Solution Manual for Financial and Managerial Accounting, 8th Edition

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Wild, Shaw,Financial & Managerial Accounting,8eSolutions Manual: Chapter 11Chapter 1Accounting in BusinessQUESTIONS1.The purpose of accounting is to provide decision makers with relevant and reliableinformation to help them make better decisions. Examples include information forpeople making investments, loans, and business plans.2.Technology reduces the time, effort, and cost of recordkeeping. There is still ademand for people who can design accounting systems, supervise their operation,analyze complex transactions, and interpret reports. Demand also exists for peoplewho can effectively use computers to prepare and analyze accounting reports.Technology will never substitute for qualified people with abilities to prepare, use,analyze, and interpret accounting information.3.External users and their uses of accounting information include: (a) lenders, tomeasure the risk and return of loans; (b) shareholders, to assess whether to buy,sell, or hold their shares; (c) directors, to oversee the organization; (d) employeesand labor unions, to judge the fairness of wages and assess future employmentopportunities;and(e)regulators,todeterminewhethertheorganizationiscomplying with regulations. Other users are voters, legislators, governmentofficials,contributors to nonprofits, suppliers,and customers.4.Businessownersandmanagersuseaccountinginformationtohelpanswerquestions such as: What resources does an organization own? What debts areowed? How much income is earned? Are expenses reasonable for the level ofsales? Are customers’ accounts being promptly collected?5.Service businesses include:Standard and Poor’s, Dun & Bradstreet, Merrill Lynch,Southwest Airlines, CitiCorp, Humana, Charles Schwab, and Prudential.Businessesoffering products include Nike, Reebok, Gap, Apple, Ford Motor Co., Philip Morris,Coca-Cola, Best Buy, andWalMart.6.The internal role of accounting is to serve the organization’s internal operatingfunctions.Itdoesthisbyprovidingusefulinformationforinternalusersincompleting their tasks more effectively and efficiently. By providing this information,accounting helps the organization reach its overall goals.7.Accountingprofessionalsoffermanyservicesincludingauditing,managementadvice, tax planning, business valuation, and money management.8.Marketing managers are likely interested ininformation such assales volume,advertisingcosts,promotioncosts,salariesofsalespersonnel,andsalescommissions.

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Wild, Shaw,Financial & Managerial Accounting,8eSolutions Manual: Chapter 129.Accounting is described as a service activity because it serves decision makers byproviding information to help them make better business decisions.10.Someaccounting-relatedprofessionsincludeconsultant,financialanalyst,underwriter, financial planner, appraiser, FBI investigator, market researcher, andsystem designer.11.Ethics rules require that auditors avoid auditing clients in which they have a directinvestment, or if the auditor’s fee is dependent on the figures in the client’s reports.This will help prevent others from doubting the quality of the auditor’s report.12.In addition to preparing tax returns, tax accountants help companies and individualsplan future transactions to minimize the amount of tax to be paid.They are alsoactively involved in estate planning and in helping set up organizations. Some taxaccountants work for regulatory agencies such as the IRS or the various statedepartments of revenue. These tax accountants help to enforce tax laws.13.The objectivity concept means that financial statement information is supported byindependent, unbiased evidence other than someone’s opinion or imagination.14.Thistreatmentisjustifiedbyboththecostprincipleandthegoing-concernassumption.15.The revenue recognition principle provides guidance for managers and auditors sothey know when to recognize revenue.If revenue is recognized too early, thebusinesslooksmoreprofitablethanitis.Ontheotherhand,ifrevenueisrecognized too late the business looks less profitable than it is.This principledemands that revenuebe recognized whenitis both earned (when serviceorproductisprovided) and can be measured reliably.The amount of revenue shouldequalthevalueoftheassetsreceivedorexpectedtobereceivedfromthebusiness’s operating activities covering a specific time period.16.Business organizations can be organizedas asole proprietorship, partnership,corporation, or LLC. These forms have implications for legalentity andliability,business life, taxation,andnumber of owners as follows.ProprietorshipPartnershipCorporationLLCBusiness entityyesyesyesyesLegal entitynonoyesyesLimited liabilitynonoyesyesUnlimited lifenonoyesyesBusiness TaxednonoyesnoOne owner allowedyesnoyesyes17.(a) Assets areresources owned or controlled by a company that are expected toyieldfuturebenefits.(b)Liabilitiesarecreditors’claimsonassetsthatreflectobligations to provide assets, products,or services to others. (c) Equity is theowner’s claim on assets and is equal to assets minus liabilities. (d) Net assets referto equity.18.Equity is increased by investments(stock issuances)from the owner and by netincome(whichistheexcessofrevenuesoverexpenses).Itisdecreasedbydividendsand by a net loss (which is the excess of expenses over revenues).

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Wild, Shaw,Financial & Managerial Accounting,8eSolutions Manual: Chapter 1319.Accounting principles consist of (a)generaland (b)specificprinciples.Generalprinciplesarethebasicassumptions,concepts,andguidelinesforpreparingfinancialstatements.Theystemfromlong-usedaccountingpractices.Specificprinciples are detailed rules used in reporting on business transactions and events.They usually arise from the rulings of authoritative and regulatory groups such astheFinancialAccountingStandardsBoardortheSecuritiesandExchangeCommission.20.Revenue (or sales) is the amount received from selling products and services.21.Netincome(alsocalledincome,profit,orearnings)equalsrevenuesminusexpenses (if revenues exceed expenses). Net income increases equity. If expensesexceed revenues, the company has a net loss. Net loss decreases equity.22.The four basic financial statements are: income statement, statement ofretainedearnings, balance sheet, and statement of cash flows.23.An income statement reports a company’s revenues and expenses along with theresulting net income or loss over a period of time.24.Rent expense, utilities expense, administrative expenses, advertising and promotionexpenses,maintenanceexpense,andsalariesandwagesexpensesaresomeexamples of business expenses.25.The statement ofretained earningsexplains the changes inretained earningsfromnetincomeorloss,andfromanyownercontributions(stockissuances)anddividendsover a period of time.26.The balance sheet describes a company’s financial position (types and amounts ofassets, liabilities, and equity) at a point in time.27.The statement of cash flows reports on the cash inflows and outflows from acompany’s operating, investing, and financing activities.28.Return on assets, also called return on investment, is a profitability measure that isuseful inevaluating management, analyzing and forecasting profits, and planningactivities. It is computed as net income divided by the average total assets. Forexample, if we have an average annual balance of $100 in a bank account and itearns interest of $5 for the year, then our return on assets is $5 / $100 or 5%. Thereturn on assets is a popular measure for analysis because it allows us to comparecompanies of different sizes and in different industries.29A.Return refers to income, and risk is the uncertainty about the return we expect tomake. The lower the risk of an investment, the lower the expected return. Forexample, savings accounts pay a low return because of the low risk of a bank notreturning the principal with interest. Higher risk implies higher, but riskier, expectedreturns.30B. Organizations carry out three major activities: financing, investing, and operating.Financing provides the means used to pay for resources. Investing refers to theacquisition and disposing of resources necessary to carry out the organization’splans. Operating activities are the actual carrying out of these plans.(Planning is theglue that connects these activities, including the organization’s ideas, goals,andstrategies.)

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Wild, Shaw,Financial & Managerial Accounting,8eSolutions Manual: Chapter 1431B.Anorganization’sfinancingactivities(liabilitiesandequity)payforinvestingactivities(assets).Anorganizationcannothavemoreorlessassetsthanitsliabilities and equity combined and, similarly, it cannot have more or less liabilitiesand equity than its total assets. This means: assets = liabilities + equity. Thisrelation is called the accounting equation (also called thebalance sheet equation),and it applies to organizations at all times.32.The dollar amounts inGoogle’s financial statements are rounded to thenearestmillion($1,000,000).Google’sconsolidatedstatementofincome(orincomestatement) covers thecalendar-year endedDecember 31, 2017.Googlealso reportscomparative income statements for the previous two years.33.The independent auditor for Apple isErnst & Young, LLP. The auditor expresslystates that “our responsibility is to express an opinion on these financial statementsbased on our audits.” The auditor also states that “these financial statements arethe responsibility of the Company’s management.”

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Wild, Shaw,Financial & Managerial Accounting,8eSolutions Manual: Chapter 15QUICK STUDIESQuick Study 1-1(10 minutes)1.fTechnology2.cRecording3.hRecordkeeping (bookkeeping)Quick Study 1-2(10 minutes)a.EExternal userg.EExternal userb.EExternal userh.EExternal userc.EExternal useri.IInternal userd.EExternal userj.EExternal usere.IInternal userk.EExternal userf.EExternal userl.EExternal userQuick Study 1-3(10minutes)1.A.Opportunity2.B.Pressure3.C.Rationalization4.A.Opportunity5.B.Pressure6.C.RationalizationQuick Study 1-4(5minutes)1.a.principle2.b.assumption3.b.assumption4.a.principle

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Wild, Shaw,Financial & Managerial Accounting,8eSolutions Manual: Chapter 16Quick Study 1-5(10 minutes)Attribute PresentProprietorshipPartnershipCorporationLLC1.Business taxednonoyesno2.Limited liabilitynonoyesyes3.Legal entitynonoyesyesQuick Study 1-6(10 minutes)1.D.Revenue recognition principle2.B.Measurement (cost)principle3.C.Business entity assumptionQuick Study 1-7(5minutes)Assets=Liabilities+Equity$700,000(a)$280,000$420,000$500,000(b)$250,000(b)$250,000QuickStudy 1-8(10 minutes)1.Assets=Liabilities+Equity$75,000(a)$35,000$40,000(b)$95,000$25,000$70,000$85,000$20,000(c)$65,0002.Assets=Liabilities+CommonStock-Dividends+ Revenues-Expenses$40,000$16,000$20,000$0(a)$12,000$8,000$80,000$32,000$44,000(b)$2,000$24,000$18,000

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Wild, Shaw,Financial & Managerial Accounting,8eSolutions Manual: Chapter 17Quick Study 1-9(10 minutes)a.The accountsandtheirdollar amounts(in$millions) forGoogleare:(1)Assets=$197,295(2)Liabilities=$44,793(3)Equity=$152,502b.Using Google’s amounts from (a) we verify that (in $ millions):Assets=Liabilities+Equity197,295=44,793+152,502Quick Study 1-10(15minutes)Assets=Liabilities+EquityCash+AccountsRecble.=AccountsPayable+CommonStock-Dividends+Revenues-Expenses(a)$5,500=$5,500Consulting(b)+$4,000=+4,000CommissionBal.5,500+4,000=+9,500(c)-1,400=-$1,400WagesBal.4,100+4,000=+9,500-1,400(d)+1,000+-1,000=-Bal.5,100+3,000=+9,500-1,400(e)-700+=-700CleaningBal.$4,400+$3,000=+$9,500-$2,100

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Wild, Shaw,Financial & Managerial Accounting,8eSolutions Manual: Chapter 18Quick Study 1-11(15minutes)Assets=Liabilities+EquityCash+Supplies+Equip.+Land=Accts.Pay.+CommonStock-Divi-dends+Rev.-Exp.(a)$15,000=$15,000(b)-500+$500=Bal.14,500+500=+15,000(c)+$10,000=10,000Bal.14,500+500+10,000=+25,000(d)+200=+$200Bal.14,500+700+10,000=200+25,000(e)-9,000+$9,000=Bal.$5,500+$700+$10,000+$9,000=$200+$25,000Quick Study 1-12(10 minutes)[Code:Income statement (I), Balance sheet (B), or Statement of cash flows (CF).]a.BBalance sheete.BBalance sheetb.CFStatement of cash flowsf.CFStatement of cash flowsc.BBalance sheetg.IIncome statementd.IIncomestatementh.BBalance sheet

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Wild, Shaw,Financial & Managerial Accounting,8eSolutions Manual: Chapter 19Quick Study 1-13(5minutes)1.EX expenses4.Ddividends7.EX expenses2.Rrevenues5.EX expenses8.Rrevenues3.EX expenses6.RrevenuesQuick Study 1-14(5minutes)1.Aassets3.Aassets5.Aassets2.EQ equity4.Lliabilities6.AassetsQuick Study1-15(15 minutes)HAWKINIncome StatementFor Month EndedDecember31RevenuesServicesrevenue................................$16,000ExpensesWages expense...................................$8,000Rent expense.......................................1,500Utilitiesexpense..................................700Total expenses....................................10,200Net income..................................................$ 5,800Quick Study 1-16(10 minutes)Return on assets ===19.0%Interpretation: Its return of19.0% exceedsthe11% of its competitors. HomeDepot’s performance can bejudgedas above average.$8 billion$42 billionNet incomeAverage total assets

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Wild, Shaw,Financial & Managerial Accounting,8eSolutions Manual: Chapter 110Quick Study 1-17(10 minutes)a.The accountsandtheirdollar amounts(inKRWmillions) forSamsungare:(1)Assets=301,752,090(2)Liabilities=87,260,662(3)Equity=214,491,428b.Using Samsung’s amounts from (a) we verify (in KRW millions):Assets=Liabilities+Equity301,752,090=87,260,662+214,491,428

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Wild, Shaw,Financial & Managerial Accounting,8eSolutions Manual: Chapter 111EXERCISESExercise 1-1(10 minutes)CCommunicating1.Analyzing and interpreting reports.CCommunicating2.Presenting financial information.RRecording3.Keeping a log of service costs.RRecording4.Measuring the costs of a product.CCommunicating5.Preparing financial statements.IIdentifying6.Acquiring knowledge of revenue transactions.IIdentifying7.Observingtransactions and events.RRecording8.Registeringcash sales of products sold.Exercise 1-2(20 minutes)PartA.1.IInternal user5.IInternal user2.E External user6.E External user3.IInternal user7.IInternal user4.E External userPartB.1.IInternal user5.IInternal user2.IInternal user6.E External user3.E External user7.IInternal user4.E External user8.IInternal userExercise 1-3(10 minutes)1.BManagerial accounting5.CTax accounting2.AFinancial accounting6.CTax accounting3.BManagerial accounting7.AFinancial accounting4.BManagerial accounting8.AFinancial accounting

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Wild, Shaw,Financial & Managerial Accounting,8eSolutions Manual: Chapter 112Exercise 1-4(10 minutes)1.AAudit2.GNet income3.DFASB4.FPublic accountants5.CEthicsExercise 1-5(20 minutes)1.GDodd-Frank Act2.FAudit3.ESarbanes-Oxley Act4.DInternal controls5.CPrevention6.BFraud triangle7.AEthicsExercise 1-6(10 minutes)a.(C)Corporatione.(C)Corporationb.(P)Partnershipf.(SP)Soleproprietorshipc.(SP)Sole proprietorshipg.(C)Corporationd.(SP)Sole proprietorshiph.(LLC)Limited liability company

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Wild, Shaw,Financial & Managerial Accounting,8eSolutions Manual: Chapter 113Exercise 1-7(10 minutes)CodeDescriptionPrinciple/AssumptionH1.A company reports details behindfinancialstatements that would impact users' decisions.Full disclosureprincipleG2.Financial statements reflect the assumption thatthe business continues operating.Going-concernassumptionF3.A company records the expensesincurred togenerate the revenues reported.Expense recognition(matching) principleA4.Concepts, assumptions, and guidelines forpreparing financial statements.General accountingprincipleC5.Eachbusiness is accounted for separately fromits owner or owners.Business entityassumptionD6.Revenue is recorded whenproducts andservices are delivered.Revenue recognitionprincipleE7.Detailed rules used in reporting events andtransactions.Specific accountingprincipleB8.Information is based on actual costs incurred intransactions.Measurement (cost)principleExercise 1-8(10 minutes)Assets=Liabilities+Equity(a)$ 65,000=$ 20,000+$45,000$100,000=$ 34,000+(b)$66,000$154,000=(c)$114,000+$40,000

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Wild, Shaw,Financial & Managerial Accounting,8eSolutions Manual: Chapter 114Exercise 1-9(20 minutes)a.Using the accounting equation at thebeginningof the year:Assets=Liabilities+Equity$300,000=?+$100,000Thus,beginningliabilities = $200,000Using the accounting equation at theendof the year:Assets=Liabilities+Equity$300,000 + $80,000=$200,000+ $50,000+?$380,000=$250,000+?Thus,endingequity = $130,000Alternative approach to solving part(b):Assets($80,000) =Liabilities($50,000) +Equity(?)where “” refers to “change in.”Thus:EndingEquity = $100,000 + $30,000 = $130,000b.Using the accounting equation:Assets=Liabilities+Equity$123,000=$47,000+?Thus, equity = $76,000c.Using the accounting equation at theendof the year:Assets=Liabilities+Equity$190,000=$70,000-$5,000+?$190,000=$65,000+$125,000Using the accounting equation at thebeginningof the year:Assets=Liabilities+Equity$190,000-$60,000=$70,000+?$130,000=$70,000+?Thus:BeginningEquity=$60,000

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Wild, Shaw,Financial & Managerial Accounting,8eSolutions Manual: Chapter 115Exercise 1-10(20 minutes)1.dThe owner invested $40,000 cashin the businessin exchange for its common stock.2.eThe company purchased office supplies for $3,000 by paying $2,000 cash and putting$1,000 on credit.3.aThe company purchased office furniture for $8,000 cash.4.fThe company billed acustomer $6,000 for services provided.5.hThe company provided services for $1,000 cash.Exercise 1-11 (20 minutes)1.fThe company purchased land for $4,000 cash.2.aThe company purchased $1,000 of office supplies on credit.3.gThecompany billed a client $1,900 for services provided.4.hThe company paid $1,000 cash toward an account payable.5.bThe company collected $1,900 cash from an account receivable.Exercise 1-12(15 minutes)a.3Decreases an asset anddecreases a liability.b.2Increases an asset and increases a liability.c.5Increases an asset and increases equity.d.1Decreases an asset and decreases equity.e.4Increases an asset and decreases an asset.f.5Increases an asset and increases equity.

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