Solutions Manual For Accounting Tools for Business
Decisions Making, 8e Paul Kimmel, Jerry Weygandt, Jill
Mitchell
CHAPTER 1 A
Introduction to Financial Statements
A A A
Learning Objectives
A
1. IdentifyAtheAformsAofAbusinessAorganizationAandAtheAusesAofAaccountingAinformation.
2. ExplainAtheAthreeAprincipalAtypesAofAbusinessAactivity.
3. DescribeAtheAfourAfinancialAstatementsAandAhowAtheyAareAprepared.
*4. ExplainAtheAcareerAopportunitiesAinAaccounting.
, ANSWERS TO QUESTIONS A A
1. TheAthreeAbasicAformsAofAbusinessAorganizationsAareA(1)AsoleAproprietorship,A(2)Apartnership,A and
(3)Acorporation.
LOA1A BT:AKA Difficulty:AEA TOT:A1Amin.A AACSB:AKnowledgeA AICPAABC:AGovernanceAPerspective
2. AdvantagesAofAaAcorporationAareAlimitedAliabilityA(stockholdersAnotAbeingApersonallyAliableAforAcor-
AporateAdebts),AeasyAtransferabilityAof Aownership,AandAeaseAof AraisingAfunds.ADisadvantagesAof AaAc
orporationAareAincreasedAtaxationAandAgovernmentAregulations.
LOA1A BT:AKA Difficulty:AEA TOT:A1Amin.A AACSB:AKnowledgeA AICPAABC:AGovernanceAPerspective
3. ProprietorshipsAandApartnershipsAreceiveAfavorableAtaxAtreatmentAcomparedAtoAcorporationsAandAar
eAeasierAtoAformAthanAcorporations.ATheyAareAalsoAownerAcontrolled.ADisadvantagesAofAproprietorshi
psAandApartnershipsAareAunlimitedAliabilityA(proprietors/partnersAareApersonallyAliableAforAallAdebts)A
andAdifficultyAinAobtainingAfinancingAcomparedAtoAcorporations.
LOA1A BT:AKA Difficulty:AEA TOT:A1Amin.A AACSB:AKnowledgeA AICPAABC:AGovernanceAPerspective
4. Yes.ACompaniesAcanAchooseAoneAofAtheAhybridAbusinessAforms,AlimitedAliabilityAcorporationsA (LLC
s)AorAsubchapterASAcorporations,AwhichAcombineAtheAtaxAadvantagesAofApartnershipsAwithAtheAlimit
edAliabilityAofAcorporations.
LOA1A BT:AKA Difficulty:AEA TOT:A1Amin.A AACSB:AKnowledgeA AICPAABC:AGovernanceAPerspective
5. Yes.AAApersonAcannotAearnAaAliving,AspendAmoney,AbuyAonAcredit,AmakeAanAinvestment,AorApayAtax
esAwithoutAreceiving,Ausing,AorAdispensingAfinancialAinformation.AAccountingAprovidesAfinancialAinfo
rmationAtoAinterestedAusersAthroughAtheApreparationAandAdistributionAofAfinancialAstatements.
LOA1A BT:ACA Difficulty:AEA TOT:A1Amin.A AACSB:AKnowledgeA AICPAAAC:AReporting
6. InternalAusersAareAmanagersAwhoAplan,Aorganize,AandArunAaAbusiness.AToAassistAmanagement,Aac
countingAprovidesAtimelyAinternalAreports.AExamplesAincludeAfinancialAcomparisonsAofAoperatingAalt
ernatives,AprojectionsAofAincomeAfromAnewAsalesAcampaigns,AforecastsAofAcashAneedsAforAtheAnext
Ayear,AandAfinancialAstatements.
LOA1A BT:ACA Difficulty:AEA TOT:A1Amin.A AACSB:AKnowledgeA AICPAAAC:AReporting
7. ExternalAusersAareAthoseAoutsideAtheAbusinessAwhoAhaveAeitherAaApresentAorApotentialAdirectAfinan
cialAinterestA(investorsAandAcreditors)AorAanAindirectAfinancialAinterestA(taxingAauthorities,Aregu-
AlatoryAagencies,AlaborAunions,Acustomers,AandAeconomicAplanners).
LOA1A BT:ACA Difficulty:AEA TOT:A1Amin.A AACSB:AKnowledgeA AICPAAAC:AReporting
8. TheAfourAmostAcommonAtypesAofAdataAanalyticsAandAtheAbasicAquestionAeachAaddressesAare:ADesc
riptiveA(WhatAhappened?),ADiagnosticA(WhyAdidAitAhappen?),APredictiveA(WhatAisAlikelyAtoAhappen?
),AandAPrescriptiveA(WhatAshouldAweAdoAaboutAit?).
LOA1A BT:AKA Difficulty:AEA TOT:A2Amin.A AACSB:AKnowledgeA AICPAA AC:AMeasurementAAnalysisAandAInterpretation
,QuestionsAChapterA1A(Continued)
9. TheAthreeAtypesAofAbusinessAactivitiesAareAfinancingAactivities,AinvestingAactivities,AandAoperatingAa
ctivities.AFinancingAactivitiesAincludeAborrowingAmoneyAandAsellingAsharesAofAstock.AInvestingAactiv
itiesAincludeAtheApurchaseAandAsaleAofAproperty,Aplant,AandAequipment.AOperatingAactivitiesAinclud
eAsellingAgoods,AperformingAservices,AandApurchasingAinventory.
LOA2A BT:ACA Difficulty:AMA TOT:A2Amin.A AACSB:AKnowledgeA AICPAAAC:AReporting
10. (a) IncomeAstatement. (d) BalanceAsheet.
(b) BalanceAsheet. (e) BalanceAsheet.
(c) IncomeAstatement. (f) BalanceAsheet.
LOA3A BT:AKA Difficulty:AMA TOT:A2Amin.A AACSB:AKnowledgeA AICPAAAC:AReporting
11. WhenAaAcompanyApaysAdividends,AitAreducesAtheAamountAofAassetsAavailableAtoApayAcreditors.ATh
erefore,AbanksAandAotherAcreditorsAmonitorAdividendApaymentsAtoAensureAtheyAdoAnotAputAaAcompa
ny’sAabilityAtoAmakeAdebtApaymentsAatArisk.
LOA3A BT:ACA Difficulty:AMA TOT:A2Amin.A AACSB:AKnowledgeA AICPAAAC:AMeasurementAAnallysisAandAInterpretation
12. Yes.ANetAincomeAdoesAappearAonAtheAincomeAstatement—
itAisAtheAresultAofAsubtractingAexpensesAfromArevenues.AInAaddition,AnetAincomeAappearsAinAtheAretai
nedAearningsAstatement—itAisAshownAasAanAadditionAtoAtheAbeginning-of-
periodAretainedAearnings.AIndirectly,AtheAnetAincomeAofAaAcompanyAisAalsoAincludedAinAtheAbalanceA
sheet.AItAisAincludedAinAtheAretainedAearningsAaccountAwhichAappearsAinAtheAstockholders’AequityAse
ctionAofAtheAbalanceAsheet.
LOA3A BT:ACA Difficulty:AEA TOT:A1Amin.A AACSB:AKnowledgeA AICPAAAC:AReporting
13. TheAprimaryApurposeAofAtheAstatementAofAcashAflowsAisAtoAprovideAfinancialAinformationAaboutAtheA
cashAreceiptsAandAcashApaymentsAofAaAbusinessAforAaAspecificAperiodAofAtime.
LOA3A BT:AKA Difficulty:AEA TOT:A1Amin.A AACSB:AKnowledgeA AICPAAAC:AReporting
14. TheAthreeAcategoriesAofAtheAstatementAofAcashAflowsAareAoperatingAactivities,AinvestingAactivities,Aa
ndAfinancingAactivities.ATheAcategoriesAwereAchosenAbecauseAtheyArepresentAtheAthreeAprincipalAty
pesAofAbusinessAactivities.
LOA3A BT:ACA Difficulty:AEA TOT:A1Amin.A AACSB:AKnowledgeA AICPAAAC:AReporting
15. RetainedAearningsAisAtheAnetAincomeAretainedAinAaAcorporation.ARetainedAearningsAisAincreasedAby
AnetAincomeAandAisAdecreasedAbyAdividendsAandAaAnetAloss.
LOA3A BT:ACA Difficulty:AEA TOT:A1Amin.A AACSB:AKnowledgeA AICPAAAC:AReporting
16. TheAbasicAaccountingAequationAisAAssetsA=ALiabilitiesA+AStockholders’AEquity.
LOA3A BT:AKA Difficulty:AEA TOT:A1Amin.A AACSB:AKnowledgeA AICPAAAC:AReporting
, QuestionsAChapterA1A(Continued)
17. (a)A AssetsAareAresourcesAownedAbyAaAbusiness.ALiabilitiesAareAamountsAowedAtoAcreditors.APutAmor
eAsimply,AliabilitiesAareAexistingAdebtsAandAobligations.AStockholders’AequityAisAtheAownershipAcla
imAonAnetAassets.
(b) TheA itemsA thatA affectA stockholders’A equityA areA issuanceA ofA commonA stockA andA th
eAcomponentsAofAretainedAearningsA(dividends,Arevenues,AandAexpenses).
LOA3A BT:AKA Difficulty:AEA TOT:A2Amin.A AACSB:AKnowledgeA AICPAAAC:AReporting
18. TheAliabilitiesAareA(b)AAccountsApayableAandA(g)ASalariesAandAwagesApayable.
LOA3A BT:ACA Difficulty:AEA TOT:A1Amin.A AACSB:AKnowledgeA AICPAAAC:AReporting
19. (a)A NetA incomeAfromAtheA incomeAstatementA isAreportedAasAanAincreaseAtoAretainedA earningsAonAt
heAretainedAearningsAstatement.
(b) TheAendingAamountAonAtheAretainedAearningsAstatementAisAreportedAasAtheAretainedAearning
sAamountAonAtheAbalanceAsheet.
(c) TheAendingAamountAonAtheAstatementAofAcashAflowsAisAreportedAasAtheAcashAamountAonAth
eAbalanceAsheet.
LOA3A BT:ACA Difficulty:AMA TOT:A2Amin.A AACSB:AKnowledgeA AICPAAAC:AReporting
20. TheApurposeAofAtheAmanagementAdiscussionAandAanalysisAsectionAisAtoAprovideAmanagement’sAvie
wsAonAitsAabilityAtoApayAshort-
termAobligations,AitsAabilityAtoAfundAoperationsAandAexpansion,AandAitsAresultsAofAoperations.ATheAM
D&AAsectionAisAaArequiredApartAofAtheAannualAreport.
LOA3A BT:AKA Difficulty:AEA TOT:A1Amin.A AACSB:AKnowledgeA AICPAAAC:AReporting
21. AnAunqualifiedAopinionAshowsAthat,AinAtheAopinionAofAanAindependentAauditor,AtheAfinancialAstate-
AmentsAhaveAbeenApresentedAfairly,AinAconformityAwithAgenerallyAacceptedAaccountingAprinciples.AT
hisAgivesAinvestorsAmoreAconfidenceAthatAtheyAcanArelyAonAtheAfiguresAreportedAinAtheAfinancialAstat
ements.
LOA3A BT:ACA Difficulty:AEA TOT:A2Amin.A AACSB:AKnowledgeA AICPAAAC:AReporting
22. InformationAincludedAinAtheAnotesAtoAtheAfinancialAstatementsAclarifiesAinformationApresentedAinAthe
AfinancialAstatementsAandAincludesAdescriptionsAofAaccountingApolicies,AexplanationsAof Auncertain-
AtiesAandAcontingencies,AandAstatisticsAandAdetailsAtooAvoluminousAtoAbeAreportedAinAtheAfinancialAs
tatements.
LOA3A BT:AKA Difficulty:AEA TOT:A1Amin.A AACSB:ANoneA AICPAAFC:AReporting
23. UsingAdollarAamounts,AApple’sAaccountingAequationA(inAmillions)Ais:
Assets = Liabilities + Stockholders’AEquity
$323,,888 $258,549 $65,339
LOA3A BT:AAPA Difficulty:AEA TOT:A2Amin.A AACSB:AAnalyticA AICPAAAC:AReporting
Decisions Making, 8e Paul Kimmel, Jerry Weygandt, Jill
Mitchell
CHAPTER 1 A
Introduction to Financial Statements
A A A
Learning Objectives
A
1. IdentifyAtheAformsAofAbusinessAorganizationAandAtheAusesAofAaccountingAinformation.
2. ExplainAtheAthreeAprincipalAtypesAofAbusinessAactivity.
3. DescribeAtheAfourAfinancialAstatementsAandAhowAtheyAareAprepared.
*4. ExplainAtheAcareerAopportunitiesAinAaccounting.
, ANSWERS TO QUESTIONS A A
1. TheAthreeAbasicAformsAofAbusinessAorganizationsAareA(1)AsoleAproprietorship,A(2)Apartnership,A and
(3)Acorporation.
LOA1A BT:AKA Difficulty:AEA TOT:A1Amin.A AACSB:AKnowledgeA AICPAABC:AGovernanceAPerspective
2. AdvantagesAofAaAcorporationAareAlimitedAliabilityA(stockholdersAnotAbeingApersonallyAliableAforAcor-
AporateAdebts),AeasyAtransferabilityAof Aownership,AandAeaseAof AraisingAfunds.ADisadvantagesAof AaAc
orporationAareAincreasedAtaxationAandAgovernmentAregulations.
LOA1A BT:AKA Difficulty:AEA TOT:A1Amin.A AACSB:AKnowledgeA AICPAABC:AGovernanceAPerspective
3. ProprietorshipsAandApartnershipsAreceiveAfavorableAtaxAtreatmentAcomparedAtoAcorporationsAandAar
eAeasierAtoAformAthanAcorporations.ATheyAareAalsoAownerAcontrolled.ADisadvantagesAofAproprietorshi
psAandApartnershipsAareAunlimitedAliabilityA(proprietors/partnersAareApersonallyAliableAforAallAdebts)A
andAdifficultyAinAobtainingAfinancingAcomparedAtoAcorporations.
LOA1A BT:AKA Difficulty:AEA TOT:A1Amin.A AACSB:AKnowledgeA AICPAABC:AGovernanceAPerspective
4. Yes.ACompaniesAcanAchooseAoneAofAtheAhybridAbusinessAforms,AlimitedAliabilityAcorporationsA (LLC
s)AorAsubchapterASAcorporations,AwhichAcombineAtheAtaxAadvantagesAofApartnershipsAwithAtheAlimit
edAliabilityAofAcorporations.
LOA1A BT:AKA Difficulty:AEA TOT:A1Amin.A AACSB:AKnowledgeA AICPAABC:AGovernanceAPerspective
5. Yes.AAApersonAcannotAearnAaAliving,AspendAmoney,AbuyAonAcredit,AmakeAanAinvestment,AorApayAtax
esAwithoutAreceiving,Ausing,AorAdispensingAfinancialAinformation.AAccountingAprovidesAfinancialAinfo
rmationAtoAinterestedAusersAthroughAtheApreparationAandAdistributionAofAfinancialAstatements.
LOA1A BT:ACA Difficulty:AEA TOT:A1Amin.A AACSB:AKnowledgeA AICPAAAC:AReporting
6. InternalAusersAareAmanagersAwhoAplan,Aorganize,AandArunAaAbusiness.AToAassistAmanagement,Aac
countingAprovidesAtimelyAinternalAreports.AExamplesAincludeAfinancialAcomparisonsAofAoperatingAalt
ernatives,AprojectionsAofAincomeAfromAnewAsalesAcampaigns,AforecastsAofAcashAneedsAforAtheAnext
Ayear,AandAfinancialAstatements.
LOA1A BT:ACA Difficulty:AEA TOT:A1Amin.A AACSB:AKnowledgeA AICPAAAC:AReporting
7. ExternalAusersAareAthoseAoutsideAtheAbusinessAwhoAhaveAeitherAaApresentAorApotentialAdirectAfinan
cialAinterestA(investorsAandAcreditors)AorAanAindirectAfinancialAinterestA(taxingAauthorities,Aregu-
AlatoryAagencies,AlaborAunions,Acustomers,AandAeconomicAplanners).
LOA1A BT:ACA Difficulty:AEA TOT:A1Amin.A AACSB:AKnowledgeA AICPAAAC:AReporting
8. TheAfourAmostAcommonAtypesAofAdataAanalyticsAandAtheAbasicAquestionAeachAaddressesAare:ADesc
riptiveA(WhatAhappened?),ADiagnosticA(WhyAdidAitAhappen?),APredictiveA(WhatAisAlikelyAtoAhappen?
),AandAPrescriptiveA(WhatAshouldAweAdoAaboutAit?).
LOA1A BT:AKA Difficulty:AEA TOT:A2Amin.A AACSB:AKnowledgeA AICPAA AC:AMeasurementAAnalysisAandAInterpretation
,QuestionsAChapterA1A(Continued)
9. TheAthreeAtypesAofAbusinessAactivitiesAareAfinancingAactivities,AinvestingAactivities,AandAoperatingAa
ctivities.AFinancingAactivitiesAincludeAborrowingAmoneyAandAsellingAsharesAofAstock.AInvestingAactiv
itiesAincludeAtheApurchaseAandAsaleAofAproperty,Aplant,AandAequipment.AOperatingAactivitiesAinclud
eAsellingAgoods,AperformingAservices,AandApurchasingAinventory.
LOA2A BT:ACA Difficulty:AMA TOT:A2Amin.A AACSB:AKnowledgeA AICPAAAC:AReporting
10. (a) IncomeAstatement. (d) BalanceAsheet.
(b) BalanceAsheet. (e) BalanceAsheet.
(c) IncomeAstatement. (f) BalanceAsheet.
LOA3A BT:AKA Difficulty:AMA TOT:A2Amin.A AACSB:AKnowledgeA AICPAAAC:AReporting
11. WhenAaAcompanyApaysAdividends,AitAreducesAtheAamountAofAassetsAavailableAtoApayAcreditors.ATh
erefore,AbanksAandAotherAcreditorsAmonitorAdividendApaymentsAtoAensureAtheyAdoAnotAputAaAcompa
ny’sAabilityAtoAmakeAdebtApaymentsAatArisk.
LOA3A BT:ACA Difficulty:AMA TOT:A2Amin.A AACSB:AKnowledgeA AICPAAAC:AMeasurementAAnallysisAandAInterpretation
12. Yes.ANetAincomeAdoesAappearAonAtheAincomeAstatement—
itAisAtheAresultAofAsubtractingAexpensesAfromArevenues.AInAaddition,AnetAincomeAappearsAinAtheAretai
nedAearningsAstatement—itAisAshownAasAanAadditionAtoAtheAbeginning-of-
periodAretainedAearnings.AIndirectly,AtheAnetAincomeAofAaAcompanyAisAalsoAincludedAinAtheAbalanceA
sheet.AItAisAincludedAinAtheAretainedAearningsAaccountAwhichAappearsAinAtheAstockholders’AequityAse
ctionAofAtheAbalanceAsheet.
LOA3A BT:ACA Difficulty:AEA TOT:A1Amin.A AACSB:AKnowledgeA AICPAAAC:AReporting
13. TheAprimaryApurposeAofAtheAstatementAofAcashAflowsAisAtoAprovideAfinancialAinformationAaboutAtheA
cashAreceiptsAandAcashApaymentsAofAaAbusinessAforAaAspecificAperiodAofAtime.
LOA3A BT:AKA Difficulty:AEA TOT:A1Amin.A AACSB:AKnowledgeA AICPAAAC:AReporting
14. TheAthreeAcategoriesAofAtheAstatementAofAcashAflowsAareAoperatingAactivities,AinvestingAactivities,Aa
ndAfinancingAactivities.ATheAcategoriesAwereAchosenAbecauseAtheyArepresentAtheAthreeAprincipalAty
pesAofAbusinessAactivities.
LOA3A BT:ACA Difficulty:AEA TOT:A1Amin.A AACSB:AKnowledgeA AICPAAAC:AReporting
15. RetainedAearningsAisAtheAnetAincomeAretainedAinAaAcorporation.ARetainedAearningsAisAincreasedAby
AnetAincomeAandAisAdecreasedAbyAdividendsAandAaAnetAloss.
LOA3A BT:ACA Difficulty:AEA TOT:A1Amin.A AACSB:AKnowledgeA AICPAAAC:AReporting
16. TheAbasicAaccountingAequationAisAAssetsA=ALiabilitiesA+AStockholders’AEquity.
LOA3A BT:AKA Difficulty:AEA TOT:A1Amin.A AACSB:AKnowledgeA AICPAAAC:AReporting
, QuestionsAChapterA1A(Continued)
17. (a)A AssetsAareAresourcesAownedAbyAaAbusiness.ALiabilitiesAareAamountsAowedAtoAcreditors.APutAmor
eAsimply,AliabilitiesAareAexistingAdebtsAandAobligations.AStockholders’AequityAisAtheAownershipAcla
imAonAnetAassets.
(b) TheA itemsA thatA affectA stockholders’A equityA areA issuanceA ofA commonA stockA andA th
eAcomponentsAofAretainedAearningsA(dividends,Arevenues,AandAexpenses).
LOA3A BT:AKA Difficulty:AEA TOT:A2Amin.A AACSB:AKnowledgeA AICPAAAC:AReporting
18. TheAliabilitiesAareA(b)AAccountsApayableAandA(g)ASalariesAandAwagesApayable.
LOA3A BT:ACA Difficulty:AEA TOT:A1Amin.A AACSB:AKnowledgeA AICPAAAC:AReporting
19. (a)A NetA incomeAfromAtheA incomeAstatementA isAreportedAasAanAincreaseAtoAretainedA earningsAonAt
heAretainedAearningsAstatement.
(b) TheAendingAamountAonAtheAretainedAearningsAstatementAisAreportedAasAtheAretainedAearning
sAamountAonAtheAbalanceAsheet.
(c) TheAendingAamountAonAtheAstatementAofAcashAflowsAisAreportedAasAtheAcashAamountAonAth
eAbalanceAsheet.
LOA3A BT:ACA Difficulty:AMA TOT:A2Amin.A AACSB:AKnowledgeA AICPAAAC:AReporting
20. TheApurposeAofAtheAmanagementAdiscussionAandAanalysisAsectionAisAtoAprovideAmanagement’sAvie
wsAonAitsAabilityAtoApayAshort-
termAobligations,AitsAabilityAtoAfundAoperationsAandAexpansion,AandAitsAresultsAofAoperations.ATheAM
D&AAsectionAisAaArequiredApartAofAtheAannualAreport.
LOA3A BT:AKA Difficulty:AEA TOT:A1Amin.A AACSB:AKnowledgeA AICPAAAC:AReporting
21. AnAunqualifiedAopinionAshowsAthat,AinAtheAopinionAofAanAindependentAauditor,AtheAfinancialAstate-
AmentsAhaveAbeenApresentedAfairly,AinAconformityAwithAgenerallyAacceptedAaccountingAprinciples.AT
hisAgivesAinvestorsAmoreAconfidenceAthatAtheyAcanArelyAonAtheAfiguresAreportedAinAtheAfinancialAstat
ements.
LOA3A BT:ACA Difficulty:AEA TOT:A2Amin.A AACSB:AKnowledgeA AICPAAAC:AReporting
22. InformationAincludedAinAtheAnotesAtoAtheAfinancialAstatementsAclarifiesAinformationApresentedAinAthe
AfinancialAstatementsAandAincludesAdescriptionsAofAaccountingApolicies,AexplanationsAof Auncertain-
AtiesAandAcontingencies,AandAstatisticsAandAdetailsAtooAvoluminousAtoAbeAreportedAinAtheAfinancialAs
tatements.
LOA3A BT:AKA Difficulty:AEA TOT:A1Amin.A AACSB:ANoneA AICPAAFC:AReporting
23. UsingAdollarAamounts,AApple’sAaccountingAequationA(inAmillions)Ais:
Assets = Liabilities + Stockholders’AEquity
$323,,888 $258,549 $65,339
LOA3A BT:AAPA Difficulty:AEA TOT:A2Amin.A AACSB:AAnalyticA AICPAAAC:AReporting
