Note: All asterisked Questions, Brief Exercises, Exercises, and Problems relate to material

Copyright © 2021WILEY Weygandt, Accounting Principles, 14/e,Solutions Manual (For Instructor Use Only) 1-1

CHAPTER 1

Accounting in Action Learning Objectives 1.Identify the activities and users associated with accounting.

2.Explain the building blocks of accounting: ethics, principles, and

assumptions.

3.State the accounting equation, and define its components.

4.Analyze the effects of business transactions on the accounting equation.

5.Describe the four financial statements and how they are prepared.*6. Explain the career opportunities in accounting.*Note: All asterisked Questions, Brief Exercises, Exercises, and Problems relate to material contained in the appendix*to the chapter.Accounting Principles, 14e Jerry Weygandt, Paul Kimmel, Jill Mitchell (Get All Chapters Supplement files download link at the end of this file) 1 / 4

1-2 Copyright © 2021 WILEY Weygandt, Accounting Principles, 14/e, Solutions Manual (For Instructor Use Only)

ANSWERS TO QUESTIONS

• This is true. Virtually every organization and person in our society uses accounting information.

Businesses, investors, creditors, government agencies, and not-for-profit organizations must use accounting information to operate effectively.LO1 BT: C Difficulty: Easy TOT: 2 min. AACSB: None AICPA FC: Reporting

• Accounting is the process of identifying, recording, and communicating the economic events of

an organization to interested users of the information. The first activity of the accounting process is to identify economic events that are relevant to a particular business. Once identified and measured, the events are recorded to provide a history of the financial activities of the organization. Recording consists of keeping a chronological diary of these measured events in an orderly and systematic manner. The information is communicated through the preparation and distribution of accounting reports, the most common of which are called financial statements.A vital element in the communication process is the accountant’s ability and responsibility to analyze and interpret the reported information.LO1 BT: C Difficulty: Easy TOT: 4 min. AACSB: None AICPA FC: Reporting

• (a) Internal users are those who plan, organize, and run the business and therefore are officers

and other decision makers.(b) To assist management, managerial accounting provides internal reports. Examples include financial comparisons of operating alternatives, projections of income from new sales campaigns, and forecasts of cash needs for the next year.LO1 BT: C Difficulty: Easy TOT: 2 min. AACSB: None AICPA FC: Reporting

• (a) Investors (owners) use accounting information to make decisions to buy, hold, or sell owner-

ship shares of a company.(b) Creditors use accounting information to evaluate the risks of granting credit or lending money.LO1 BT: C Difficulty: Easy TOT: 2 min. AACSB: None AICPA FC: Reporting

• This is false. Bookkeeping usually involves only the recording of economic events and therefore is

just one part of the entire accounting process. Accounting, on the other hand, involves the entire process of identifying, recording, and communicating economic events.LO1 BT: C Difficulty: Easy TOT: 2 min. AACSB: None AICPA FC: Reporting

• Benton Travel Agency should report the land at $90,000 on its December 31, 2022 balance

sheet. This is true not only at the time the land is purchased, but also over the time the land is held. In determining which measurement principle to use (historical cost or fair value) companies weigh the factual nature of cost figures versus the relevance of fair value. In general, companies use historical cost. Only in situations where assets are actively traded do companies apply the fair value principle.LO2 BT: C Difficulty: Easy TOT: 4 min. AACSB: None AICPA FC: Reporting

• The monetary unit assumption requires that only transaction data that can be expressed in terms

of money be included in the accounting records. This assumption enables accounting to quantify (measure) economic events.LO2 BT: K Difficulty: Easy TOT: 2 min. AACSB: None AICPA FC: Reporting

• The economic entity assumption requires that the activities of the entity be kept separate and

distinct from the activities of its owners and all other economic entities.LO2 BT: K Difficulty: Easy TOT: 2 min. AACSB: None AICPA FC: Reporting

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Copyright © 2021 WILEY Weygandt, Accounting Principles, 14/e, Solutions Manual (For Instructor Use Only) 1-3 Questions Chapter 1 (Continued)

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

(3) corporation.LO2 BT: K Difficulty: Easy TOT:1 min. AACSB: None AICPA FC: Reporting

• One of the advantages Helen Rupp would enjoy is that ownership of a corporation is represented

by transferable shares of stock. This would allow Helen to raise money easily by selling a part of her ownership in the company. Another advantage is that because holders of the shares (stockholders) enjoy limited liability; they are not personally liable for the debts of the corporate entity. Also, because ownership can be transferred without dissolving the corporation, the corporation enjoys an unlimited life.LO2 BT: K Difficulty: Easy TOT: 4 min. AACSB: None AICPA FC: Reporting

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

LO3 BT: K Difficulty: Easy TOT: 1 min. AACSB: None AICPA FC: Measurement

• (a) Assets are resources owned by a business. Liabilities are creditor claims against assets. Put

more simply, liabilities are existing debts and obligations. Owner’s equity is the ownership claim on total assets.(b) Owner’s equity is affected by owner’s investments, drawings, revenues, and expenses.LO3 BT: C Difficulty: Easy TOT: 2 min. AACSB: None AICPA FC: Reporting

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

LO3 BT: C Difficulty: Easy TOT: 1 min. AACSB: None AICPA FC: Reporting

• Yes, a business can enter into a transaction in which only the left side of the accounting equation

is affected. An example would be a transaction where an increase in one asset is offset by a decrease in another asset. An increase in the Equipment account which is offset by a decrease in the Cash account is a specific example.LO4 BT: C Difficulty: Moderate TOT: 3 min. AACSB: None AICPA FC: Reporting

• Business transactions are the economic events of the enterprise recorded by accountants

because they affect the basic accounting equation.(a) The death of the owner of the company is not a business transaction as it does not affect of the components of the basic accounting equation.(b) Supplies purchased on account is a business transaction as it affects the basic accounting equation.(c) An employee being fired is not a business transaction as it does not affect any of the components of the basic accounting equation.(d) A withdrawal of cash by the owner from the business is a business transaction as it affects the basic accounting equation.LO4 BT: C Difficulty: Moderate TOT: 4 min. AACSB: None AICPA FC: Reporting

• (a) Decrease assets and decrease owner’s equity.

(b) Increase assets and decrease assets.(c) Increase assets and increase owner’s equity.(d) Decrease assets and decrease liabilities.LO4 BT: C Difficulty: Moderate TOT: 3 min. AACSB: None AICPA FC: Reporting

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1-4 Copyright © 2021 WILEY Weygandt, Accounting Principles, 14/e, Solutions Manual (For Instructor Use Only) Questions Chapter 1 (Continued)

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

(b) Balance sheet. (e) Balance sheet and owner’s equity statement.(c) Income statement. (f) Balance sheet.LO5 BT: C Difficulty: Easy TOT: 2 min. AACSB: None AICPA FC: Reporting

• No, this treatment is not proper. While the transaction does involve a receipt of cash, it does not

represent revenues. Revenues are the gross increase in owner’s equity resulting from business activities entered into for the purpose of earning income. This transaction is simply an additional investment made by the owner in the business; it increases Cash and Owner’s Capital.LO4 BT: C Difficulty: Moderate TOT: 3 min. AACSB: None AICPA FC: Reporting

• 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 owner’s equity statement—it is shown as an addition to the beginning-of-period capital. Indirectly, the net income of a company is also included in the balance sheet. It is included in the end-of-period capital which appears in the owner’s equity section of the balance sheet.LO5 BT: C Difficulty: Moderate TOT: 4 min. AACSB: None AICPA FC: Reporting

• (a) Ending capital balance ..................................................................................... $189,000

Less: Beginning capital balance ....................................................................... 186,000 Net income ....................................................................................................... $ 3,000

($189,000 – $186,000 = $3,000)

(End. cap. bal. – Beg. cap. bal. = Net inc.)

(b) Ending capital balance ..................................................................................... $189,000 Less: Beginning capital balance ....................................................................... 186,000 Net increase in capital balance 3,000 Deduct: Investment ......................................................................................... 13,000 Net loss ............................................................................................................ $ (10,000)

($189,000 – $186,000 – $13,000 = ($10,000))

(End. cap. bal. – Beg. cap. bal. – Invest. = Net. loss) LO5 BT: AP Difficulty: Moderate TOT: 4 min. AACSB: Analytic AICPA FC: Reporting

• (a) Total revenues ($20,000 + $70,000) ................................................................ $90,000

($20,000 + $70,000 = $90,000)

(Cash rev. + Rev. on acct. = Tot. rev.)

(b) Total expenses ($26,000 + $40,000) ................................................................ $66,000

($26,000 + $40,000 = $66,000)

(Cash exp. + Exp. on acct. = Tot. exp.)

(c) Total revenues ................................................................................................. $90,000 Total expenses................................................................................................. 66,000 Net income ....................................................................................................... $24,000

($90,000 – $66,000 = $24,000)

(Tot. rev. – Tot. exp. = Net inc.) LO5 BT: AP Difficulty: Moderate TOT: 4 min. AACSB: Analytic AICPA FC: Reporting

• Apple’s accounting equation (in millions) at September 28, 2019 was $338,516 = $248,028 +

$90,488.

($338,516 = $248,028+ $90,488)

(Tot. assets = Tot. liabl. + Tot. stkhldrs. equity) LO3 BT: AP Difficulty: Moderate TOT: 3 min. AACSB: Analytic AICPA FC: Reporting

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