5A Comment on proper accounting treatment and prepare a corrected balance sheet.Moderate 40–50 2 / 4

1-3 Copyright © 2016 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 8/e, Solutions Manual (For Instructor Use Only)

ANSWERS TO QUESTIONS

• The three basic forms of business organizations are (1) sole proprietorship, (2) partnership, and

(3) corporation.

LO 1 BT: K Diff: E TOT: 1 min. AACSB: None AICPA BB: Legal/Regulatory Perspective

• Advantages of a corporation are limited liability (stockholders not being personally liable for cor-

porate debts), easy transferability of ownership, and ease of raising funds. Disadvantages of a corporation are increased taxation and government regulations.

LO 1 BT: K Diff: E TOT: 1 min. AACSB: None AICPA BB: Legal/Regulatory Perspective

• Proprietorships and partnerships receive favorable tax treatment compared to corporations and are

easier to form than corporations. They are also owner controlled. Disadvantages of proprietorships and partnerships are unlimited liability (proprietors/partners are personally liable for all debts) and difficulty in obtaining financing compared to corporations.

LO 1 BT: K Diff: E TOT: 1 min. AACSB: None AICPA BB: Legal/Regulatory Perspective

• Yes. A person cannot earn a living, spend money, buy on credit, make an investment, or pay

taxes without receiving, using, or dispensing financial information. Accounting provides financial information to interested users through the preparation and distribution of financial statements.

LO 1 BT: K Diff: E TOT: 1 min. AACSB: None AICPA FC: Reporting

• Internal users are managers who plan, organize, and run a business. To assist management,

accounting provides timely internal reports. Examples include financial comparisons of operating alternatives, projections of income from new sales campaigns, forecasts of cash needs for the next year, and financial statements.

LO 1 BT: K Diff: E TOT: 1 min. AACSB: None AICPA FC: Reporting

• External users are those outside the business who have either a present or potential direct

financial interest (investors and creditors) or an indirect financial interest (taxing authorities, regu- latory agencies, labor unions, customers, and economic planners).

LO 1 BT: K Diff: E TOT: 1 min. AACSB: None AICPA FC: Reporting

• The three types of business activities are financing activities, investing activities, and operating

activities. Financing activities include borrowing money and selling shares of stock. Investing activities include the purchase and sale of property, plant, and equipment. Operating activities include selling goods, performing services, and purchasing inventory.

LO 2 BT: K Diff: M TOT: 2 min. AACSB: None AICPA FC: Reporting

• (a) Income statement. (d) Balance sheet.

(b) Balance sheet. (e) Balance sheet.(c) Income statement. (f) Balance sheet.

LO 3 BT: K Diff: M TOT: 2 min. AACSB: None AICPA FC: Reporting 3 / 4

Copyright © 2016 John Wiley & Sons, Inc. Kimmel, Financial Accounting, 8/e, Solutions Manual (For Instructor Use Only) 1-4

• When a company pays dividends, it reduces the amount of assets available to pay creditors.

Therefore, banks and other creditors monitor dividend payments to ensure they do not put a company’s ability to make debt payments at risk.

LO 3 BT: AN Diff: M TOT: 2 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking

• Yes. Net income does appear on the income statement—it is the result of subtracting expenses

from revenues. In addition, net income appears in the retained earnings statement—it is shown as an addition to the beginning-of-period retained earnings. Indirectly, the net income of a company is also included in the balance sheet. It is included in the retained earnings account which appears in the stockholders’ equity section of the balance sheet.

LO 3 BT: C Diff: E TOT: 1 min. AACSB: None AICPA FC: Reporting

• The primary purpose of the statement of cash flows is to provide financial information about the

cash receipts and cash payments of a business for a specific period of time.

LO 3 BT: K Diff: E TOT: 1 min. AACSB: None AICPA FC: Reporting

• The three categories of the statement of cash flows are operating activities, investing activities,

and financing activities. The categories were chosen because they represent the three principal types of business activities.

LO 3 BT: K Diff: E TOT: 1 min. AACSB: None AICPA FC: Reporting

• Retained earnings is the net income retained in a corporation. Retained earnings is increased by

net income and is decreased by dividends and a net loss.

LO 3 BT: C Diff: E TOT: 1 min. AACSB: None AICPA FC: Reporting

• The basic accounting equation is Assets = Liabilities + Stockholders’ Equity.

LO 3 BT: K Diff: E TOT: 1 min. AACSB: None AICPA FC: Reporting

• (a) Assets are resources owned by a business. Liabilities are amounts owed to creditors. Put more

simply, liabilities are existing debts and obligations. Stockholders’ equity is the ownership claim on net assets.

(b) The items that affect stockholders’ equity are common stock, retained earnings, dividends, revenues, and expenses.

LO 3 BT: K Diff: E TOT: 2 min. AACSB: None AICPA FC: Reporting

• The liabilities are (b) Accounts payable and (g) Salaries and wages payable.

LO 3 BT: C Diff: E TOT: 1 min. AACSB: None AICPA FC: Reporting

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