CH 01
CH 01
CH 01
Accounting in Action
Brief
Learning Objectives Questions Exercises Do It! Exercises Problems
5. Describe the five financial 17, 19, 20, 21 10, 11 5 9, 10, 11, 12, 2, 3, 4, 5
statements and how they are 13, 14, 15, 16,
prepared. 17, 18
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ASSIGNMENT CHARACTERISTICS TABLE
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WEYGANDT FINANCIAL ACCOUNTING IFRS 4E
CHAPTER 1
ACCOUNTING IN ACTION
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ACCOUNTING IN ACTION (Continued)
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Correlation Chart between Bloom’s Taxonomy, Learning Objectives and End-of-Chapter Exercises and Problems
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1. Yes, this is correct. 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.
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 is
therefore 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.
3. (a) Internal users are those who plan, organize, and run the business and therefore are officers
and 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. No, this is incorrect. 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.
6. Jackie Remmers Travel Agency should report the land at £85,000 on its December 31, 2020
statement of financial position. 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 (cost or fair
value) companies weigh the factual nature of cost figures versus the relevance of fair value. In
general, companies use cost. Only in situations where assets are actively traded do companies
apply the fair value principle extensively. An important concept that accountants follow is the
historical cost principle.
7. The monetary unit assumption requires that only transaction data capable of being expressed in
terms of money be included in the accounting records. This assumption enables accounting to
quantify (measure) economic events.
8. 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.
9. The three basic forms of business organizations are: (1) proprietorship, (2) partnership, and
(3) corporation.
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Questions Chapter 1 (Continued)
10. One of the advantages Teresa Alvarez would enjoy is that ownership of a corporation is repre-
sented by transferable shares. This would allow Teresa to raise money easily by selling
a part of her ownership in the company. Another advantage is that because holders of the shares
(shareholders) 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.
12. (a) Assets are resources owned by a business. Liabilities are claims against assets. Put more
simply, liabilities are existing debts and obligations. Equity is the ownership claim on total
assets.
(b) Equity is affected by shareholders’ investments, dividends, revenues, and expenses.
13. The liabilities are: (b) Accounts payable and (g) Salaries and wages payable.
14. 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.
15. Business transactions are the economic events of the enterprise recorded by accountants
because they affect the basic equation.
(a) No, the death of the president of the company is not a business transaction as it does not
affect the basic equation.
(b) Yes, supplies purchased on account is a business transaction as it affects the basic equation.
(c) No, an employee being fired is not a business transaction as it does not affect the basic
equation.
18. 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 equity resulting from business activities
entered into for the purpose of earning income. This transaction is simply an additional
investment made by one of the owners of the business.
19. 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 statement of financial position. It is included in the Retained Earnings
account which appears in the equity section of the statement of financial position.
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Questions Chapter 1 (Continued)
22. TSMC’s accounting equation at December 31, 2016 was NT$1,886,455,302 = NT$496,404,176 +
NT$1,390,051,126.
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SOLUTIONS TO BRIEF EXERCISES
Equity
Share
Assets = Liabilities + Capital – Dividends + Revenues – Expenses
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BRIEF EXERCISE 1.5
Ordinary
A (c) Equipment L (f) Notes payable
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BRIEF EXERCISE 1.10
GRANDE LTD.
Statement of Financial Position
December 31, 2020
Assets
Accounts receivable....................................................................... £ 62,500
Cash................................................................................................. 49,000
Total assets............................................................................. £111,500
DO IT! 1.1
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DO IT! 1.2
DO IT! 1.3
DO IT! 1.4
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DO IT! 1.5
Revenues
Service revenue........................................ HK$53,500
Expenses
Salaries and wages expense................... HK$16,500
Rent expense............................................ 10,500
Advertising expense................................ 6,000
Total expenses................................. 33,000
Net income........................................................ HK$20,500
Note that it is not possible to determine the company’s equity in any other
way, because the beginning balance for equity is not provided.
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SOLUTIONS TO EXERCISES
EXERCISE 1.1
EXERCISE 1.2
External users
Customers
Labor unions
Financial regulators
Suppliers
Taxing authorities
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EXERCISE 1.3
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EXERCISE 1.4
EXERCISE 1.5
EXERCISE 1.6
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EXERCISE 1.7
1. (c) 5. (d)
2. (d) 6. (b)
3. (a) 7. (e)
4. (b) 8. (f)
EXERCISE 1.8
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EXERCISE 1.9
KANG & CO
Income Statement
For the Month Ended August 31, 2020
Revenues
Service revenue.......................................................... £9,100
Expenses
Salaries and wages expense..................................... £3,900
Rent expense.............................................................. 650
Utilities expense......................................................... 500
Total expenses.................................................... 5,050
Net income.......................................................................... £4,050
KANG & CO
Retained Earnings Statement
For the Month Ended August 31, 2020
KANG & CO
Statement of Financial Position
August 31, 2020
Assets
Equipment......................................................................... £ 5,000
Supplies............................................................................. 750
Accounts receivable......................................................... 4,050
Cash................................................................................... 9,250
Total assets............................................................... £19,050
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Liabilities
Accounts payable..................................................... 2,000
Total equity and liabilities.................................. £19,050
EXERCISE 1.10
EXERCISE 1.11
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Less: Net income............................................ € (45,000)
Add: Dividends............................................... 37,000) (8,000)
Additional investment..................................... € 7,000
EXERCISE 1.11 (Continued)
(c) Total assets (beginning of year).......................................... €129,000
Total equity (beginning of year)........................................... 80,000
Total liabilities (beginning of year)...................................... € 49,000
(d) Total Equity (end of year)..................................................... €130,000
Total Equity (beginning of year)........................................... 80,000
Increase in Equity.................................................................. € 50,000
Total revenues....................................................................... €100,000
Total expenses...................................................................... 60,000
Net income............................................................................. € 40,000
Increase in Equity............................................ € 50,000
Less: Net income............................................ € (40,000)
Additional investment.......................... (25,000) (65,000)
Dividends.......................................................... € 15,000
EXERCISE 1.12
(a)
KAREN WEIGEL CO.
Income Statement
For the Year Ended December 31, 2020
Revenues
Service revenue...................................................... $63,600
Expenses
Salaries and wages expense................................. $30,200
Rent expense.......................................................... 10,400
Utilities expense..................................................... 3,100
Advertising expense.............................................. 1,800
Total expenses............................................... 45,500
Net income..................................................................... $18,100
(b)
KAREN WEIGEL CO.
Comprehensive Income Statement
For the Year Ended December 31, 2020
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Net income..................................................................... $18,100
Other comprehensive income...................................... 460
Comprehensive income................................................ $18,560
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EXERCISE 1.13
SANCULI SPA
Statement of Financial Position
December 31, 2020
Assets
Equipment....................................................................................... €48,000
Supplies........................................................................................... 8,000
Accounts receivable....................................................................... 8,500
Cash................................................................................................. 14,000
Total assets............................................................................. €78,500
EXERCISE 1.14
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EXERCISE 1.14 (Continued)
Assets
Equipment............................................................................... £105,500
Supplies................................................................................... 2,500
Cash......................................................................................... 20,000
Total assets...................................................................... £128,000
EXERCISE 1.15
DELGADO CRUISE SA
Income Statement
For the Year Ended December 31, 2020
Revenues
Ticket revenue................................................... R$342,000
Expenses
Salaries and wages expense............................ R$144,000
Maintenance and repairs expense................... 97,000
Utilities expense................................................ 10,000
Advertising expense......................................... 3,500
Total expenses........................................... 254,500
Net income................................................................. R$ 87,500
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EXERCISE 1.15 (Continued)
DELGADO CRUISE SA
Comprehensive Income Statement
For the Year Ended December 31, 2020
EXERCISE 1.16
LING AN CO.
Retained Earnings Statement
For the Year Ended December 31, 2020
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EXERCISE 1.17
JAVA GROWERS
Statement of Cash Flows
For the Year Ended December 31, 2020
(Amounts in thousands)
EXERCISE 1.18
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1. +NT$15,000 +NT$15,000
+ 15,000 = + 15,000
2. + –600 + –NT$600
+ 14,400 = + 15,000 –600
SOLUTIONS TO PROBLEMS
3. + –3,000 +NT$3,000 +000,000
+ 11,400 + + 3,000 = + 15,000 –600
4. +000,000 +00,000 +NT$700 + –700
+ 11,400 + + 3,000 = + 700 + + 15,000 –1,300
5. + –900 +NT$900 +00,000 +0000 +000,000
+ 10,500 + + 900 + + 3,000 = + 700 + + 15,000 –1,300
PROBLEM 1.1
6. – +3,000 +NT$7,000 +0000 +00,000 +0000 – +NT$10,000
+ 13,500 + + 7,000 + + 900 + + 3,000 = + 700 + + 15,000 10,000 –1,300
7. + –600 + 0,000 +0000 +00,000 +0000 + –NT$600
+ 12,900 + + 7,000 + + 900 + + 3,000 = + 700 + + 15,000 –600 10,000 –1,300
8. + –500 + 0,000 +0000 +00,000 +–500 +000,000
+ 12,400 + + 7,000 + + 900 + + 3,000 = 200 + 15,000 –600 10,000 –1,300
9. + –2,500 + 0,000 +0000 +00,000 +0000 –2,500
+ 9,900 + + 7,000 + + 900 + + 3,000 = 200 + 15,000 –600 10,000 –3,800
10. – +4,000 +– 4,000 + +
+ NT $13,900 + + NT $3,000 + + NT $900 + + NT $3,000 = + NT $200 + +NT$15,000 – NT$600 + NT$10,000 – NT$3,800
NT$20,800 NT$20,800
1-25
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PROBLEM 1.1 (Continued)
SOLUTIONS TO PROBLEMS
PROBLEM 1-1C
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PROBLEM 1.2
3. +4,000 +3,500 0000 00,000 00,000 +¥7,500
7,400 + 3,800 + 500 + 6,000 = 1,400 + 8,800 7,500
4. –400 00,000 0000 +2,000 +1,600 000,000
7,000 + 3,800 + 500 + 8,000 = 3,000 + 8,800 + 7,500
5. –4,100 –¥2,800
–900
00,000 0000 00,000 00,000 –400
2,900 + 3,800 + 500 + 8,000 = 3,000 + 8,800 + 7,500 –4,100
6. –700 00,000 0000 00,000 00,000 –¥700
2,200 + 3,800 + 500 + 8,000 = 3,000 + 8,800 + 7,500 –4,100 –700
7. +2,000 00,000 0000 00,000 +¥2,000 00,000 000,000
4,200 + 3,800 + 500 + 8,000 = + 2,000 + 3,000 + 8,800 + 7,500 –4,100 –700
8. +270 –270
¥4,200 + ¥3,800 + ¥500 + ¥8,000 = +¥2,000 + ¥3,270 + ¥8,800 + ¥7,500 – ¥4,370 – ¥700
¥16,500 ¥16,500
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PROBLEM 1.2 (Continued)
Revenues
Service revenue.............................................. ¥7,500
Expenses
Salaries and wages expense......................... ¥2,800
Rent expense.................................................. 900
Advertising expense...................................... 400
Utilities expense............................................. 270
Total expenses........................................ 4,370
Net income.............................................................. ¥3,130
PROBLEM 1-2C
AI FANG, ATTORNEY AT LAW
Retained Earnings Statement
For the Month Ended August 31, 2020
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PROBLEM 1.2 (Continued)
AI FANG COMPANY
Statement of Financial Position
August 31, 2020
Assets
Equipment................................................................................. ¥ 8,000
Supplies..................................................................................... 500
Accounts receivable................................................................. 3,800
Cash........................................................................................... 4,200
Total assets....................................................................... ¥16,500
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PROBLEM 1.3
Revenues
Service revenue............................................ W6,800
Expenses
Gasoline expense......................................... W2,500
Rent expense................................................ 1,000
Advertising expense..................................... 500
Utilities expense........................................... 400
Maintenance and repairs expense.............. 400
Total expenses...................................... 4,800
Net income............................................................ W 2,000
Assets
Equipment................................................................................. W64,000
Accounts receivable................................................................. 7,420
Cash........................................................................................... 4,500
Total assets....................................................................... W 75,920
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PROBLEM 1.3 (Continued)
Revenues
Service revenue (W6,800 + W900)............... W7,700
Expenses
Gasoline expense (W2,500 + W1,500)......... W4,000
Rent expense................................................ 1,000
Advertising expense..................................... 500
Utilities expense........................................... 400
Maintenance and repairs expense.............. 400
Total expenses...................................... 6,300
Net income............................................................ W1,400
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1-32
PROBLEM 1.4
June 9 + –300 –£300 (c)
+ 4,800 + +050 + 14,000 = 12,000 + 10,000 + 4,800 – –500 – –300
June 12 7,2000 +£150 +£150
+ 4,800 + 150 + 14,000 = 12,000 + + 150 + 10,000 + 4,800 – –500 – –300
June 15 – 7,200 –1,250 +00
+ +1,250 + 3,550 + 150 + 14,000 = 12,000 + + 150 + 10,000 + 4,800 – –500 – –300
June 17 8,450 +100 –100 (d)
+ 3,550 + 150 + 14,000 = 12,000 + + 250 + 10,000 + 4,800 – –600 – –300
June 20 + 8,450 + 1,500 (e)
+ +1,500 + 3,550 + 150 + +14,000 = 12,000 + + 250 + 10,000 + 6,300 – –600 – –300
June 23 9,950 –500
–500 + 3,550 + 150 + 14,000 = 11,500 + +0250 + 10,000 + 6,300 – –600 – –300
June 26 + 9,450 +0 –250 (f)
+ –250 + 3,550 + 150 + 14,000 = 11,500 + +0250 + 10,000 + 6,300 – –850 – –300
June 29 9,200 –100
–100 + 3,550 + 150 + 14,000 = 11,500 + 150 + 10,000 + 6,300 – –850 – –300
June 30 9,100 – –1,000 (g)
–1,000 + £3,550 + £150 + £14,000 = £ 11,500 + £150 + £10,000 + £6,300 – £1,850 – £300
£ 8,100
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£25,800 £25,800
PROBLEM 1.4 (Continued)
Revenues
Service revenue (£4,800 + £1,500)..................... £6,300
Expenses
Salaries and wages expense.............................. £1,000
Rent expense....................................................... 500
Utilities expense.................................................. 250
Gasoline expense................................................ 100
Total expenses............................................. 1,850
Net income................................................................... £4,450
Assets
Equipment.................................................................... £14,000
Supplies....................................................................... 150
Accounts receivable.................................................... 3,550
Cash.............................................................................. 8,100
Total assets.......................................................... £25,800
Equity and Liabilities
Equity
Share capital—ordinary...................................... £10,000
Retained earnings (£4,450 – £300)..................... 4,150
Total equity................................................... £14,150
Liabilities
Notes payable...................................................... 11,500
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Accounts payable................................................ 150
Total liabilities.............................................. 11,650
Total equity and liabilities........................................................ £25,800
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PROBLEM 1.5
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CT 1.1 FINANCIAL REPORTING PROBLEM
(a) TSMC’s total assets at December 31, 2016 were NT$ 1,886,455,302 and
at December 31, 2015 were NT$ 1,657,518,298.
(b) TSMC had NT$ 541,253,833 of cash and cash equivalents at December
31, 2016.
(c) TSMC had accounts payable totaling NT$ 26,062,351 on December 31,
2016 and NT$ 18,575,286 on December 31, 2015.
(d) TSMC reports revenues for 2016 of NT$ 947,938,344 and for 2015 of
NT$ 843,497,368 million.
(e) From 2015 to 2016, TSMC’s net income increased NT$ 27,782,069 from
NT$ 306,556,167 to NT$ 334,338,236.
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CT 1.2 COMPARATIVE ANALYSIS PROBLEM
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CT 1.3 REAL–WORLD FOCUS
Financial Management
Auditing and Tax Accounting
People skills Medium Medium Medium
Sales skills Medium Medium Low
Communication skills Medium Medium High
Analytical skills High Very High High
Ability to synthesize Medium Low High
Creative ability Low Medium Medium
Initiative Medium Medium Medium
Computer skills High High Very High
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CT 1.4 DECISION–MAKING ACROSS THE ORGANIZATION
(a) The estimate of the £6,100 loss was based on the difference between
the £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.
Assets
Building........................................................................ £ 8,000
Equipment.................................................................... 800
Cash.............................................................................. 18,900
Total assets.......................................................... £27,700
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CT 1.4 (Continued)
(c) Actual net income for March can be determined by adding dividends to
the change in equity during the month as shown below:
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CT 1.5 COMMUNICATION ACTIVITY
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CT 1.5 (Continued)
LIVERPOOL LTD.
Statement of Financial Position
December 31, 2020
Assets
Equipment................................................................ £25,500
Supplies.................................................................... 3,000
Accounts receivable................................................ 5,000
Cash.......................................................................... 9,000
Total assets........................................................ £42,500
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CT 1.6 ALL ABOUT YOU
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CT 1.7 CONSIDERING PEOPLE, PLANET, AND PROFIT
The 5 aspirations of the company are related to sustaining (1) its business,
(2) its brands, (3) its people, (4) its communities, and (5) the planet.
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GAAP EXERCISES
GAAP 1-1
GAAP 1-2
GAAP 1-3
GAAP 1-4
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GAAP 1.5 GAAP FINANCIAL REPORTING PROBLEM
(a) Apple’s total assets at September 24, 2016 were $321,686 million and
at September 26, 2015 were $290,345 million.
(b) Apple had $20,484 million of cash and cash equivalents at September 24,
2016.
(c) Apple had accounts payable totaling $37,294 million on September 24,
2016 and $35,490 million on September 26, 2015.
(d) Apple reports net sales for three consecutive years as follows:
(e) From 2015 to 2016, Apple’s net income decreased $7,707 million from
$53,394 million to $45,687 million.
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