Solution Manual For Survey of Accounting, 9th Edition

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1CHAPTER 1THE ROLE OF ACCOUNTING IN BUSINESSCLASS DISCUSSION QUESTIONS1.The objective of most businesses is tomaximize profits. Profit is the differencebetweentheamountsreceivedfromcustomers for goods or services provid-ed and the amounts paid for the inputsused to provide those goods or services.2.Amanufacturingbusinesschangesbasic inputs into products that are soldto customers. In contrast, a merchandis-ing business purchases products in a formthat can be sold to customers without anyadditional changes. Examples of manu-facturing businesses include Alcoa, Boe-ing,Caterpillar,andDowChemical.ExamplesofmerchandisingbusinessesincludeBestBuy,Macy’s,Target,andWalmart.3.Amanufacturingbusinesschangesbasic inputs into products that are soldto customers. A service business pro-vides services rather than products tocustomers.Arestaurant,suchasMcDonald’s, has characteristics of botha manufacturing and a service businessinthatMcDonald’stakesrawinputs,such as cheese, fish, and beef, and pro-cesses them into products for consump-tion by its customers. At the same time,McDonald’s provides services of waitingon its customers.4.The corporate form allows the companyto obtain large amounts of resources byissuing stock. In addition, in a corpora-tion, the stockholders’ liability to credi-tors for the debts of the company is lim-ited to their investment in the corpora-tion.Forthesereasons,mostlargecompaniesthatrequirelargeinvest-ments in property, plant, and equipmentare organized as corporations.5.The business emphasis of KIA is a low-cost emphasis. In contrast, the businessemphasis of BMW is a premium-priceemphasis. The difference in emphasesis directly reflected in the prices of theautos. For example, a new KIA starts forjustover$15,000,butanewBMWstarts for just over $30,000.6.Super Walmart will compete for customers usinga low-cost strategy. The size and buying powerof Walmart Inc. provides Walmart a competitiveadvantage over your friend in the ability to offerlow prices. Thus, your friend should attempt tocompete using a premium-price emphasis. Forexample,yourfriendcouldofferpersonalizedservice to customers such as knowing custom-ers’ names and providing a friendly atmosphere,home delivery of medicines, help in filing insur-ance forms, and 24-hour call service.7.eBay services its customers by maintaining aWeb-basedcommunityinwhichbuyersandsellers are brought together in an efficient formatto browse, buy, and sell items such as collecti-bles,automobiles,high-endorpremiumartpieces,jewelry,consumerelectronics,andahost of practical and miscellaneous items.8.No. The stakeholders within a group do not al-ways share the same interests. For example,bankers are primarily concerned about the abilityof the business to repay its debt, including inter-est.Incontrast,stockholdersaremorecon-cerned about the long-term profitability of thebusiness, the business’s ability to pay dividends,and the future appreciation of their stock.9.Examples of financing activities for SouthwestAirlines could include issuing stock, borrowingfrom banks, and paying dividends. Examples ofinvesting activities could include purchasing newaircraft,acquiringnewterminalfacilities,andupgrading its computerized reservation systems.Examples of operating activities could includetransporting passengers and freight.10.The role of accounting is to provide informationfor managers to use in operating the business.In addition, accounting provides information tootherstakeholderstouseinassessingtheeconomicperformanceandconditionofthebusiness.11.The income statement presents a summary ofthe revenues and expenses of a business for aspecific period of time. The statement of stock-holders’ equity indicates the changes in retainedearnings that have occurred over a specific periodof time. The balance sheet presents a listing of theassets, liabilities, and stockholders’ equity of a

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