991007-ch01

8/2/2019 991007-ch01

1/52

Copyright 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)

CHAPTER 1

Accounting in Action

ASSIGNMENT CLASSIFICATION TABLE

Study Objectives Questions

Brief

Exercises Do It! Exercises

A

Problems

B

Proble

1. Explain what

accounting is.

1, 2, 5 1, 2, 4 1

2. Identify the users and

uses of accounting.

3, 4 1 2

3. Understand why ethics

is a fundamental businessconcept.

3

4. Explain accounting

standards and the

measurement principles.

6, 7 1 4

5. Explain the monetary

unit assumption and

the economic entity

assumption.

8, 9, 10, 11 4

6. State the accounting

equation, and define

its components.

12, 13, 14 1, 2, 3,

4, 5

2 5, 6,

7, 11

1A, 2A,

4A

1B, 2B

4B

7. Analyze the effects of

business transactions on

the accounting equation.

15, 16,

17, 19

6, 7, 8, 9 3 6, 7, 8, 11 1A, 2A,

4A, 5A

1B, 2B

4B, 5B

8. Understand the four

financial statements

and how they are

prepared.

18, 20, 21

22, 23

10, 11 4 9, 10, 12,

13, 14, 15,

16, 17

2A, 3A,

4A, 5A

2B, 3B

4B, 5B

8/2/2019 991007-ch01

2/52

-2 Copyright 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)

ASSIGNMENT CHARACTERISTICS TABLE

ProblemNumber Description

DifficultyLevel

Time Allotted(min.)

1A Analyze transactions and compute net income. Moderate 4050

2A Analyze transactions and prepare income statement,

retained earnings statement, and statement of financialposition.

Moderate 5060

3A Prepare income statement, retained earnings statement,and statement of financial position.

Moderate 5060

4A Analyze transactions and prepare financial statements. Moderate 4050

5A Determine financial statement amounts and prepare

retained earnings statement.

Moderate 4050

1B Analyze transactions and compute net income. Moderate 4050

2B Analyze transactions and prepare income statement,retained earnings statement, and statement of financial

position.

Moderate 5060

3B Prepare income statement, retained earnings statement,and statement of financial position.

Moderate 5060

4B Analyze transactions and prepare financial statements. Moderate 4050

5B Determine financial statement amounts and prepare

retained earnings statement.

Moderate 4050

8/2/2019 991007-ch01

3/52


WEYGANDT IFRS 1ECHAPTER 1

ACCOUNTING IN ACTION

Number SO BT Difficulty Time (min.)

BE1 6 AP Simple 24

BE2 6 AP Simple 35

BE3 6 AP Moderate 46

BE4 6 AP Moderate 46

BE5 6 C Simple 24

BE6 7 C Simple 24

BE7 7 C Simple 24

BE8 7 C Simple 24

BE9 7 C Simple 12

BE10 8 AP Simple 35

BE11 8 C Simple 24

DI1 1, 2, 4 K Simple 24

DI2 6 K Simple 24

DI3 7 AP Simple 68

DI4 8 AP Moderate 810

EX1 1 C Moderate 57

EX2 2 C Simple 68

EX3 3 C Moderate 68

EX4 4, 5 C Moderate 68

EX5 6 C Simple 46

EX6 6, 7 C Simple 68

EX7 6, 7 C Simple 46

EX8 7 AP Moderate 1215

EX9 8 AP Simple 1215


EX11 6, 7 AP Moderate 68


EX13 8 AN Simple 810


EX15 8 AP Simple 68



8/2/2019 991007-ch01

4/52


ACCOUNTING IN ACTION (Continued)

Number SO BT Difficulty Time (min.)

P1A 6, 7 AP Moderate 4050

P2A 68 AP Moderate 5060

P3A 8 AP Moderate 5060P4A 68 AP Moderate 4050

P5A 7, 8 AP Moderate 4050

P1B 6, 7 AP Moderate 4050

P2B 68 AP Moderate 5060



P5B 7, 8 AP Moderate 4050

BYP1 8 AN Simple 1015BYP2 8 AN, E Simple 1015

BYP3 9 C, AN Simple 1520

BYP4 8 E Moderate 1520

BYP5 8 E Simple 1215

BYP6 3 E Simple 1012

8/2/2019 991007-ch01

5/52

8/2/2019 991007-ch01

6/52


ANSWERS TO QUESTIONS

1. Yes, this is correct. Virtually every organization and person in our society uses accountinginformation. Businesses, investors, creditors, government agencies, and not-for-profit organizationsmust use accounting information to operate effectively.

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

an organization to interested users of the information. The first step of the accounting process istherefore to identify economic events that are relevant to a particular business. Once identifiedand measured, the events are recorded to provide a history of the financial activities of theorganization. Recording consists of keeping a chronological diary of these measured events in anorderly and systematic manner. The information is communicated through the preparation anddistribution of accounting reports, the most common of which are called financial statements.A vital element in the communication process is the accountants ability and responsibility toanalyze and interpret the reported information.

3. (a) Internal users are those who plan, organize, and run the business and therefore are officersand other decision makers.

(b) To assist management, 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.

4. (a) Investors (owners) use accounting information to make decisions to buy, hold, or sell shares.(b) Creditors use accounting information to evaluate the risks of granting credit or lending money.

5. Bookkeeping usually involves only the recording of economic events and therefore is just one partof the entire accounting process. Accounting, on the other hand, involves the entire process ofidentifying, recording, and communicating economic events.

6. Karen Sommers Travel Agency should report the land at $90,000 on its December 31, 2011

statement of financial position. An important concept that accountants follow is the cost principle.The cost principle states that assets should be recorded at their cost. Cost has an importantadvantage over other valuations: it is reliable. Cost can be objectively measured and can beverified.

7. Fair value is defined as the price received to sell an asset or settle a liability.

8. The monetary unit assumption requires that only transaction data capable of being expressed interms of money be included in the accounting records. This assumption enables accounting toquantify (measure) economic events.

9. 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.

0. The three basic forms of business organizations are: (1) proprietorship, (2) partnership, and(3) corporation.

8/2/2019 991007-ch01

7/52


Questions Chapter 1 (Continued)

11. One of the advantages Maria Gonzalez would enjoy is that ownership of a corporation is resented by transferable shares. This would allow Maria to raise money easily by selling a of her ownership in the company. Another advantage is that because holders of the sha(shareholders) enjoy limited liability, they are not personally liable for the debts of the corpoentity. Also, because ownership can be transferred without dissolving the corporation, the corporaenjoys an unlimited life.

12. The basic accounting equation is Assets = Liabilities + Equity.

13. (a) Assets are resources owned by a business. Liabilities are claims against assets. Put msimply, liabilities are existing debts and obligations. Equity is the ownership claim on total asse

(b) Equity is affected by shareholders investments, dividends, revenues, and expenses.

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

15. Yes, a business can enter into a transaction in which only the left side of the accounting equais affected. An example would be a transaction where an increase in one asset is offsea decrease in another asset. An increase in the Equipment account which is offset by a decrein the Cash account is a specific example.

16. Business transactions are the economic events of the enterprise recorded by accountabecause they affect the basic equation.

(a) No, the death of the president of the company is not a business transaction as it doesaffect the basic equation.

(b) Yes, supplies purchased on account is a business transaction as it affects the basic equatio(c) No, an employee being fired is not a business transaction as it does not affect the b

equation.

17. (a) Decrease assets and decrease equity.(b) Increase assets and decrease assets.(c) Increase assets and increase equity.(d) Decrease assets and decrease liabilities.

18. (a) Income statement. (d) Statement of financial position.(b) Statement of financial (e) Statement of financial position and retained

position. earnings statement.(c) Income statement. (f) Statement of financial position.

19. No, this treatment is not proper. While the transaction does involve a receipt of cash, it doesrepresent revenues. Revenues are the gross increase in equity resulting from business activentered into for the purpose of earning income. This transaction is simply an additional investmmade by one of the owners of the business.

20. Yes. Net income does appear on the income statementit is the result of subtracting expenfrom revenues. In addition, net income appears in the retained earnings statementit is shas an addition to the beginning-of-period retained earnings. Indirectly, the net income of a companalso included in the statement of financial position. It is included in the Retained Earnings accwhich appears in the equity section of the statement of financial position.

8/2/2019 991007-ch01

8/52

8/2/2019 991007-ch01

9/52


SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 1-1

(a) 90,000 50,000 = 40,000 (Equity).(b) 40,000 + 70,000 = 110,000 (Assets).(c) 94,000 60,000 = 34,000 (Liabilities).

BRIEF EXERCISE 1-2

(a) $120,000 + $232,000 = $352,000 (Total assets).(b) $190,000 $80,000 = $110,000 (Total liabilities).(c) $800,000 0.5($800,000) = $400,000 (Equity).

BRIEF EXERCISE 1-3

(a) (800,000 + 150,000) (500,000 80,000) = 530,000(Equity).

(b) (500,000 + 100,000) + (800,000 500,000 70,000) = 830,000(Assets).

(c) (800,000 80,000) (800,000 500,000 + 120,000) = 300,000(Liabilities).

BRIEF EXERCISE 1-4

Equity

Retained Earnings

Assets = Liabilities +

Share

Capital + Revenues Expenses Dividen

(a) X = 90,000 + 150,000 + 450,000 320,000 40,00

X = 90,000 + 240,000

X = 330,000

(b) $57,000 = X + $25,000 + $50,000 $35,000 $7,000$57,000 = X + $33,000

X = $24,000 ($57,000 $33,000)

(c) 600,000 = (600,000 X 2/3) + X (Equity)

600,000 = 400,000 + X

X = 200,000

8/2/2019 991007-ch01

10/52


BRIEF EXERCISE 1-5

A (a) Accounts receivable A (d) Office suppliesL (b) Salaries payable E (e) Share capitalordinaryA (c) Equipment L (f) Notes payable

BRIEF EXERCISE 1-6

Assets Liabilities Equity

a) + + NEb) + NE +c) NE

BRIEF EXERCISE 1-7

Assets Liabilities Equity

a) + NE +b) NE c) NE NE NE

BRIEF EXERCISE 1-8

E (a) Advertising expense D (e) DividendsR (b) Commission revenue R (f) Rent revenueE (c) Insurance expense E (g) Utilities expenseE (d) Salaries expense

BRIEF EXERCISE 1-9

R (a) Received cash for services performedNE (b) Paid cash to purchase equipmentE (c) Paid employee salaries

8/2/2019 991007-ch01

11/52


BRIEF EXERCISE 1-10

LOPEZ COMPANYStatement of Financial Position

December 31, 2011

Assets

Accounts receivable.................................................................................. $ 72,50Cash................................................................................................................ 49,00

Total assets ......................................................................................... $121,50

Equity and LiabilitiesEquity

Share capitalordinary................................................................... $ 31,50Liabilities

Accounts payable.............................................................................. 90,00Total equity and liabilities...................................................... $121,50

BRIEF EXERCISE 1-11

FP (a) Notes payableIS (b) Advertising expenseFP (c) Share capitalordinaryFP (d) CashIS (e) Service revenue

RE (f) Dividends

SOLUTIONS FOR DO IT! REVIEW EXERCISES

DO IT! 1-1

1. False. The three steps in the accounting process are identificatirecording, and communication.

2. True.3. True.4. False. The primary accounting standard-setting body in the Uni

States is the Financial Accounting Standards Board (FASB).5. True.

8/2/2019 991007-ch01

12/52


DO IT! 1-2

1) Dividends is dividends (D); it decreases equity.2) Rent Revenue is a revenue (R); it increases equity.3) Advertising Expense is an expense (E); it decreases equity.4) When shareholders pay cash into the business, they receive capital

shares (I); it increases equity.

DO IT! 1-3

Assets = Liabilities + Equity

Retained Earnings

Cash +

Accounts

Receivable =

Accounts

Payable +

Share

Capital + Revenues Expenses Dividends

1) +R20,000 +R20,000

2) +R20,000 R20,0003) +R2,000 R2,000

4) R 5,000 R5,000

DO IT! 1-4

a) The total assets are R$49,500, comprised of Cash R$7,000, AccountsReceivable R$13,500, and Equipment R$29,000.

b) Net income is R$21,000, computed as follows:

RevenuesService revenue.................................................. R$54,000

ExpensesSalaries expense................................................ R$16,500Rent expense....................................................... 10,500Advertising expense ......................................... 6,000

Total expenses .......................................... 33,000Net income .................................................................... R$21,000

8/2/2019 991007-ch01

13/52


DO IT! 1-4 (Continued)

(c) The ending equity balance of Santos Company is R$21,500. By rewritthe accounting equation, we can compute R$ Equity as Assets minLiabilities, as follows:

Total assets [as computed in (a)]............................ R$49,50

Less: LiabilitiesNotes payable .................................................. R$25,000Accounts payable........................................... 3,000 28,00

Equity................................................................................ R$21,50

Note that it is not possible to determine the companys equity in any otway, because the beginning balance for equity is not provided.

8/2/2019 991007-ch01

14/52


SOLUTIONS TO EXERCISES

EXERCISE 1-1

C Analyzing and interpreting information.R Classifying economic events.C Explaining uses, meaning, and limitations of data.R Keeping a systematic chronological diary of events.R Measuring events in dollars and cents.C Preparing accounting reports.C Reporting information in a standard format.I Selecting economic activities relevant to the company.R Summarizing economic events.

EXERCISE 1-2

a) Internal usersMarketing managerProduction supervisorStore managerVice-president of finance

External usersCustomersTaxing authorityLabor unionsSecurities regulatorSuppliers

b) I Can we afford to give our employees a pay raise?E Did the company earn a satisfactory income?I Do we need to borrow in the near future?E How does the companys profitability compare to other companies?

I What does it cost us to manufacture each unit produced?I Which product should we emphasize?E Will the company be able to pay its short-term debts?

8/2/2019 991007-ch01

15/52


EXERCISE 1-3

Larry Smith, president of Smith Company, instructed Ron Rivera, the headthe accounting department, to report the companys land in their accountreports at his assumed market value of $170,000 instead of its cost $100,000, in an effort to make the company appear to be a better investmeAlthough we have an accounting system that permits various measurem

approaches, cost should be used whenever there are questions regarding reliability of a market value. In this case, valuation of land is too subjectand therefore the cost principle should be used.

The stakeholders include shareholders and creditors of Smith Compapotential shareholders and creditors, other users of Smiths accountreports, Larry Smith, and Ron Rivera. All users of Smiths accounting repocould be harmed by relying on information which violates accountprinciples. Larry Smith could benefit if the company is able to attract mo

investors, but would be harmed if the fraudulent reporting is discoverSimilarly, Ron Rivera could benefit by pleasing his boss, but would harmed if the fraudulent reporting is discovered.

Rons alternatives are to report the land at $100,000 or to report it$170,000. Reporting the land at $170,000 is not appropriate since it womislead many people who rely on Smiths accounting reports to make fincial decisions. Ron should report the land at its cost of $100,000. He shotry to convince Larry Smith that this is the appropriate course of action, bbe prepared to resign his position if Smith insists.

EXERCISE 1-4

1. Correct. IFRS allows companies to revalue property, plant and equipmto fair value. However, most companies choose not to instead, duereliability concern about valuation, and negative effects on net incommost companies report property, plant and equipment at cost.

2. Correct. The monetary unit assumptionrequires that companies inclu

in the accounting records only transaction data that can be expressin terms of money.

3. Incorrect. The economic entity assumptionrequires that the activitiesthe entity be kept separate and distinct from the activities of its owand all other economic entities.

8/2/2019 991007-ch01

16/52


EXERCISE 1-5

Asset Liability Equity

Cash Accounts payable Share capitalordinaryCleaning equipment Notes payableCleaning supplies Salaries payableAccounts receivable

EXERCISE 1-6

. Increase in assets and increase in equity.2. Decrease in assets and decrease in equity.3. Increase in assets and increase in liabilities.4. Increase in assets and increase in equity.5. Decrease in assets and decrease in equity.

6. Increase in assets and decrease in assets.7. Increase in liabilities and decrease in equity.8. Increase in assets and decrease in assets.9. Increase in assets and increase in equity.

EXERCISE 1-7

. (c) 5. (d)2. (d) 6. (b)

3. (a) 7. (e)4. (b) 8. (f)

EXERCISE 1-8

a) 1. Shareholders invested $15,000 cash in the business.2. Purchased office equipment for $5,000, paying $2,000 in cash and

the balance of $3,000 on account.

3. Paid $750 cash for supplies.4. Earned $8,300 in revenue, receiving $4,600 cash and $3,700 onaccount.

5. Paid $1,500 cash on accounts payable.

8/2/2019 991007-ch01

17/52


EXERCISE 1-8 (Continued)

6. Paid $2,000 cash dividends to shareholders.7. Paid $650 cash for rent.8. Collected $450 cash from customers on account.9. Paid salaries of $4,900.

10. Incurred $500 of utilities expense on account.

(b) Investment ............................................................................................. $15,00Service revenue ................................................................................... 8,30Dividends ............................................................................................... (2,00Rent expense ........................................................................................ (65Salaries expense.................................................................................. (4,90Utilities expense................................................................................... (50Increase in equity ................................................................................ $15,25

(c) Service revenue ................................................................................... $ 8,30Rent expense ........................................................................................ (65Salaries expense.................................................................................. (4,90Utilities expense................................................................................... (50Net income............................................................................................. $ 2,25

EXERCISE 1-9

S. MOSES & CO.Income Statement

For the Month Ended August 31, 2011

RevenuesService revenue ................................................................... $8,30

ExpensesSalaries expense.................................................................. $4,900Rent expense ........................................................................ 650

Utilities expense................................................................... 500Total expenses ............................................................ 6,05Net income...................................................................................... $2,25

8/2/2019 991007-ch01

18/52



S. MOSES & CO.Retained Earnings Statement


Retained earnings, August 1................................................... $ 0

Add: Net income....................................................................... 2,2502,250

Less: Dividends ......................................................................... 2,000Retained earnings, August 31................................... $ 250

S. MOSES & CO.Statement of Financial Position

August 31, 2011

AssetsOffice equipment......................................................................... $ 5,000Supplies ......................................................................................... 750Accounts receivable .................................................................. 3,250Cash ................................................................................................ 8,250

Total assets.......................................................................... $17,250


Share capitalordinary ................................................... $15,000Retained earnings.............................................................. 250 $15,250Liabilities

Accounts payable.............................................................. 2,000Total equity and liabilities........................................ $17,250

EXERCISE 1-10

a) Equity12/31/10 (TL400,000 TL250,000)................................ TL150,000Equity1/1/10 ..................................................................................... 100,000Increase in Equity .............................................................................. 50,000Add: Dividends ................................................................................. 15,000Net income for 2010 .......................................................................... TL 65,000

8/2/2019 991007-ch01

19/52



(b) Equity12/31/11 (TL460,000 TL300,000)......................... TL160,00Equity1/1/11see (a)............................................................. 150,00Increase in equity ....................................................................... 10,00Less: Additional investment.................................................. 50,00Net loss for 2011......................................................................... TL 40,00

(c) Equity12/31/12 (TL590,000 TL400,000)........................ TL190,00Equity1/1/12see (b) ........................................................... 160,00Increase in equity ...................................................................... 30,00Less: Additional investment................................................. 15,00

15,00Add: Dividends ........................................................................ 30,00Net income for 2012.................................................................. TL 45,00

EXERCISE 1-11

(a) Total assets (beginning of year)............................................ 95,00Total liabilities (beginning of year)....................................... 85,00Total equity (beginning of year)............................................. 10,00

(b) Total equity (end of year)......................................................... 40,00Total equity (beginning of year)............................................. 10,00

Increase in equity....................................................................... 30,00

Total revenues............................................................................. 215,00Total expenses ............................................................................ 175,00Net income.................................................................................... 40,00

Increase in equity ........................................... 30,00Less: Net income........................................... 40,000Add: Dividends ............................................. 24,000 (16,00

Additional investment................................... 14,00

(c) Total assets (beginning of year)............................................ 129,00Total equity (beginning of year)............................................. 80,00Total liabilities (beginning of year)....................................... 49,00

8/2/2019 991007-ch01

20/52



d) Total equity (end of year) ............................................................ 130,000Total equity (beginning of year)................................................ 80,000Increase in equity........................................................................... 50,000

Total revenues ................................................................................ 100,000

Total expenses................................................................................ 55,000Net income ....................................................................................... 45,000

Increase in equity................................................. 50,000Less: Net income................................................ 45,000

Additional investment ........................... 25,000 (70,000)Dividends................................................................ 20,000

EXERCISE 1-12

LINDA STANLEY CO.Income Statement

For the Year Ended December 31, 2011

RevenuesService revenue.............................................................. $62,500

ExpensesSalaries expense ............................................................ $30,000

Rent expense................................................................... 10,400Utilities expense............................................................. 3,100Advertising expense..................................................... 1,800

Total expenses....................................................... 45,300Net income................................................................................ $17,200

LINDA STANLEY CO.Retained Earnings Statement


Retained earnings, January 1................................................................... $48,000Add: Net income ......................................................................................... 17,200

65,200Less: Dividends............................................................................................ 6,000Retained earnings, December 31............................................................. $59,200

8/2/2019 991007-ch01

21/52


EXERCISE 1-13

MENDEZ COMPANYStatement of Financial Position

December 31, 2011

Assets

Equipment..................................................................................... 46,00Supplies......................................................................................... 8,00Accounts receivable.................................................................. 8,50Cash................................................................................................ 15,00

Total assets ......................................................................... 77,50


Share capitalordinary................................................... 50,000Retained earnings (17,500 10,000) ....................... 7,500 57,50

LiabilitiesAccounts payable.............................................................. 20,00

Total equity and liabilities...................................... 77,50

EXERCISE 1-14

(a) Camping fee revenues..................................................................... $140,00

General store revenues ................................................................... 50,00Total revenue ............................................................................. 190,00Expenses.............................................................................................. 150,00Net income........................................................................................... $ 40,00

(b) DEER PARKStatement of Financial Position

December 31, 2011

AssetsEquipment............................................................................................ $105,50Supplies ................................................................................................ 2,50Cash....................................................................................................... 23,00

Total assets ................................................................................ $131,00

8/2/2019 991007-ch01

22/52



DEER PARKStatement of Financial Position (Continued)

December 31, 2011

Equity and Liabilities

EquityShare capitalordinary ......................................... $20,000Retained earnings.................................................... 40,000

Total equity........................................................ $ 60,000Liabilities

Notes payable............................................................ 60,000Accounts payable .................................................... 11,000

Total liabilities.................................................. 71,000Total equity and liabilities ................................................ $131,000

EXERCISE 1-15

SILVA CRUISE COMPANYIncome Statement


RevenuesTicket revenue............................................................ R$325,000

ExpensesSalaries expense ....................................................... R$142,000Maintenance expense.............................................. 95,000Property tax expense............................................... 10,000Advertising expense ................................................ 3,500

Total expenses.................................................. 250,500Net income ........................................................................... R$ 74,500

8/2/2019 991007-ch01

23/52


EXERCISE 1-16

KEVIN AND JOHNSON, ATTORNEYS AT LAWRetained Earnings Statement


Retained earnings, January 1.......................................................... $ 23,00

Add: Net income................................................................................ 139,00162,00

Less: Dividends .................................................................................. 79,00Retained earnings, December 31 ................................................... $ 83,00

*Legal service revenue ...................................................................... $350,00Total expenses ................................................................................... 211,00Net income ........................................................................................... $139,00

EXERCISE 1-17

BORNEO COMPANYStatement of Cash Flows


Cash flows from operating activitiesCash receipts from revenues ............................... Rp600,00Cash payments for expenses............................... (410,00Net cash provided by operating activities 190,00

Cash flows from investing activitiesPurchase of equipment .......................................... (100,00

Cash flows from financing activities ..........................Sale of shares ............................................................ Rp350,000Payment of cash dividends................................... (20,000) 330,00

Net increase in cash......................................................... 420,00Cash at the beginning of the period............................ 30,00Cash at the end of the period........................................ Rp450,00

8/2/2019 991007-ch01

24/52


(a)

BARO

NESREPAIRLTD.

Equity

RetainedEarnings

Cash

+

Accounts

R

eceivable+Supplies+Equipme

nt=

Accounts

Payable

+

Share

Capital

+R

evenues

ExpensesDividends

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

+10,000

+

10,000

+

5,000

+

5,000

+

400

+

4,600

+

500

+

4,100

+000,000

+

4,100

+5,100

+

9,200

1,000

+

8,200

+

2,000

+

6,200

+

140

+

6,060

+000,000

+

6,060

+120

+

6,180

+ +

+750

+

750

+120

+630

+ + + + + + + +

+500

+

500

+0000

+

500

+0000

+

500

+0000

+

500

+0000

+

500

+0000

+

500

+0000

+

500

+500

+ + + + + + + + + +

+5,000

+

5,000

+00,000

+

5,000

+00,000

+

5,000

+00,000

+

5,000

+00,000

+

5,000

+00,000

+

5,000

+00,000

+

5,000

+00,000

+

5,000

+00,000

+

5,000

+5,000

= = = = = = = = = = =

+250

+

250

+0000

+

250

+0000

+

250

+0000

+

250

+0000

+0250

+0000

+0250

+250

+ + + + + + + + + +

+10,000

0010,000

+000,

0010,000

10,000

10,0000

00010,0000

00010,000

10,000

10,000

10,000

10,000

10,000

+ + + + + + + + + + +

+5,100

5,100

5,100

5,100

5,100

+750

5,850

5,850

400

400

400

250

650

650

650

2,000

2,650

140

2,790

2,790

2,790

1,000

1,000

1,000

1,000

1,000

1,000

(a)

(b)

(c)

(d)

(e)

(f)

(g)

(h)

12,310

12,310

PROBLEM 1-1A

SOLUTIONS TO PROBLEMS

8/2/2019 991007-ch01

25/52


PROBLEM 1-1A (Continued)

Key to Retained Earnings Column(b) Rent expense(c) Advertising expense(d) Service revenue(e) Dividends

(f) Salaries expense(g) Utilities expense(h) Service revenue

(b) Service revenue (5,100 + 750)................................. 5,85Expenses

Salaries ...................................................................... 2,000Rent ............................................................................. 400Advertising ............................................................... 250

Utilities ....................................................................... 140 2,79Net income....................................................... 3,06

8/2/2019 991007-ch01

26/52

PROBLEM 1-2A


(a)

NASHVILLEVETERINARYCLINIC

Cash

+

Acco

unts

Receivable+

Supplies

+

Office

Equipment=

N

otes

Pa

yable

+

Accounts

Payable

+

Share

Capital

+

Retained

Earnings

+

Revenues

Expenses

Dividends

Bal.

1.

2.

3.

4.

5.

6.

7.

8.

$

9,000

2,900

6,100

+1,300

7,400

800

6,600

+2,500

9,100

1,000

8,100

2,900

5,200

000,000

5,200

+10,000

$15,200

+ + + + + + + + +

$1,7

00

00,0

00

1,7

00

1,3

00

4

00

00,0

00

4

00

+5,5

00

5,9

00

00,0

00

5,9

00

00,0

00

5,9

00

00,0

00

5,9

00

$5,9

00

+ + + + + + + + +

$600

0000

600

0000

600

0000

600

0000

600

0000

600

0000

600

0000

600

$600

+ + + + + + + + +

$

6,000

000,000

6,000

000,000

6,000

+2,100

8,100

000,000

8,100

000,000

8,100

000,000

8,100

000,000

8,100

$

8,100

= = = = = = = = =

+$10,000

+$10,000

+

$3,600

2,900

700

00,000

700

+1,300

2,000

00,000

2,000

00,000

2,000

00,000

2,000

+170

2,170

$2,170

+ + + + + + + + +

$13,000

13,000

13,000

13,000

13,000

13,000

13,000

13,000

$13,000

+ 0 + + + + + + + +

$700

700

700

700

700

700

700

700

$700

+

+$8,000

8,000

8,000

8,000

8,000

$8,000

$1,700

900

300

2,900

170

3,070

$

3,070

$1,000

1,000

1,000

1,000

$1,000

(a)

(b)

(c)

(d)

(e)

(f)

$29,800

$29,800

8/2/2019 991007-ch01

27/52



(b) NASHVILLE VETERINARY CLINICIncome Statement

For the Month Ended September 30, 2011

Revenues

Service revenue .......................................................... $8,00Expenses

Salaries expense......................................................... $1,700Rent expense ............................................................... 900Advertising expense.................................................. 300Utilities expense.......................................................... 170

Total expenses ................................................... 3,07Net income............................................................................. $4,93

NASHVILLE VETERINARY CLINICRetained Earnings Statement

For the Month Ended September 30, 2011

Retained earnings, September 1 .................................................... $ 70Add: Net income................................................................................ 4,93

5,63Less: Dividends .................................................................................. 1,00Retained earnings, September 30.................................................. $4,63

8/2/2019 991007-ch01

28/52



NASHVILLE VETERINARY CLINICStatement of Financial Position

September 30, 2011

AssetsOffice equipment................................................................... $ 8,100Supplies ................................................................................... 600Accounts receivable ............................................................ 5,900Cash .......................................................................................... 15,200

Total assets.................................................................... $29,800


Share capitalordinary ............................................. $13,000

Retained earnings........................................................ 4,630Total equity............................................................ $17,630

LiabilitiesNotes payable................................................................ 10,000Accounts payable ........................................................ 2,170

Total liabilities...................................................... 12,170Total equity and liabilities ................................................. $29,800

8/2/2019 991007-ch01

29/52


PROBLEM 1-3A

(a) YOON FLYING SCHOOLIncome Statement

For the Month Ended May 31, 2011

Revenues

Lesson revenue.................................................... W7,50Expenses

Fuel expense ......................................................... W2,500Rent expense ........................................................ 1,200Advertising expense........................................... 500Insurance expense.............................................. 400Repair expense..................................................... 400

Total expenses ............................................ 5,00Net income...................................................................... W2,50

YOON FLYING SCHOOLRetained Earnings Statement


Retained Earnings, May 1.......................................... W Add: Net income ........................................................ 2,50

2,50Less: Dividends ........................................................... 1,50Retained earnings, May 31 ........................................ W1,00

YOON FLYING SCHOOLStatement of Financial Position

May 31, 2011

AssetsEquipment.............................................................................................. W64,00Accounts receivable........................................................................... 7,20Cash......................................................................................................... 5,60

Total assets .................................................................................. W76,80

8/2/2019 991007-ch01

30/52



YOON FLYING SCHOOLStatement of Financial Position (Continued)

May 31, 2011


EquityShare capitalordinary ......................................... W45,000Retained earnings.................................................... 1,000

Total equity........................................................ W46,000Liabilities

Notes payable............................................................ W30,000Accounts payable .................................................... 800

Total liabilities.................................................. 30,800Total equity and liabilities.............................................. W76,800

b) YOON FLYING SCHOOLIncome Statement


RevenuesLesson revenue (W7,500 + W900) ................. W8,400

ExpensesFuel expense (W2,500 + W1,500) ................... W4,000

Rent expense........................................................ 1,200Advertising expense .......................................... 500Insurance expense ............................................. 400Repair expense.................................................... 400

Total expenses............................................ 6,500Net income ..................................................................... W1,900

YOON FLYING SCHOOLRetained Earnings Statement

For the Month Ended May 31, 2011Retained Earnings, May 1 ......................................... W 0Add: Net income ........................................................ 1,900

1,900Less: Dividends .......................................................... 1,500Retained Earnings, May 31....................................... W 400

8/2/2019 991007-ch01

31/52

Copyright 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 1

(a)

MI

LLER

DELIVERIES

Assets

Liabilities

Equity

RetainedEarning

s

Date

Cash

+

Accounts

Receivable+

Supplies

+

Delivery

Van

=

Notes

Payable

+

Accounts

Payable

+

S

hare

Capital

+

Revenues

Expenses

Dividends

June

1

June

2

June

3

June

5

June

9

June12

June15

June17

June20

June23

June26

June29

June30

$10,000

+

2,000

8,000

+

500

+

7,500

+

7,500

+

200

7,300

7,300

+

+1,250

8,550

+

8,550

+

+1,500

10,050

500

+

9,550

250

9,300

100

9,200

1,000

$

8,200

+ + + + + + + + + + + +

+$4,400

4,400

4,400

4,400

1,250

3,150

3,150

3,150

3,150

3,150

3,150

$3,150

+ + + + + + + + + +

+050

+$150

150

150

150

150

150

150

150

$150

+ + + + + + + +

+$12,000

12,000

+12,000

+0012,000

+

12,000

12,000

12,000

12,000

+12,000

12,000

12,000

12,000

$12,000

= = = = = = = = = = = =

+$10,000

10,000

10,000

10,000

10,000

10,000

10,000

10,000

10,000

500

9,500

9,500

9,500

$

9,500

+ + + + + + + + + + + +

+$150

+

150

00 +

150

+100

+

250

+

250

+0250

+0 +

0250

100

150

$150

+ + + + + + + +

+$1

0,000

1

0,000

1

0,000

1

0,000

1

0,000

1

0,000

1

0,000

1

0,000

1

0,000

1

0,000

1

0,000

1

0,000

$1

0,000

+ + + + + + + + + + + +

$4,400

4,400

4,400

4,400

4,400

4,400

1,500

5,900

5,900

5,900

5,900

$5,900

$

500

500

500

500

500

500

100

600

600

600

250

850

850

1,000

$1,850

$200

200

200

200

200

200

200

200

200

$200

(a)

(b)

(c)

(d)

(e)

(f)

(g)

$23,500

$23,500

PROBLEM 1-4A

8/2/2019 991007-ch01

32/52



Key to Retained Earnings Columna) Rent expense (e) Service revenueb) Service revenue (f) Utilities expensec) Dividends (g) Salaries expensed) Gasoline expense

b) MILLER DELIVERIESIncome Statement

For the Month Ended June 30, 2011

RevenuesService revenue ($4,400 + $1,500)......................... $5,900

ExpensesSalaries expense......................................................... $1,000Rent expense................................................................ 500

Utilities expense.......................................................... 250Gasoline expense ....................................................... 100

Total expenses.................................................... 1,850Net income............................................................................. $4,050

c) MILLER DELIVERIESStatement of Financial Position

June 30, 2011

AssetsDelivery Van........................................................................... $12,000Supplies .................................................................................. 150Accounts receivable ........................................................... 3,150Cash ......................................................................................... 8,200

Total assets................................................................... $23,500


Share capitalordinary ............................................ $10,000

Retained earnings....................................................... 3,850Total equity........................................................... $13,850

LiabilitiesNotes payable............................................................... 9,500Accounts payable ....................................................... 150

Total liabilities..................................................... 9,650Total equity and liabilities................................................. $23,500

8/2/2019 991007-ch01

33/52


PROBLEM 1-5A

(a) KarmaCompany

YatesCompany

McCainCompany

DenchCompany

(a) $ 45,000 (d) $50,000 (g) $120,000 (j) $ 80,0

(b) 115,000 (e) 62,000 (h) 70,000 (k) 250,0(c) 10,000 (f) 48,000 (i) 431,000 (l) 435,0

(b) YATES COMPANYRetained Earnings Statement


Retained earnings, January 1................................. $20,00

Add: Net income....................................................... 35,0055,00

Less: Dividends ......................................................... 48,00Retained earnings, December 31 .......................... $ 7,00

(c) The sequence of preparing financial statements is income statemeretained earnings statement, and statement of financial position. Tinterrelationship of the retained earnings statement to the other financ

statements results from the fact that net income from the incostatement is reported in the retained earnings statement and endretained earnings reported in the retained earnings statement is tamount reported for retained earnings on the statement of financposition.

8/2/2019 991007-ch01

34/52

PROBLEM 1-1B


(a)

MA

TRIXTRAVELAGENCY

Equity

RetainedEarnings

Cash

+

Accounts

Re

ceivable

+

Supplies

+

Office

Equipment=

Accounts

Payable

+

Share

Capital

+

Revenues

ExpensesDividends

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

+10,000

+

10,000

+

400

+

9,600

+

2,500

+

7,100

+000,000

+

7,100

+

600

+

6,500

+3,000

+

9,500

+

200

+

9,300

+

300

+

9,000

+

2,200

+

6,800

+4,000

+10,800

+ + + + +

+

6,500

+

6,500

+

0,000

+

6,500

+

0,000

+

6,500

+

0,000

+

6,500

+

4,000

+

2,500

+ + + + + +

+600

+

600

+0000

+

600

+0000

+

600

+0000

+

600

+0000

+

600

+ +600

+ + + + + + + +

+2,50

0

+

2,50

0

+00,00

0

+

2,50

0

+00,00

0

+

2,50

0

+00,00

0

+

2,50

0

+00,00

0

+

2,50

0

+00,00

0

+

2,50

0

+00,00

0

+

2,50

0

+2,50

0

= = = = = = = = = =

+300

+

300

+0000

+

300

+0000

+

300

+0000

+

300

+300

+

0

+0000

+ +

0

+ + + + + +

+10,000

10,000

10,000

10,000

10,000

10,000

10,000

10,000

10,000

10,000

+ + + + + +

+

+000,000

9,500

+

9,500

+

9,500

+000,000

+

9,500

+

9,500

+ +9,500

400

400

400

300

700

700

700

700

700

2,200

2,900

2,900

200

200

200

200

200

(a)

(b)

(c)

(d)

(e)

16,400

16,400

8/2/2019 991007-ch01

35/52


PROBLEM 1-1B (Continued)

Key to Retained Earnings Column

(a) Rent Expense (d) Dividends(b) Advertising Expense (e) Salaries Expense(c) Service Revenue

(b) Service revenue ................................................................ 9,50Expenses

Salaries ...................................................................... 2,200Rent ............................................................................. 400Advertising ............................................................... 300 2,90

Net income....................................................... 6,60

8/2/2019 991007-ch01

36/52

PROBLEM 1-2B


(a)

CIND

YBELTON,ATTORNEYATLAW

Cash

+

Accounts

Rec

eivable+Supplies+

Office

Equipment=

Notes

P

ayable

+

Accounts

Payable

+

Share

Capital+

Retained

Earnings

+RevenuesExpenses

D

ividends

Bal.

1.

2.

3.

4.

5.

6.

7.

8.

$4,000

+1,400

5,400

2,700

2,700

+3,000

5,700

400

5,300

4,250

1,050

750

300

+2,000

2,300

$2,300

+ + + + + + + + +

$1,500

1,400

100

00,000

100

+6,000

6,100

00,000

6,100

00,000

6,100

00,000

6,100

00,000

6,100

$6,100

+ + + + + + + + +

$500

0000

500

0000

500

0000

500

0000

500

0000

500

0000

500

0000

500

$500

+ + + + + + + + +

$5,000

00,000

5,000

00,000

5,000

00,000

5,000

+1,000

6,000

00,000

6,000

00,000

6,000

00,000

6,000

$6,000

= = = = = = = = =+$2,000

+

2,000

+$2,000

+ +

$4,200

00,000

4,200

2,700

1,500

00,000

1,500

+600

2,100

00,000

2,100

00,000

2,100

00,000

2,100

+250

$2,350

+ + + + + + + + +

$6,000

6,000

6,000

6,000

6,000

6,000

6,000

6,000

$6,000

+ + + + + + + + +

$800

000,000800

000,000

800

800

000,000

800

800

800

000,000800

$800

+ + + + + +

+$9,000

9,000

9,000

9,000

9,000

9,000

$9,000

$3,000

900

350

4,250

4,250

4,250

250

$4.500

$750750

750

$750

(a)

(b)(c)(d)

(e)

(f)

$14,900

$14,900

8/2/2019 991007-ch01

37/52



(b) CINDY BELTON, ATTORNEY AT LAWIncome Statement


Revenues

Service revenue...................................................... $9,00Expenses

Salaries expense.................................................... $3,000Rent expense .......................................................... 900Advertising expense............................................. 350Utilities expense..................................................... 250

Total expenses .............................................. 4,50Net income........................................................................ $4,50

CINDY BELTON, ATTORNEY AT LAWRetained Earnings Statement


Retained earnings, August 1 ...................................... $ 80Add: Net income........................................................... 4,50

5,30Less: Dividends ............................................................. 75Retained earnings, August 31.................................... $4,55

8/2/2019 991007-ch01

38/52



CINDY BELTON, ATTORNEY AT LAWStatement of Financial Position

August 31, 2011

Assets

Office equipment................................................................. $ 6,000Supplies ................................................................................. 500Accounts receivable .......................................................... 6,100Cash ........................................................................................ 2,300

Total assets.................................................................. $14,900


Share capitalordinary ........................................... $6,000Retained earnings...................................................... 4,550

Total equity.......................................................... $10,550

LiabilitiesNotes payable.............................................................. 2,000Accounts payable ...................................................... 2,350

Total liabilities.................................................... 4,350Total equity and liabilities .................................................. $14,900

8/2/2019 991007-ch01

39/52


PROBLEM 1-3B

(a) DIVINE COSMETICS CO.Income Statement


RevenuesService revenue ................................................... 6,00

ExpensesSupplies expense ................................................ 1,600Gas and oil expense ........................................... 800Advertising expense........................................... 500Utilities expense................................................... 300

Total expenses ............................................ 3,20Net income...................................................................... 2,80

DIVINE COSMETICS CO.Retained Earnings Statement


Retained Earnings, June 1 ........................................ Add: Net income ........................................................ 2,80

2,80

Less: Dividends ........................................................... 1,20Retained Earnings, June 30...................................... 1,60

DIVINE COSMETICS CO.Statement of Financial Position

June 30, 2011

AssetsEquipment.............................................................................................. 25,00Cosmetic supplies............................................................................... 2,00Accounts receivable........................................................................... 4,00Cash......................................................................................................... 11,00

Total assets .................................................................................. 42,00

8/2/2019 991007-ch01

40/52



DIVINE COSMETICS CO.Statement of Financial Position (Continued)

June 30, 2011


EquityShare capitalordinary ........................................... 26,200Retained earnings...................................................... 1,600

Total equity.......................................................... 27,800Liabilities

Notes payable.............................................................. 13,000Accounts payable ...................................................... 1,200

Total liabilities.................................................... 14,200Total equity and liabilities .................................................. 42,000

b) DIVINE COSMETICS CO.Income Statement


RevenuesService revenue (6,000 + 800) .................... 6,800

ExpensesSupplies expense................................................ 1,600

Gas and oil expense (800 + 100)................ 900Advertising expense .......................................... 500Utilities expense.................................................. 300

Total expenses............................................ 3,300Net income ..................................................................... 3,500

DIVINE COSMETICS CO.Retained Earnings Statement

For the Month Ended June 30, 2011Retained earnings, June 1 ........................................ 0Add: Net income........................................................ 3,500

3,500Less: Dividends........................................................... 1,200Retained earnings, June 30...................................... 2,300

8/2/2019 991007-ch01

41/52


(a)

GELLERCONSULTING

Assets

Liabilities

Equity

RetainedEarnings

Date

Cash

+

Accounts

Receivable+

Supplies+

Office

Equipment=

Notes

Payable

+

Accounts

Payable

+

Share

Capital

+

Revenues

ExpensesDividends

May

1

May

2

May

3

May

5

May

9

May12

May15

May17

May20

May23

May26

May29

May30

+$8,000

8,000

800

7,200

7,200

50

7,150

+3,000

10,150

700

9,450

9,450

3,000

6,450

500

5,950

+3,000

8,950

+5,000

13,950

13,950

150

$13,800

+ + + + + + + + + + +

+$5,300

5,300

5,300

5,300

3,000

2,300

2,300

2,300

$

2,300

+ + + + + + ++$500

500

500

+050

500

500

500

500

500

500

500

500

$500

+ +

+ + +

+$2,800

2,800

$2,800

= = = = = = = = = = = = =

+$5,000

5,000

5,000

$5,000

+

+$

500

500

500

500

500

500

500

500

0

+

+

0

0

+2,800

2,800

$2,800

+ + + + + + + + + + +

+$8,000

8,00

0

8,00

0

8,00

0

8,00

0

8,00

0

8,00

0

8,00

0

8,00

0

8,00

0

8,00

0

8,00

0

8,00

0

$8,000

+ + + + + + + + + + +

+$3,000

3,000

3,000

+5,300

8,300

8,300

8,300

8,300

8,300

8,300

$8,300

$

800

800

800

50

850

850

850

850

3,000

3,850

3,850

3,850

3,850

3,850

150

$4,000

$700

700

700

700

700

700

700

700

$700

(a)

(b)

(c)

(d)

(e)

(f)

(g)

$19,400

$19,400

PROBLEM 1-4B

8/2/2019 991007-ch01

42/52



Key to Retained Earnings Column

a) Rent Expense (e) Service Revenueb) Advertising Expense (f) Salaries Expensec) Service Revenue (g) Utilities Expense

d) Dividends

b) GELLER CONSULTINGIncome Statement


RevenuesService revenue ($3,000 + $5,300) ................... $8,300

ExpensesSalaries expense................................................... $3,000

Rent expense.......................................................... 800Utilities expense.................................................... 150Advertising expense ............................................ 50

Total expenses.............................................. 4,000Net income ....................................................................... $4,300

c) GELLER CONSULTINGStatement of Financial Position

May 31, 2011

AssetsOffice equipment................................................................... $ 2,800Supplies ................................................................................... 500Accounts receivable ............................................................ 2,300Cash........................................................................................... 13,800

Total assets.................................................................... $19,400


Share capitalordinary ............................................. $8,000

Retained earnings........................................................ 3,600Total equity............................................................ $11,600Liabilities

Notes payable................................................................ 5,000Accounts payable ........................................................ 2,800

Total liabilities...................................................... 7,800Total equity and liabilities.................................................. $19,400

8/2/2019 991007-ch01

43/52


PROBLEM 1-5B

(a) McKaneCompany

SelaraCompany

GordonCompany

HindiCompany

(a) $30,000 (d) $40,000 (g) $124,000 (j) $ 50,0(b) 95,000 (e) 45,000 (h) 80,000 (k) 225,0(c) 5,000 (f) 28,000 (i) 413,000 (l) 460,0

(b) McKANE COMPANYRetained Earnings Statement


Retained earnings, January 1................................... $

Add: Net income......................................................... 15,0015,00

Less: Dividends ........................................................... 10,00Retained earnings December 31 ............................. $ 5,00

(c) The sequence of preparing financial statements is income statemeretained earnings statement, and statement of financial position. Tinterrelationship of the retained earnings statement to the other financstatements results from the fact that net income from the incostatement is reported in the retained earnings statement and endretained earnings reported in the retained earnings statement is tamount reported for retained earnings on the statement of financposition.

8/2/2019 991007-ch01

44/52


BYP 1-1 FINANCIAL REPORTING PROBLEM

a) Cadburys total assets at December 31, 2008 were 8,895 million and atDecember 31, 2007 were 11,338 million.

b) Cadbury had 251 million of cash and cash equivalents at December 31,2008.

c) Cadbury had trade and other payables totaling 1,551 million onDecember 31, 2008 and 1,701 million on December 31, 2007.

d) Cadbury reports revenues for three consecutive years as follows:

2007 5,384 million2008 4,699 million

e) From 2007 to 2008, Cadburys net income (profit for the period)decreased 416 million from 407 million to 366 million.

8/2/2019 991007-ch01

45/52


BYP 1-2 COMPARATIVE ANALYSIS PROBLEM

(a) (in millions) Cadbury Nestl

1. Total assets 8,895 CHF106,212. Accounts (notes) receivable, (net) 1,067 CHF 13,44

3. Net sales 5,384 CHF109,904. Net income 366 CHF 19,05

(b) Cadbury Nestl

Receivables/Total assets 12.0% 12.7%Net income/Sales 6.8% 17.3%

8/2/2019 991007-ch01

46/52


BYP 1-3 EXPLORING THE WEB

a) The field is normally divided into three broad areas: auditing, financial/tax, and management accounting.

b) The skills required in these areas:

People skills, sales skills, communication skills, analytical skills, abilityto synthesize, creative ability, initiative, computer skills.

c) The skills required in these areas differ as follows:

AuditingFinancialand Tax

ManagementAccounting

People skills Medium Medium MediumSales skills Medium Medium LowCommunication skills Medium Medium HighAnalytical skills High Very High HighAbility to synthesize Medium Low HighCreative ability Low Medium MediumInitiative Medium Medium MediumComputer skills High High Very High

d) Some key job functions in accounting:

Auditing: Work in audit involves checking accounting ledgers andfinancial statements within corporations and government. This workis becoming increasingly computerized and can rely on sophisticatedrandom sampling methods. Audit is the bread-and-butter work ofaccounting. This work can involve significant travel and allows youto really understand how money is being made in the company thatyou are analyzing. Its great background!

Budget Analysis: Budget analysts are responsible for developing andmanaging an organizations financial plans. There are plentiful jobs inthis area in government and private industry. Besides quantitativeskills many budget analyst jobs require good people skills because ofnegotiations involved in the work.

8/2/2019 991007-ch01

47/52


BYP 1-3 (Continued)

Financial: Financial accountants prepare financial statements based general ledgers and participate in important financial decisions involvmergers and acquisitions, benefits/ERISA planning, and long-term fincial projections. This work can be varied over time. One day you mbe running spreadsheets. The next day you may be visiting a custom

or supplier to set up a new account and discuss business. This worequires a good understanding of both accounting and finance.

Management Accounting: Management accountants work in companand participate in decisions about capital budgeting and line of buness analysis. Major functions include cost analysis, analysis of ncontracts, and participation in efforts to control expenses efficienThis work often involves the analysis of the structure of organizatioIs responsibility to spend money in a company at the right level of o

organization? Are goals and objectives to control costs being commucated effectively? Historically, many management accountants habeen derided as bean counters. This mentality has undergone machange as management accountants now often work side by side wmarketing and finance to develop new business.

Tax: Tax accountants prepare corporate and personal income tax staments and formulate tax strategies involving issues such as financchoice, how to best treat a merger or acquisition, deferral of taxwhen to expense items and the like. This work requires a thorou

understanding of economics and the tax code. Increasingly, large corrations are looking for persons with both an accounting and a lebackground in tax. A person, for example, with a JD and a CPA woube especially desirable to many firms.

(e) Junior Staff Accountant $46,000 $63,000

8/2/2019 991007-ch01

48/52


BYP 1-4 DECISION MAKING ACROSS THE ORGANIZATION

a) The estimate of the $6,100 loss was based on the difference betweenthe $25,000 invested in the driving range and the bank balance of$18,900 at March 31. This is not a valid basis for determining income

because it only shows the change in cash between two points in time.

b) The statement of financial position at March 31 is as follows:

CHIP-SHOT DRIVING RANGE COMPANYStatement of Financial Position

March 31, 2011

Assets

Caddy shack .......................................................................... $ 8,000Equipment .............................................................................. 800Cash ......................................................................................... 18,900

Total assets................................................................... $27,700


Share capitalordinary ............................................. $25,000Retained earnings........................................................ 2,450 $27,450

LiabilitiesAccounts payable ($150 + $100) ............................. 250

Total equity and liabilities ................................ $27,700

As shown in the statement of financial position, the equity at March 31is $27,450. The estimate of $2,450 of net income is the differencebetween the initial investment of $25,000 and $27,450. This was not avalid basis for determining net income because changes in equitybetween two points in time may have been caused by factors unrelatedto net income. For example, there may be dividends and/or additional

capital investments by the shareholders.

8/2/2019 991007-ch01

49/52


BYP 1-4 (Continued)

(c) Actual net income for March can be determined by adding dividento the change in equity during the month as shown below:

Equity, March 31, per statement of financial position............. $27,45Equity, March 1..................................................................................... 25,00

Increase in equity ................................................................................ 2,45Add: Dividends................................................................................... 1,00Net income............................................................................................. $ 3,45

Alternatively, net income can be found by determining the revenuearned [described in (d) below] and subtracting expenses.

(d) Revenues earned can be determined by adding expenses incurrduring the month to net income. March expenses were Rent, $1,0

Wages, $400; Advertising, $750; and Utilities, $100 for a total of $2,2Revenues earned, therefore, were $5,700 ($2,250 + $3,450). Alternativesince all revenues are received in cash, revenues earned can be coputed from an analysis of the changes in cash as follows:

Beginning cash balance............................................... $25,00Less: Cash payments

Caddy shack ................................................ $8,000Golf balls and clubs................................... 800

Rent................................................................. 1,000Advertising................................................... 600Wages............................................................. 400Dividends ...................................................... 1,000 11,80

Cash balance before revenues .................................. 13,20Cash balance, March 31 ............................................... 18,90Revenues earned............................................................ $ 5,70

8/2/2019 991007-ch01

50/52


BYP 1-5 COMMUNICATION ACTIVITY

To: Lynn BenedictFrom: Student

have received the statement of financial position of London Company as ofDecember 31, 2011. A number of items in this statement of financial positionare not properly reported. They are:

. The statement of financial position should be dated as of a specific date,not for a period of time. Therefore, it should be dated December 31,2011.

2. Cash should be reported after Supplies on the statement of financialposition.

3. Accounts receivable should be shown as an asset, not a liability, andreported between Cash and Supplies on the statement of financialposition.

4. Accounts payable should be shown as a liability, not an asset. The notepayable is also a liability and should be reported in the liability section.

5. Liabilities and equity should be shown on the statement of financialposition. Share capitalordinary is not a liability.

6. Share capitalordinary and retained earnings are part of equity.

8/2/2019 991007-ch01

51/52


BYP 1-5 (Continued)

A correct statement of financial position is as follows:

LONDON COMPANYStatement of Financial Position

December 31, 2011Assets

Equipment........................................................................... 25,50Supplies............................................................................... 2,00Accounts receivable........................................................ 6,00Cash...................................................................................... 9,00

Total assets ................................................................. 42,50


EquityShare capitalordinary......................................... 26,000Retained earnings ................................................... (2,000)

Total liabilities ................................................. 24,00Liabilities

Notes payable ........................................................... 10,500Accounts payable.................................................... 8,000

Total liabilities.................................................. 18,50Total equity and liabilities ............................................. 42,50

8/2/2019 991007-ch01

52/52

BYP 1-6 ETHICS CASE

a) The students should identify all of the stakeholders in the case; that is,all the parties that are affected, either beneficially or negatively, by theaction or decision described in the case. The list of stakeholders in this

case are:

Steve Baden, interviewee. Both Baltimore firms. Great Northern College.

b) The students should identify the ethical issues, dilemmas, or other con-siderations pertinent to the situation described in the case. In this casethe ethical issues are:

Is it proper that Steve charged both firms for the total travel costsrather than split the actual amount of $296 between the two firms?

Is collecting $592 as reimbursement for total costs of $296 ethicalbehavior?

Did Steve deceive both firms or neither firm?c) Each student must answer the question for himself/herself. Would you

want to start your first job having deceived your employer before yourfirst day of work? Would you be embarrassed if either firm found outthat you double-charged? Would your school be embarrassed if youract was uncovered? Would you be proud to tell your professor thatyou collected your expenses twice?

991007-ch01

Documents