Financial Accounting with IFRS,4th Edition - Weygandt –
Instructor manual
MC1 MATCHA CREATIONS
(a) Mei-ling has a choice between a sole proprietorship and a corporation. A
partnership is not an option since she is the sole owner of the business.
A proprietorship is the easiest to create and operate because there
are no formal procedures involved in creating the proprietorship. However, if
she operates the business as a proprietorship she will personally have unlimited
liability for the debts of the business. Operating the business as a corporation
would limit her liability to her investment in the business. Mei-ling will in all
likelihood require the services of a lawyer to incorporate. Costs to incorporate
as well as additional ongoing costs to administrate and operate the business as a
corporation may be costly.
My recommendation is that Mei-ling choose the corporate form of business
organization. If she expands the business after graduation, she can raise
additional capital by issuing more shares. In addition, she limits her liability to
Copyright © 2019 John Wiley & Sons, Inc. Weygandt Financial Accounting IFRS 4e Solutions to
Matcha Creations
(For Instructor Use Only)
, her investment in the business. If she decides to transfer ownership to another
student, she can do so without dissolving the corporation.
Copyright © 2019 John Wiley & Sons, Inc. Weygandt Financial Accounting IFRS 4e Solutions to
Matcha Creations
(For Instructor Use Only)
,MC1 (Continued)
(b) Yes, Mei-ling will need accounting information to help her operate her
business. She will need information on her cash balance on a daily or weekly
basis to help her determine if she can pay her bills. She will need to know the
cost of her services so she can establish her prices. She will need to know
revenue and expenses so she can report her net income for corporate income
tax purposes, on an annual basis. If she borrows money, she will need financial
statements so lenders can assess the liquidity, solvency, and profitability of the
business. Mei-ling would also find financial statements useful to better
understand her business and identify any financial issues as early as possible.
Monthly financial statements would be best because they are more timely, but
they are also more work to prepare.
(c) Assets: Cash, Accounts Receivable, Supplies, Equipment, Prepaid Insurance
Liabilities: Accounts Payable, Unearned Service Revenue, Notes Payable
Equity: Share Capital—Ordinary, Retained Earnings, Dividends
Revenue: Service Revenue
Copyright © 2019 John Wiley & Sons, Inc. Weygandt Financial Accounting IFRS 4e Solutions to
Matcha Creations
(For Instructor Use Only)
, Expenses: Advertising Expense, Supplies Expense, Utilities Expense,
Depreciation Expense
(d) Mei-ling should have a separate bank account. This will make it easier to
prepare financial statements for her business. The business is a separate entity
from Mei-ling and must be accounted for separately.
MC2 MATCHA CREATIONS
(a) GENERAL JOURNAL J1
Account Titles and Explanation Debit Credit
Nov. 8 No entry required for selling her
investments—this is a personal
transaction.
Copyright © 2019 John Wiley & Sons, Inc. Weygandt Financial Accounting IFRS 4e Solutions to
Matcha Creations
(For Instructor Use Only)
Instructor manual
MC1 MATCHA CREATIONS
(a) Mei-ling has a choice between a sole proprietorship and a corporation. A
partnership is not an option since she is the sole owner of the business.
A proprietorship is the easiest to create and operate because there
are no formal procedures involved in creating the proprietorship. However, if
she operates the business as a proprietorship she will personally have unlimited
liability for the debts of the business. Operating the business as a corporation
would limit her liability to her investment in the business. Mei-ling will in all
likelihood require the services of a lawyer to incorporate. Costs to incorporate
as well as additional ongoing costs to administrate and operate the business as a
corporation may be costly.
My recommendation is that Mei-ling choose the corporate form of business
organization. If she expands the business after graduation, she can raise
additional capital by issuing more shares. In addition, she limits her liability to
Copyright © 2019 John Wiley & Sons, Inc. Weygandt Financial Accounting IFRS 4e Solutions to
Matcha Creations
(For Instructor Use Only)
, her investment in the business. If she decides to transfer ownership to another
student, she can do so without dissolving the corporation.
Copyright © 2019 John Wiley & Sons, Inc. Weygandt Financial Accounting IFRS 4e Solutions to
Matcha Creations
(For Instructor Use Only)
,MC1 (Continued)
(b) Yes, Mei-ling will need accounting information to help her operate her
business. She will need information on her cash balance on a daily or weekly
basis to help her determine if she can pay her bills. She will need to know the
cost of her services so she can establish her prices. She will need to know
revenue and expenses so she can report her net income for corporate income
tax purposes, on an annual basis. If she borrows money, she will need financial
statements so lenders can assess the liquidity, solvency, and profitability of the
business. Mei-ling would also find financial statements useful to better
understand her business and identify any financial issues as early as possible.
Monthly financial statements would be best because they are more timely, but
they are also more work to prepare.
(c) Assets: Cash, Accounts Receivable, Supplies, Equipment, Prepaid Insurance
Liabilities: Accounts Payable, Unearned Service Revenue, Notes Payable
Equity: Share Capital—Ordinary, Retained Earnings, Dividends
Revenue: Service Revenue
Copyright © 2019 John Wiley & Sons, Inc. Weygandt Financial Accounting IFRS 4e Solutions to
Matcha Creations
(For Instructor Use Only)
, Expenses: Advertising Expense, Supplies Expense, Utilities Expense,
Depreciation Expense
(d) Mei-ling should have a separate bank account. This will make it easier to
prepare financial statements for her business. The business is a separate entity
from Mei-ling and must be accounted for separately.
MC2 MATCHA CREATIONS
(a) GENERAL JOURNAL J1
Account Titles and Explanation Debit Credit
Nov. 8 No entry required for selling her
investments—this is a personal
transaction.
Copyright © 2019 John Wiley & Sons, Inc. Weygandt Financial Accounting IFRS 4e Solutions to
Matcha Creations
(For Instructor Use Only)
