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SOLUTION MANUAL FOR FINANCIAL & MANAGERIAL
ACCOUNTING, 17TH EDITION (WARREN, JONES & TAYLER) EXAM
GUIDE AND CORRECT ANSWERS LATEST EDITION 2026
Solution Manual for Financial & Managerial Accounting, 17th Edition (Warren, Jones & Tayler)
CHAPTER 1: INTRODUCTION TO ACCOUNTING AND BUSINESS (Questions 1–12)
1. Which of the following best defines the role of accounting in a business organization
according to the textbook?
A) Accounting is solely concerned with the preparation of tax returns for government agencies
B) Accounting is an information system that provides reports to stakeholders about the
economic activities and condition of a business
C) Accounting is a clerical function that involves only recording financial transactions in journals
D) Accounting is a regulatory requirement that has no impact on business decision-making
Correct Answer: B
Rationale: Accounting is defined as an information system that provides reports to users about
the economic activities and condition of a business. It is not limited to tax preparation, clerical
recording, or regulatory compliance; it is a decision-making tool for stakeholders.
2. A business entity concept requires that the activities of a business be kept separate from
the personal activities of its owners. Which accounting principle does this describe?
A) The going concern assumption
B) The business entity assumption
C) The monetary unit assumption
D) The historical cost principle
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Correct Answer: B
Rationale: The business entity assumption requires that a business's financial records be kept
separate from the personal transactions of its owners. This ensures that financial statements
reflect only the business's activities.
3. Which financial statement reports the changes in retained earnings for a specific period of
time?
A) The balance sheet
B) The income statement
C) The statement of stockholders' equity
D) The statement of cash flows
Correct Answer: C
Rationale: The statement of stockholders' equity reports changes in retained earnings, as well
as changes in other equity accounts such as common stock, for a specific period.
4. A company reports total assets of $500,000 and total liabilities of $200,000. What is the
amount of owner's equity?
A) $700,000
B) $300,000
C) $200,000
D) $500,000
Correct Answer: B
Rationale: Owner's equity = Total assets − Total liabilities = $500,000 − $200,000 = $300,000.
This is derived from the accounting equation: Assets = Liabilities + Owner's Equity.
5. Which of the following transactions increases both assets and owner's equity?
A) Purchasing equipment on account
B) Paying off a liability with cash
C) Receiving cash for services rendered
D) Withdrawing cash for personal use
Correct Answer: C
Rationale: Receiving cash for services rendered increases cash (an asset) and increases revenue,
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which increases owner's equity. Purchasing equipment on account increases assets and
liabilities. Paying off a liability decreases assets and liabilities. Withdrawing cash decreases
assets and owner's equity.
6. Which financial statement is prepared first because its results are needed for the other
statements?
A) The balance sheet
B) The income statement
C) The statement of cash flows
D) The statement of stockholders' equity
Correct Answer: B
Rationale: The income statement is prepared first because net income (or net loss) is needed to
prepare the statement of stockholders' equity and the balance sheet.
7. Net income is calculated by subtracting which of the following from revenues?
A) Assets
B) Liabilities
C) Expenses
D) Owner's equity
Correct Answer: C
Rationale: Net income = Revenues − Expenses. Assets, liabilities, and owner's equity are balance
sheet items, not components of the income statement calculation.
8. A company has revenues of $800,000 and expenses of $650,000. What is the company's net
income?
A) $150,000
B) $650,000
C) $800,000
D) $1,450,000
Correct Answer: A
Rationale: Net income = Revenues − Expenses = $800,000 − $650,000 = $150,000.
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9. Which of the following is an example of an investing activity?
A) Paying employee salaries
B) Purchasing equipment for cash
C) Issuing common stock
D) Paying dividends to stockholders
Correct Answer: B
Rationale: Purchasing equipment is an investing activity because it involves acquiring long-term
assets. Paying salaries is an operating activity, and issuing stock and paying dividends are
financing activities.
10. The accounting equation can be expressed in which of the following forms?
A) Assets = Liabilities − Owner's Equity
B) Assets + Liabilities = Owner's Equity
C) Assets = Liabilities + Owner's Equity
D) Owner's Equity = Assets + Liabilities
Correct Answer: C
Rationale: The accounting equation is Assets = Liabilities + Owner's Equity. This equation must
always balance after every transaction.
11. Which of the following best describes the going concern assumption?
A) A business will continue to operate indefinitely unless there is evidence to the contrary
B) A business will be liquidated within the next year
C) A business's financial statements should be prepared only when the business is profitable
D) A business should use the same accounting methods from year to year
Correct Answer: A
Rationale: The going concern assumption states that a business will continue to operate
indefinitely unless there is evidence to the contrary. This assumption supports the use of
historical cost and the classification of assets and liabilities.
12. A company has assets of $250,000 and owner's equity of $100,000. What is the amount of
the company's liabilities?
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SOLUTION MANUAL FOR FINANCIAL & MANAGERIAL
ACCOUNTING, 17TH EDITION (WARREN, JONES & TAYLER) EXAM
GUIDE AND CORRECT ANSWERS LATEST EDITION 2026
Solution Manual for Financial & Managerial Accounting, 17th Edition (Warren, Jones & Tayler)
CHAPTER 1: INTRODUCTION TO ACCOUNTING AND BUSINESS (Questions 1–12)
1. Which of the following best defines the role of accounting in a business organization
according to the textbook?
A) Accounting is solely concerned with the preparation of tax returns for government agencies
B) Accounting is an information system that provides reports to stakeholders about the
economic activities and condition of a business
C) Accounting is a clerical function that involves only recording financial transactions in journals
D) Accounting is a regulatory requirement that has no impact on business decision-making
Correct Answer: B
Rationale: Accounting is defined as an information system that provides reports to users about
the economic activities and condition of a business. It is not limited to tax preparation, clerical
recording, or regulatory compliance; it is a decision-making tool for stakeholders.
2. A business entity concept requires that the activities of a business be kept separate from
the personal activities of its owners. Which accounting principle does this describe?
A) The going concern assumption
B) The business entity assumption
C) The monetary unit assumption
D) The historical cost principle
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Correct Answer: B
Rationale: The business entity assumption requires that a business's financial records be kept
separate from the personal transactions of its owners. This ensures that financial statements
reflect only the business's activities.
3. Which financial statement reports the changes in retained earnings for a specific period of
time?
A) The balance sheet
B) The income statement
C) The statement of stockholders' equity
D) The statement of cash flows
Correct Answer: C
Rationale: The statement of stockholders' equity reports changes in retained earnings, as well
as changes in other equity accounts such as common stock, for a specific period.
4. A company reports total assets of $500,000 and total liabilities of $200,000. What is the
amount of owner's equity?
A) $700,000
B) $300,000
C) $200,000
D) $500,000
Correct Answer: B
Rationale: Owner's equity = Total assets − Total liabilities = $500,000 − $200,000 = $300,000.
This is derived from the accounting equation: Assets = Liabilities + Owner's Equity.
5. Which of the following transactions increases both assets and owner's equity?
A) Purchasing equipment on account
B) Paying off a liability with cash
C) Receiving cash for services rendered
D) Withdrawing cash for personal use
Correct Answer: C
Rationale: Receiving cash for services rendered increases cash (an asset) and increases revenue,
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which increases owner's equity. Purchasing equipment on account increases assets and
liabilities. Paying off a liability decreases assets and liabilities. Withdrawing cash decreases
assets and owner's equity.
6. Which financial statement is prepared first because its results are needed for the other
statements?
A) The balance sheet
B) The income statement
C) The statement of cash flows
D) The statement of stockholders' equity
Correct Answer: B
Rationale: The income statement is prepared first because net income (or net loss) is needed to
prepare the statement of stockholders' equity and the balance sheet.
7. Net income is calculated by subtracting which of the following from revenues?
A) Assets
B) Liabilities
C) Expenses
D) Owner's equity
Correct Answer: C
Rationale: Net income = Revenues − Expenses. Assets, liabilities, and owner's equity are balance
sheet items, not components of the income statement calculation.
8. A company has revenues of $800,000 and expenses of $650,000. What is the company's net
income?
A) $150,000
B) $650,000
C) $800,000
D) $1,450,000
Correct Answer: A
Rationale: Net income = Revenues − Expenses = $800,000 − $650,000 = $150,000.
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9. Which of the following is an example of an investing activity?
A) Paying employee salaries
B) Purchasing equipment for cash
C) Issuing common stock
D) Paying dividends to stockholders
Correct Answer: B
Rationale: Purchasing equipment is an investing activity because it involves acquiring long-term
assets. Paying salaries is an operating activity, and issuing stock and paying dividends are
financing activities.
10. The accounting equation can be expressed in which of the following forms?
A) Assets = Liabilities − Owner's Equity
B) Assets + Liabilities = Owner's Equity
C) Assets = Liabilities + Owner's Equity
D) Owner's Equity = Assets + Liabilities
Correct Answer: C
Rationale: The accounting equation is Assets = Liabilities + Owner's Equity. This equation must
always balance after every transaction.
11. Which of the following best describes the going concern assumption?
A) A business will continue to operate indefinitely unless there is evidence to the contrary
B) A business will be liquidated within the next year
C) A business's financial statements should be prepared only when the business is profitable
D) A business should use the same accounting methods from year to year
Correct Answer: A
Rationale: The going concern assumption states that a business will continue to operate
indefinitely unless there is evidence to the contrary. This assumption supports the use of
historical cost and the classification of assets and liabilities.
12. A company has assets of $250,000 and owner's equity of $100,000. What is the amount of
the company's liabilities?
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