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weygandt chapter 1 solution (covers all homeworks)

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Copyright © 2012 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 8/e, Solutions Manual (For Instructor Use Only) 1-1
CHAPTER 1
Accounting in Action
ANSWERS TO QUESTIONS
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 stock.
(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, 2014
balance sheet. 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. An important concept that accountants follow is the 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.

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9. The three basic forms of business organizations are: (1) proprietorship, (2) partnership, and
(3) corporation.
10. One of the advantages Tersa Alvarez would enjoy is that ownership of a corporation is repre-
sented by transferable shares of stock. 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
(stockholders) 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.
11. The basic accounting equation is Assets = Liabilities + Stockholders’ (Owners’) Equity.
12. (a) Assets are resources owned by a business. Liabilities are claims against assets. Put more
simply, liabilities are existing debts and obligations. Stockholdersequity is the ownership claim
on total assets.
(b) Stockholders’ equity is affected by stockholders’ 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.
16. (a) Decrease assets and decrease stockholders’ equity.
(b) Increase assets and decrease assets.
(c) Increase assets and increase stockholders’ equity.
(d) Decrease assets and decrease liabilities.
17. (a) Income statement. (d) Balance sheet.
(b) Balance sheet. (e) Balance sheet and retained earnings statement.
(c) Income statement. (f) Balance sheet.
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 stockholders 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 statementit is the result of subtracting expenses
from revenues. In addition, net income appears in the retained earnings statementit is shown
as an addition to the beginning-of-period retained earnings. Indirectly, the net income of a company
is also included in the balance sheet. It is included in the Retained Earnings account which
appears in the stockholders’ equity section of the balance sheet.

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Copyright © 2012 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 8/e, Solutions Manual (For Instructor Use Only) 1-3
Questions Chapter 1 (Continued)
20. (a) Ending stockholders’ equity balance ................................................................ $198,000
Beginning stockholders’ equity balance ........................................................... 158,000
Net income....................................................................................................... $ 40,000
(b) Ending stockholders’ equity balance ................................................................ $198,000
Beginning stockholders’ equity balance ........................................................... 158,000
40,000
Deduct: Investment ......................................................................................... 13,000
Net income....................................................................................................... $ 27,000
21. (a) Total revenues ($30,000 + $70,000) ................................................................ $100,000
(b) Total expenses ($26,000 + $40,000) ................................................................ $66,000
(c) Total revenues ................................................................................................. $100,000
Total expenses ................................................................................................ 66,000
Net income....................................................................................................... $34,000
22. Coca-Cola’s accounting equation at December 31, 2010 was $72,921,000 = $41,604, 000 +
$31,317,000.

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CHAPTER 1Accounting in ActionANSWERS TO QUESTIONS1.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 accountants 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. ...
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