Intermediate Accounting Solutions ch1

Solution Manual
Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso

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.
LO: 1.1
Difficulty: Easy
BLOOMCODE: Comprehension
AACSB: Reflective thinking
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.
LO: 1.1
Difficulty: Easy
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.
LO: 1.2
Difficulty: Easy
4. (a) Investors (owners) use accounting information to make decisions to buy, hold, or sell shares.
(b) Creditors use accounting information to evaluate the risks of granting credit or lending money.
LO: 1.2
Difficulty: Easy
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.
LO: 1.1
Difficulty: Easy
6. Jackie Remmers Travel Agency should report the land at £85,000 on its December 31, 2017
statement of financial position. 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 extensively. An important concept that accountants follow is the
historical cost principle.
LO: 1.4
Difficulty: Easy
BLOOMCODE: Application
AACSB: Analytic
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.
LO: 1.5
Difficulty: Easy
BLOOMCODE: Knowledge
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.
LO: 1.5
Difficulty: Easy
9. The three basic forms of business organizations are: (1) proprietorship, (2) partnership, and
(3) corporation.
LO: 1.5
Difficulty: Easy
Questions Chapter 1 (Continued)
10. One of the advantages Teresa Alvarez would enjoy is that ownership of a corporation is repre-
sented by transferable shares. 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
(shareholders) 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.
LO: 1.5
Difficulty: Easy
11. The basic accounting equation is Assets = Liabilities + Equity.
LO: 1.6
Difficulty: Easy
12. (a) Assets are resources owned by a business. Liabilities are claims against assets. Put more
simply, liabilities are existing debts and obligations. Equity is the ownership claim on total
assets.
(b) Equity is affected by shareholders’ investments, dividends, revenues, and expenses.
LO: 1.6
Difficulty: Easy
13. The liabilities are: (b) Accounts payable and (g) Salaries and wages payable.
LO: 1.6
Difficulty: Easy
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.
LO: 1.6
Difficulty: Easy
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.
LO: 1.7
Difficulty: Easy
16. (a) Decrease assets and decrease equity.

(b) Increase assets and decrease assets.
(c) Increase assets and increase equity.
(d) Decrease assets and decrease liabilities.
LO: 1.8
Difficulty: Easy
17. (a) Income statement. (d) Statement of financial position.

(b) Statement of financial position. (e) Statement of financial position and retained
(c) Income statement. earnings statement.
(f) Statement of financial position.
LO: 1.8
Difficulty: Easy
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 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.
LO: 1.7
Difficulty: Easy
19. Yes. Net income does appear on the income statement—it is the result of subtracting expenses
from revenues. In addition, net income appears in the retained earnings statement—it is shown
as an addition to the beginning-of-period retained earnings. Indirectly, the net income of a company
is also included in the statement of financial position. It is included in the Retained Earnings
account which appears in the equity section of the statement of financial position.
LO: 1.8
Difficulty: Easy
Questions Chapter 1 (Continued)
20. (a) Ending equity balance ........................................................................................ £198,000

Beginning equity balance ................................................................................... 158,000
Net income ......................................................................................................... £ 40,000
(b) Ending equity balance ........................................................................................ £198,000

Beginning equity balance ................................................................................... 158,000
40,000
Deduct: Investment ........................................................................................... 13,000
Net income ......................................................................................................... £ 27,000
LO: 1.8
Difficulty: Medium
BLOOMCODE: Appliction
AACSB: Analytic
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
LO: 1.8
Difficulty: Easy
AACSB: Analytic
22. TSMC’s accounting equation (in millions of New Taiwan dollars) at December 31, 2013 was
NT$1,263,055 = NT$415,280 + NT$847,775.
LO: 1.6
Difficulty: Easy
AACSB: Analytic
SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 1-1
(a) ¥88,000 – ¥50,000 = ¥38,000 (Equity).

(b) ¥45,000 + ¥70,000 = ¥115,000 (Assets).
(c) ¥94,000 – ¥60,000 = ¥34,000 (Liabilities).
LO: 1.6
Difficulty: Easy
AACSB: Analytic
BRIEF EXERCISE 1-2
(a) £120,000 + £232,000 = £352,000 (Total assets).

(b) £190,000 – £80,000 = £110,000 (Total liabilities).
(c) £600,000 – 0.5(£600,000) = £300,000 (Equity).
LO: 1.6
Difficulty: Easy
AACSB: Analytic
BRIEF EXERCISE 1-3
(a) (€870,000 + €150,000) – (€500,000 – €80,000) = €600,000

(Equity).
(b) (€500,000 + €100,000) + (€870,000 – €500,000 – €55,000) = €915,000
(Assets).
(c) (€870,000 – €80,000) – (€870,000 – €500,000 + €120,000) = €300,000
(Liabilities).
LO: 1.6
Difficulty: Medium
AACSB: Analytic
BRIEF EXERCISE 1-4
Equity
Share Retained Earnings
Assets = Liabilities + Capital— + Revenues – Expenses – Dividends
Ordinary
(a) X = £90,000 + £150,000 + £450,000 – £320,000 – £40,000

X = £90,000 + £240,000
X = £330,000
(b) £57,000 = X + £23,000 + £50,000 – £35,000 – £7,000

£57,000 = X + £31,000
X = £26,000 (£57,000 – £31,000)
(c) £600,000 = (£600,000 x 2/3) + X (Equity)

£600,000 = £400,000 + X
X = £200,000
LO: 1.6
Difficulty: Hard
AACSB: Analytic
BRIEF EXERCISE 1-5
A (a) Accounts receivable A (d) Supplies

L (b) Salaries and wages payable E (e) Share Capital—Ordinary
A (c) Equipment L (f) Notes payable
LO: 1.6
Difficulty: Easy
BRIEF EXERCISE 1-6
Assets Liabilities Equity

(a) + + NE
(b) + NE +
(c) – NE –
LO: 1.7
Difficulty: Easy
BRIEF EXERCISE 1-7

Assets Liabilities Equity
(a) + NE +
(b) – NE –
(c) NE NE NE
LO: 1.7
Difficulty: Easy
BRIEF EXERCISE 1-8
E (a) Advertising expense D (e) Dividends

R (b) Service revenue R (f) Rent revenue
E (c) Insurance expense E (g) Utilities expense
E (d) Salaries and wages expense
LO: 1.6
Difficulty: Easy
BRIEF EXERCISE 1-9
R (a) Received cash for services performed

NE (b) Paid cash to purchase equipment
E (c) Paid employee salaries
LO: 1.6
Difficulty: Easy
BRIEF EXERCISE 1-10
GRANDE COMPANY
Statement of Financial Position
December 31, 2017
Assets
Accounts receivable ...................................................................... £ 72,500
Cash ................................................................................................ 44,000
Total assets ............................................................................ £116,500
Equity and Liabilities

Equity
Share capital—ordinary ......................................................... £ 31,500
Liabilities
Accounts payable .................................................................. 85,000
Total equity and liabilities .............................................. £116,500
LO: 1.8
Difficulty: Medium
AACSB: Analytic
BRIEF EXERCISE 1-11
CI (a) Other comprehensive income

IS (b) Advertising expense
FP (c) Share capital—ordinary
FP (d) Cash
IS (e) Service revenue
RE (f) Dividends
LO: 1.8
Difficulty: Easy
SOLUTIONS FOR DO IT! REVIEW EXERCISES
DO IT! 1-1
1. False. The three steps in the accounting process are identification,

recording, and communication.
2. True
3. False. Managerial accounting provides internal reports to help users
make decisions about their companies.
4. True
5. True
LO: 1.1, 1.2

Difficulty: Easy
DO IT! 1-2
1. True.
2. False. The standards of conduct by which actions are judged as right
or wrong, honest or dishonest, fair or not fair, are ethics.
3. False. The primary accounting standard-setting body in the United
States is the Financial Accounting Standards Board (FASB).
4. True.
5. True.
LO: 1.3, 1.4, 1.5

Difficulty: Easy
BLOOMCODE: Ethics/Knowledge
DO IT! 1-3
1. Dividends is dividends (D); it decreases equity.

2. Rent Revenue is revenue (R); it increases equity.
3. Advertising Expense is an expense (E); it decreases equity.
4. When shareholders pay cash into the business, they receive shares (I);
it increases equity.
LO: 1.6
Difficulty: Easy
DO IT! 1-4
Assets = Liabilities + Equity

Accounts Accounts Share Retained Earnings
Cash + Receivable = Payable + Capital + Revenues – Expenses – Dividends
(1) + R23,000 + R23,000

(2) +R23,000 – R23,000
(3) + R1,600 – R1,600
(4) – R5,000 – R5,000
LO: 1.7
Difficulty: Medium
AACSB: Analytic
DO IT! 1-5
(a) The total assets are R$51,500, comprised of Cash R$9,000, Accounts
Receivable R$13,500, and Equipment R$29,000.
(b) Net income is R$21,700, computed as follows:
Revenues
Service revenue.................................................. R$54,000
Expenses
Salaries and wages expense............................. R$16,500
Rent expense ...................................................... 9,800
Advertising expense .......................................... 6,000
Total expenses ........................................... 32,300
Net income ................................................................. R$21,700
(c) The ending equity balance of Rivera Company SA is R$23,500. By

rewriting the accounting equation, we can compute Equity as Assets
minus Liabilities, as follows:
Total assets [as computed in (a)] ............................. R$51,500

Less: Liabilities
Notes payable ..................................................... R$25,000
Accounts payable .............................................. 3,000 28,000
Equity .......................................................................... R$23,500
Note that it is not possible to determine the company’s equity in any other
way, because the beginning balance for equity is not provided.
LO: 1.8
Difficulty: Hard
AACSB: Analytic
SOLUTIONS TO EXERCISES
EXERCISE 1-1
C Analyzing and interpreting information.

R Classifying economic events.
C Explaining uses, meaning, and limitations of data.
R Keeping a systematic chronological diary of events.
R Measuring events in monetary units.
C Preparing accounting reports.
C Reporting information in a standard format.
I Selecting economic activities relevant to the company.
R Summarizing economic events.
LO: 1.1
Difficulty: Easy
EXERCISE 1-2
(a) Internal users

Marketing manager
Production supervisor
Store manager
Vice-president of finance
External users
Customers
Labor unions
Securities regulator
Suppliers
Taxing agency
(b) I Can we afford to give our employees a pay raise?

E Did the company earn a satisfactory income?
I Do we need to borrow in the near future?
E How does the company’s profitability compare to other companies?
I What does it cost us to manufacture each unit produced?
I Which product should we emphasize?
E Will the company be able to pay its short-term debts?
EXERCISE 1-3
Leon Manternach, president of Manternach SE, instructed Carla Ruden, the

head of the accounting department, to report the company’s land in their
accounting reports at its fair value of €170,000 instead of its cost of €100,000,
in an effort to make the company appear to be a better investment.
Although we have an accounting system that permits various measurement
approaches cost should be used whenever there are questions regarding
the reliability of a fair value. In this case, valuation of land is too subjective
and therefore the cost principle should be used.
The stakeholders include shareholders and creditors of Manternach,

potential shareholders and creditors, other users of Manternach
accounting reports, Leon Manternach, and Carla Ruden. All users of
Manternach’s accounting reports could be harmed by relying on
information that is misleading. Leon Manternach could benefit if the
company is able to attract more investors, but would be harmed if the
misleading reporting is discovered. Similarly, Carla Ruden could benefit by
pleasing her boss, but would be harmed if the misleading reporting is
discovered.
In general, even though IFRS allows companies to revalue property, plant,

and equipment and other long-held assets to fair value, most companies
choose to use cost. Only in situations where assets are actually traded, such
as investment securities, do companies apply the fair value principle
extensively.
Carla’s alternatives are to report the land at €100,000 or to report it at

€170,000. Reporting the land at €170,000 is not appropriate because Leon
thinks it is “probably worth” that amount and it would mislead many people
who rely on Manternach’s accounting reports to make financial decisions.
Carla should report the land at its cost of €100,000. She should try to
convince Leon Manternach that this is the appropriate course of action, but
be prepared to resign her position if Manternach insists.
LO: 1.3
Difficulty: Medium
BLOOMCODE: Ethics/Comprehension
EXERCISE 1-4
1. Correct. The fair value principle allows companies to revalue property,

plant and equipment to fair value. However, most companies choose not
to instead, due to reliability concerns about valuation, and negative
effects on net income, most companies report property, plant and
equipment at cost.
2. Correct. The monetary unit assumption requires that companies include

in the accounting records only transaction data that can be expressed
in terms of money.
3. Incorrect. The economic entity assumption requires that the activities of

the entity be kept separate and distinct from the activities of its owner
and all other economic entities.
LO: 1.5
Difficulty: Easy
EXERCISE 1-5
Asset Liability Equity

Cash Accounts payable Share Capital—
Equipment Notes payable Ordinary
Supplies Salaries and wages payable
Accounts receivable
LO: 1.6
Difficulty: Easy
EXERCISE 1-6
1. Increase in assets and increase in equity.

2. Decrease in assets and decrease in equity.
3. Increase in assets and increase in liabilities.
5. Decrease in assets and decrease in equity.
6. Increase in assets and decrease in assets.
7. Increase in liabilities and decrease in equity.
8. Increase in assets and decrease in assets.
LO: 1.7
Difficulty: Easy
EXERCISE 1-7
1. (c) 5. (d)
2. (d) 6. (b)
3. (a) 7. (e)
4. (b) 8. (f)
LO: 1.7
Difficulty: Easy
EXERCISE 1-8
(a) 1. Shareholders invested £15,000 cash in the business.

2. Purchased equipment for £5,000, paying £2,000 in cash and the
balance of £3,000 on account.
3. Paid £750 cash for supplies.
4. Earned £9,100 in revenue, receiving £4,600 cash and £4,500 on
account.
5. Paid £1,500 cash on accounts payable.
6. Paid £2,000 cash dividends to shareholders.
7. Paid £650 cash for rent.
8. Collected £450 cash from clients on account.
9. Paid salaries and wages of £3,900.
10. Incurred £500 of utilities expense on account.
(b) Investment ................................................................................ £15,000

Service revenue ....................................................................... 9,100
Dividends.................................................................................. (2,000)
Rent expense ........................................................................... (650)
Salaries and wages expense .................................................. (3,900)
Utilities expense ...................................................................... (500)
Increase in equity .................................................................... £17,050
(c) Service revenue ....................................................................... £9,100

Rent expense ........................................................................... (650)
Salaries and wages expense .................................................. (3,900)
Utilities expense ...................................................................... (500)
Net income ............................................................................... £4,050
LO: 1.8
EXERCISE 1-9
J. L. KANG & CO. Ltd.

Income Statement
For the Month Ended August 31, 2017
Revenues
Service revenue ......................................................... £9,100
Expenses
Salaries and wages expense .................................... £3,900
Rent expense ............................................................. 650
Utilities expense ........................................................ 500
Total expenses ................................................... 5,050
Net income ......................................................................... £4,050
J. L. KANG & CO. Ltd.

Retained Earnings Statement
Retained earnings, August 1 ........................................... £ 0

Add: Net income............................................................. 4,050
4,050
Less: Dividends ............................................................... 2,000
Retained earnings, August 31 ............................. £ 2,050
J.L. KANG & CO. Ltd.

August 31, 2017
Assets
Equipment ......................................................................... £ 5,000
Supplies ............................................................................ 750
Accounts receivable......................................................... 4,050
Cash ................................................................................... 9,250
Total assets ............................................................... £19,050

Equity
Share capital—ordinary ........................................... £15,000
Retained earnings ..................................................... 2,050 £17,050
Liabilities
Accounts payable ..................................................... 2,000
Total equity and liabilities .................................. £19,050
LO: 1.8
Difficulty: Medium
AACSB: Analytic
EXERCISE 1-10
(a) Equity—12/31/16 ( 400,000 – 260,000) ............................... 140,000

Equity—1/1/16 ......................................................................... 100,000
Increase in equity ................................................................... 40,000
Add: Dividends ..................................................................... 15,000
Net income for 2016 ............................................................... 55,000
(b) Equity—12/31/17 ( 480,000 – 300,000) .............................. 180,000

Equity—1/1/17—see (a) ......................................................... 140,000
Increase in equity .................................................................. 40,000
Less: Additional investment ............................................... 50,000
Net loss for 2017 ................................................................... (10,000)
(c) Equity—12/31/18 ( 590,000 – 400,000) .............................. 190,000

Equity—1/1/18—see (b)......................................................... 180,000
Increase in equity ................................................................. 10,000
Less: Additional investment ............................................... 15,000
(5,000)
Add: Dividends .................................................................... 30,000
Net income for 2018 .............................................................. 25,000
LO: 1.8
Difficulty: Medium
AACSB: Analytic
EXERCISE 1-11
(a) Total assets (beginning of year) .......................................... £ 97,000

Total liabilities (beginning of year) ...................................... 63,000
Total equity (beginning of year) ........................................... £ 34,000
(b) Total equity (end of year)...................................................... £ 60,000

Total equity (beginning of year) ........................................... 34,000
Increase in equity .................................................................. £ 26,000
Total revenues ...................................................................... £215,000
Total expenses ...................................................................... 155,000
Net income ............................................................................ £ 60,000
Increase in equity ............................................ £ 26,000

Less: Net income ............................................ £(60,000)
Add: Dividends .............................................. 44,000) (16,000)
Additional investment ..................................... £ 10,000
EXERCISE 1-11 (Continued)
(c) Total assets (beginning of year) .......................................... £129,000

Total shareholders’ equity (beginning of year) .................. 75,000
Total liabilities (beginning of year) ..................................... £ 54,000
(d) Total equity (end of year) ..................................................... £130,000

Total equity (beginning of year) .......................................... 75,000
Increase in equity ................................................................. £ 55,000
Total revenues ...................................................................... £100,000

Total expenses ...................................................................... 55,000
Net income ............................................................................ £ 45,000
Increase in equity ............................................ £ 55,000

Less: Net income ............................................ £(45,000)
Additional investment .......................... (25,000) (70,000)
Dividends.......................................................... £ 15,000
LO: 1.8
Difficulty: Hard
AACSB: Analytic
EXERCISE 1-12
(a) KAREN WEIGEL CO. LTD.

Income Statement
For the Year Ended December 31, 2017
Revenues
Service revenue ..................................................... £62,500
Expenses
Salaries and wages expense ................................ £28,000
Rent expense ......................................................... 10,400
Utilities expense .................................................... 3,100
Advertising expense ............................................. 1,800
Total expenses............................................... 43,300
Net income..................................................................... £19,200
EXERCISE 1-12 (Continued)
(b) KAREN WEIGEL CO. LTD.

Comprehensive Income Statement
Net income ........................................................................................ £19,200

Other comprehensive income ......................................................... 400
Comprehensive income ................................................................... £19,600
(c) KAREN WEIGEL CO. LTD.

Retained earnings, January 1.......................................................... £48,000

Add: Net income ............................................................................. 19,200
67,200
Less: Dividends ............................................................................... 5,000
Retained earnings, December 31 .................................................... £62,200
LO: 1.8
Difficulty: Hard
AACSB: Analytic
EXERCISE 1-13
SANCULI COMPANY SpA

December 31, 2017
Assets
Equipment ......................................................................... €48,000
Supplies ............................................................................ 8,000
Accounts receivable......................................................... 8,500
Cash ................................................................................... 14,000
Total assets ............................................................... €78,500

Equity
Share capital—ordinary ........................................... €50,000
Retained earnings (€17,500 – €5,000) ..................... 12,500 €62,500
Liabilities
Accounts payable ..................................................... 16,000
Total equity and liabilities ................................ €78,500
LO: 1.8
Difficulty: Medium
BLOOMCODE: Analysis
AACSB: Analytic
EXERCISE 1-14
(a) Camping fee revenues ........................................................... £140,000

General store revenues ......................................................... 47,000
Total revenue .................................................................. 187,000
Expenses ................................................................................ 150,000
Net income .............................................................................. £ 37,000
(b) BEAR PARK, LTD.

December 31, 2017
Assets
Equipment ............................................................................... £105,500
Supplies .................................................................................. 2,500
Cash ........................................................................................ 20,000
Total assets ..................................................................... £128,000

Equity
Share capital—ordinary ................................... £20,000
Retained earnings ............................................ 37,000
Total equity ................................................ £ 57,000
Liabilities
Notes payable ................................................... 60,000
Accounts payable ............................................. 11,000
Total liabilities ........................................... 71,000
Total equity and liabilities ......................................... £128,000
LO: 1.8
Difficulty: Medium
AACSB: Analytic
EXERCISE 1-15
DELGADO CRUISE COMPANY SA

Income Statement
Revenues
Ticket revenue................................................... R$342,000
Expenses
Salaries and wages expense ........................... R$144,000
Maintenance and repairs expense .................. 97,000
Utilities expense ............................................... 10,000
Advertising expense ......................................... 3,500
Total expenses .......................................... 254,500
Net income ................................................................ R$ 87,500
DELGADO CRUISE COMPANY SA

Comprehensive Income Statement
Net income ................................................................ R$87,500
Other comprehensive income ................................. 4,200
Comprehensive income ........................................... R$91,700
LO: 1.8
Difficulty: Medium
AACSB: Analytic
EXERCISE 1-16
WILLIAMS AND DOUGLAS, ATTORNEYS AT LAW, LTD.

Retained earnings, January 1................................................. £ 23,000

Add: Net income .................................................................... 129,000*
152,000
Less: Dividends ...................................................................... 64,000
Retained earnings, December 31 ........................................... £ 88,000
*Legal service revenue............................................................ £340,000

Total expenses ........................................................................ 211,000
Net income................................................................................ £129,000
LO: 1.8
Difficulty: Medium
AACSB: Analytic
EXERCISE 1-17
JAVA COMPANY, LTD

Statement of Cash Flows
(Amounts in thousands)
Cash flows from operating activities
Cash receipts from revenues ........................... Rp600,000
Cash payments for expenses........................... (430,000)
Net cash provided by operating activities 170,000
Cash flows from investing activities
Purchase of equipment..................................... (95,000)
Cash flows from financing activities .......................
Sale of ordinary shares .................................... Rp280,000
Payment of cash dividends .............................. (20,000) 260,000
Net increase in cash ................................................. 335,000
Cash at the beginning of the period ........................ 28,000
Cash at the end of the period .................................. Rp363,000
(a) KINNEY’S REPAIR LTD.
Equity
Cash + Receivable + Supplies + Equipment = Payable + Capital + Revenues – Expenses – Dividends
1. +£10,000 +£10,000 +
+ 10,000 = 0010,000
2. + –5,000 +£5,000 +000,
SOLUTIONS TO PROBLEMS
+ 5,000 + + 5,000 = + 0010,000 +
3. + –400 +00,000 –£400 (a)
+ 4,600 + + 5,000 = + 10,000 + –400
PROBLEM 1-1A
4. + –700 +£700 +00,000
+ 3,900 + + 700 + + 5,000 = + 10,0000 + –400
5. +000,000 +0000 +00,000 +£250 –250 (b)
+ 3,900 + + 700 + + 5,000 = + 250 + 00010,0000 + –650
6. –+4,700 +0000 +00,000 +0000 +£4,700 (c)
+ 8,600 + + 700 + + 5,000 = + 250 + 00010,000 + 4,700 –650
7. –1,000 +0000 +00,000 +0000 –£1,000 (d)
+ 7,600 + + 700 + + 5,000 = + 250 + 10,000 + 4,700 –650 –1,000
8. + –1,000 +0000 +00,000 +0000 –1,000 (e)
+ 6,600 + + 700 + + 5,000 = + 250 + 10,000 + 4,700 –1,650 –1,000
9. + –160 +0000 +00,000 +0000 –160 (f)
+ 6,440 + + 700 + + 5,000 = +0250 + 10,000 + 4,700 –1,810 –1,000
10. +000,000 +£980 +0000 +00,000 +0000 +980 (g)
+ 6,440 + + 980 + + 700 + + 5,000 = +0250 + 10,000 + 5,680 –1,810 –1,000
11. – +120 +–120
+£ 6,560 + +£860 + +£700 + +£5,000 = +£250 + £10,000 + £5,680 – £1,810 – £1,000
£13,120 £13,120
LO: 1.8
Difficulty: Hard
AACSB: Analytic
PROBLEM 1-1A (Continued)
Key to Retained Earnings Column

(a) Rent expense
(b) Advertising expense
(c) Service revenue
(d) Dividends
(e) Salaries and wages expense
(f) Utilities expense
(g) Service revenue
(b) Service revenue (£4,700 + £980) ............................ £5,680

Expenses
Salaries and wages ......................................... £1,000
Rent................................................................... 400
Advertising ....................................................... 250
Utilities.............................................................. 160 1,810
Net income ............................................... £3,870
(a) DONAHUE VETERINARY CLINIC LTD.
Accounts Notes Accounts Share Retained

Cash + Receivable + Supplies + Equipment = Payable + Payable + Capital + Earnings + Revenues – Expenses – Dividends
Bal. £ 9,000 + £1,700 + £600 + £ 6,000 = £3,600 + £13,000 + £700
1. –2,900 00,000 0000 000,000 –2,900 0
6,100 + 1,700 + 600 + 6,000 = 700 + 13,000 + 700
2. +1,300 –1,300 0000 000,000 00,000
7,400 + 400 + 600 + 6,000 = 700 + 13,000 + 700
3. –800 00,000 0000 +2,100 +1,300
6,600 + 400 + 600 + 8,100 = 2,000 + 13,000 + 700
PROBLEM 1-2A
4. +2,500 +4,800 0000 000,000 00,000 +£7,300
9,100 + 5,200 + 600 + 8,100 = 2,000 + 13,000 + 700 7,300
5. –400 00,000 0000 000,000 00,000 –£400
8,700 + 5,200 + 600 + 8,100 = 2,000 + 13,000 + 700 7,300 –400
–£1,700
–900
6. –2,800 00,000 0000 000,000 00,000 –200
5,900 + 5,200 + 600 + 8,100 = 2,000 + 13,000 + 700 7,300 –2,800 –400
7. 000,000 00,000 0000 000,000 +170 –170
5,900 + 5,200 + 600 + 8,100 = 2,170 + 13,000 + 700 7,300 –2,970 –400
8. +10,000 +£10,000
£15,900 + £5,200 + £600 + £ 8,100 = +£10,000 + £2,170 + £13,000 + £700 + £7,300 – £ 2,970 – £400
£29,800 £29,800
LO: 1.6, 1.7
Difficulty: Hard
AACSB: Analytic
(b) DONAHUE VETERINARY CLINIC LTD.

Income Statement
For the Month Ended September 30, 2017
Revenues
Service revenue .................................................. £7,300
Expenses
Salaries and wages expense ............................. £1,700
Rent expense ...................................................... 900
Advertising expense .......................................... 200
Utilities expense ................................................. 170
Total expenses ............................................ 2,970
Net income .................................................................. $4,330
DONAHUE VETERINARY CLINIC LTD.

For the Month Ended September 30, 2017
Retained earnings, September 1............................................. £ 700

Add: Net income ..................................................................... 4,330
5,030
Less: Dividends ....................................................................... 400
Retained earnings, September 30........................................... £4,630
DONAHUE VETERINARY CLINIC LTD.

September 30, 2017
Assets
Equipment .................................................................... £ 8,100
Supplies ........................................................................ 600
Accounts receivable .................................................... 5,200
Cash .............................................................................. 15,900
Total assets .......................................................... £29,800

Equity
Share capital—ordinary ...................................... £13,000
Retained earnings ............................................... 4,630
Total equity .................................................. £17,630
Liabilities
Notes payable ...................................................... 10,000
Accounts payable ............................................... 2,170
Total liabilities ............................................. 12,170
Total equity and liabilities ......................................... £29,800
LO: 1.6, 1.7, 1.8

Difficulty: Hard
AACSB: Analytic
PROBLEM 1-3A
(a) PARK FLYING SCHOOL LTD.

Income Statement (in thousands)
For the Month Ended May 31, 2017
Revenues
Service revenue ............................................ W6,800
Expenses
Gasoline expense ......................................... W2,500
Rent expense ................................................ 1,000
Advertising expense .................................... 500
Utilities expense ........................................... 400
Maintenance and repairs expense .............. 400
Total expenses ...................................... 4,800
Net income ............................................................ W 2,000
PARK FLYING SCHOOL LTD.

Retained Earnings Statement (in thousands)
Retained Earnings, May 1 .................................... W 0

Add: Net income ................................................ 2,000
2,000
Less: Dividends ................................................... 480
Retained earnings, May 31 .................................. W 1,520

Statement of Financial Position (in thousands)
May 31, 2017
Assets
Equipment ................................................................................. W64,000
Accounts receivable ................................................................ 7,420
Cash .......................................................................................... 4,500
Total assets ....................................................................... W 75,920

Statement of Financial Position (Continued)
May 31, 2017
Equity
Share capital—ordinary ................................... W45,000
Retained earnings ............................................ 1,520
Total equity ............................................... W46,520
Liabilities ..................................................................
Notes payable ................................................... W28,000
Accounts payable ............................................ 1,400
Total liabilities .......................................... 29,400
Total equity and liabilities ....................................... W75,920
(b) PARK FLYING SCHOOL LTD.

Revenues
Service revenue (W6,800 + W900) .............. W7,700
Expenses
Gasoline expense (W2,500 + W1,500) ........ W4,000
Rent expense ................................................ 1,000
Maintenance and repairs expense.............. 400
Total expenses ..................................... 6,300
Net income ........................................................... W1,400

Retained Earnings, May 1 ................................... W 0

Add: Net income ................................................ 1,400
1,400
Less: Dividends .................................................. 480
Retained Earnings, May 31 ................................. W 920
(a) STINER DELIVERIES LTD.
Accounts Notes Accounts Share Retained Earnings
Date Cash + Receivable + Supplies + Equipment = Payable + Payable + Capital + Revenues – Expenses – Dividends
June 1 £10,000 +£10,000

June 2 + –2,000 +£14,000 +£12,000
8,000 + 14,000 = 12,000 + 10,000
June 3 + –500 –£ 500 (a)
+ 7,500 + +14,000 = 12,000 + 10,000 –500
June 5 +£4,800 + £4,800 (b)
PROBLEM 1-4A
+ 7,500 + 4,800 + +0014,000 = 12,000 + 10,000 + 4,800 –500
June 9 + –300 –£300 (c)
7,2000+ 4,800 + +050 + 14,000 = 12,000 + 10,000 + 4,800 – –500 – –300
June 12 +£150 +£150
– 7,200 + 4,800 + 150 + 14,000 = 12,000 + + 150 + 10,000 + 4,800 – –500 – –300
June 15 + +1,250 –1,250 +00
8,450 + 3,550 + 150 + 14,000 = 12,000 + + 150 + 10,000 + 4,800 – –500 – –300
June 17 +100 –100 (d)
+ 8,450 + 3,550 + 150 + 14,000 = 12,000 + + 250 + 10,000 + 4,800 – –600 – –300
June 20 + +1,500 + 1,500 (e)
9,950 + 3,550 + 150 + +14,000 = 12,000 + + 250 + 10,000 + 6,300 – –600 – –300
June 23 –500 –500
+ 9,450 + 3,550 + 150 + 14,000 = 11,500 + +0250 + 10,000 + 6,300 – –600 – –300
June 26 –250 +0 –250 (f)
9,200 + 3,550 + 150 + 14,000 = 11,500 + +0250 + 10,000 + 6,300 – –850 – –300
June 29 –100 –100
9,100 + 3,550 + 150 + 14,000 = 11,500 + 150 + 10,000 + 6,300 – –850 – –300
June 30 –1,000 – –1,000 (g)
£ 8,100 + £3,550 + £150 + £14,000 = £ 11,500 + £150 + £10,000 + £6,300 – £1,850 – £300
£25,800 £25,800
LO: 1.8
Difficulty: Hard
AACSB: Analytic

(a) Rent expense (e) Service revenue
(b) Service revenue (f) Utilities expense
(c) Dividends (g) Salaries and wages expense
(d) Gasoline expense
(b) STINER DELIVERIES LTD.

Income Statement
For the Month Ended June 30, 2017
Revenues
Service revenue (£4,800 + £1,500) ..................... £6,300
Expenses
Salaries and wages expense.............................. £1,000
Rent expense ....................................................... 500
Utilities expense .................................................. 250
Gasoline expense................................................ 100
Total expenses ............................................ 1,850
Net income .................................................................. £4,450
(c) STINER DELIVERIES LTD.

June 30, 2017
Assets
Equipment ................................................................... £14,000
Supplies ....................................................................... 150
Accounts receivable ................................................... 3,550
Cash ............................................................................. 8,100
Total assets ......................................................... £25,800
Equity
Retained earnings (£4,450 – £300)..................... 4,150
Total equity .................................................. £14,150
Liabilities
Notes payable ...................................................... 11,500
Accounts payable ................................................ 150
Total liabilities .............................................. 11,650
Total equity and liabilities ....................................................... £25,800
LO: 1.6, 1.7, 1.8

Difficulty: Hard
AACSB: Analytic
PROBLEM 1-5A
(a) Crosby Stills Nash Young

Company Company Company Company
(a) $250,000 (d) $600,000 (g) $1,200,000 (j) $ 500,000
(b) 950,000 (e) 620,000 (h) 700,000 (k) 2,200,000
(c) 50,000 (f) 380,000 (i) 4,310,000 (l) 4,650,000
(b) STILLS COMPANY

Retained earnings, January 1 ............................ HK$200,000

Add: Net income ............................................... 350,000
550,000
Less: Dividends ................................................. 380,000
Retained earnings, December 31 ...................... HK$170,000
(c) The sequence of preparing financial statements is income statement,

retained earnings statement, and statement of financial position. The
interrelationship of the retained earnings statement to the other
financial statements results from the fact that net income from the
income statement is reported in the retained earnings statement and
ending retained earnings reported in the retained earnings statement is
the amount reported for retained earnings on the statement of financial
position.
(a) HOLIDAY TRAVEL AGENCY LTD.
Equity
Cash + Receivable + Supplies + Equipment = Payable + Capital + Revenues – Expenses – Dividends
1. +€12,000 +€12,000
+ 12,000 = 12,000
2. + –400 – € 400 (a)
+11,600 = 12,000 – 400
3. + –5,500 +€5,500 +
+ 6,100 + + 5,500 = 12,000 – 400
PROBLEM 1-1B
4. +000,000 +00,000 +€300 – 300 (b)
+ 6,100 + + 5,500 = + 300 + – 700
5. + –600 +€600 +00,000 +0000 +000,000
+ 5,500 + + 600 + + 5,500 = + 300 + 12,000 – 700
6. – +2,000 +€6,500 +0000 +00,000 +0000 + –€8,500 (c)
+ 7,500 + + 6,500 + + 600 + + 5,500 = + 300 + 12,000 + + 8,500 – 700
7. + –200 + 0,000 +0000 +00,000 +0000 – €200 (d)
+ 7,300 + + 6,500 + + 600 + + 5,500 = + 300 + 12,000 + + 8,500 – 700 – 200
8. + –300 + 0,000 +0000 +00,000 +–300 +000,000
+ 7,000 + + 6,500 + + 600 + + 5,500 = + 0 + 12,000 + + 8,500 – 700 – 200
9. + –2,200 + 0,000 +0000 +00,000 +0000 – 2,200 (e)
+ 4,800 + + 6,500 + + 600 + + 5,500 = 12,000 + + 8,500 – 2,900 – 200
10. – +5,700 –5,700 + + +
+€10,500 + + €800 + +€600 + +€5,500 = +€ 0 + €12,000 + +€8,500 – €2,900 – €200
€17,400 €17,400
LO: 1.7, 1.8
Difficulty: Hard
AACSB: Analytic
PROBLEM 1-1B (Continued)
(a) Rent Expense (d) Dividends

(b) Advertising Expense (e) Salaries and Wages Expense
(c) Service Revenue
(b) Service revenue ........................................................................ €8,500

Expenses
Salaries and wages ........................................ €2,200
Rent .................................................................. 400
Advertising ...................................................... 300 2,900
Net income ............................................... €5,600
(a) MANDY ARNOLD, ATTORNEY AT LAW LTD.
Accounts Notes Accounts Share Retained

Cash + Receivable + Supplies + Equipment = Payable + Payable + Capital + Earnings + Revenues – Expenses – Dividends
Bal. £4,000 + £1,500 + £500 + £5,000 = £4,200 + £6,000 + £ 800

1. +1,400 –1,400 0000 00,000 00,000 000,000
5,400 + 100 + 500 + 5,000 = 4,200 + 6,000 + 800
2. –2,700 00,000 0000 00,000 –2,700 000,000
2,700 + 100 + 500 + 5,000 = 1,500 + 6,000 + 800
PROBLEM 1-2B
3. +3,000 +4,900 0000 00,000 00,000 +£7,900
5,700 + 5,000 + 500 + 5,000 = 1,500 + 6,000 + 800 + 7,900
4. –400 00,000 0000 +1,000 +600 000,000
5,300 + 5,000 + 500 + 6,000 = 2,100 + 6,000 + 800 + 7,900
5. –4,250 –£3,000
–900
00,000 0000 00,000 00,000 –350
1,050 + 5,000 + 500 + 6,000 = 2,100 + 6,000 + 800 + 7,900 – 4,250
6. –450 00,000 0000 00,000 00,000 –£450
600 + 5,000 + 500 + 6,000 = 2,100 + 6,000 + 800 + 7,900 – 4,250 – 450
7. +2,000 00,000 0000 00,000 +£2,000 00,000 000,000
2,600 + 5,000 + 500 + 6,000 = + 2,000 + 2,100 + 6,000 + 800 + 7,900 – 4,250 – 450
8. +210 + –210
£2,600 + £5,000 + £500 + £6,000 = +£2,000 + £2,310 £6,000 + £ 800 + £7,900 – £4.460 – £450
£14,100 £14,100
LO: 1.6, 1.7
Difficulty: Hard
AACSB: Analytic
(b) MANDY ARNOLD, ATTORNEY AT LAW LTD.

Income Statement
Revenues
Service revenue.............................................. £7,900
Expenses
Salaries and wages expense......................... £3,000
Rent expense .................................................. 900
Advertising expense ...................................... 350
Utilities expense ............................................. 210
Total expenses ....................................... 4,460
Net income ............................................................. £3,440
MANDY ARNOLD, ATTORNEY AT LAW LTD.

Retained earnings, August 1 ................................ £ 800

Add: Net income .................................................. 3,440
4,240
Less: Dividends .................................................... 450
Retained earnings, August 31 .............................. £3,790
MANDY ARNOLD, ATTORNEY AT LAW LTD.

August 31, 2017
Assets
Equipment ................................................................... £ 6,000
Supplies ...................................................................... 500
Accounts receivable .................................................. 5,000
Cash ............................................................................ 2,600
Total assets ......................................................... £14,100

Equity
Share capital—ordinary ..................................... £6,000
Retained earnings .............................................. 3,790
Total equity .................................................. £9,790
Liabilities
Notes payable ..................................................... 2,000
Total equity and liabilities ........................................... £14,100
LO: 1.6, 1.7, 1.8

Difficulty: Hard
AACSB: Analytic
PROBLEM 1-3B
(a) ANGELIC COSMETICS CO. LTD.

Revenues
Service revenue............................................ ¥5,500
Expenses
Rent expense ................................................ ¥1,800
Gasoline expense......................................... 600
Total expenses ..................................... 3,300
Net income ........................................................... ¥2,200
ANGELIC COSMETICS CO. LTD.

Retained Earnings, June 1 .................................. ¥ 0

Add: Net income ................................................ 2,200
2,200
Less: Dividends .................................................. 900
Retained Earnings, June 30 ................................ ¥1,300

June 30, 2017
Assets
Equipment ................................................................................ ¥25,000
Supplies .................................................................................... 2,000
Accounts receivable ................................................................ 4,000
Cash .......................................................................................... 10,000
Total assets ...................................................................... ¥41,000
ANGELIC COSMETICS CO. LTD

Statement of Financial Position (Continued)
June 30, 2017

Equity
Share capital—ordinary .................................... ¥25,000
Retained earnings ............................................. 1,300
Total equity ................................................. ¥26,300
Liabilities
Notes payable .................................................... 13,000
Accounts payable .............................................. 1,700
Total liabilities ............................................ 14,700
Total equity and liabilities .......................................... ¥41,000
(b) ANGELIC COSMETICS CO. LTD.

Revenues
Service revenue (¥5,500 + ¥800).................. ¥6,300
Expenses
Rent expense ................................................ ¥1,800
Gasoline expense (¥600 + ¥100).................. 700
Total expenses ...................................... 3,400
Net income ............................................................ ¥2,900

Retained earnings, June 1 ................................... ¥ 0

Add: Net income ................................................ 2,900
2,900
Less: Dividends ................................................... 900
Retained earnings, June 30 ................................. ¥2,000
(a) PAULIS CONSULTING LTD.
Accounts Notes Accounts Share Retained Earnings
Date Cash + Receivable + Supplies + Equipment = Payable + Payable + Capital + Revenues – Expenses – Dividends
May 1 +£ 8,000 +£8,000

8,000 = 8,000
May 2 –800 –£ 800 (a)
7,200 = 8,000 + – 800
May 3 +£500 +£ 500
7,200 + 500 = 500 + 8,000 + 800
May 5 –50 + –50 (b)
PROBLEM 1-4B
+ 7,150 + 500 = 500 + 8,000 – 850
May 9 +3,000 +050 + +£3,000 (c)
10,150 + 500 = 500 + 8,000 + 3,000 – 850
May 12 –700 –£700 (d)
9,450 + 500 = 500 + 8,000 + 3,000 – 850 – 700
May 15 +£3,300 +3,300 (e)
9,450 + 3,300 + 500 = 500 + 8,000 + 6,300 – 850 – 700
May 17 –2,100 – –2,100 (f)
7,350 + 3,300 + 500 = 500 + 8,000 + 6,300 – 2,950 – 700
May 20 –500 + –500
6,850 + 3,300 + 500 = –0– + 8,000 + 6,300 – 2,950 – 700
May 23 +2,000 –2,000 +
+ 8,850 + 1,300 + 500 = + –0– + 8,000 + 6,300 – 2,950 – 700
May 26 +5,000 +£5,000
13,850 + 1,300 + 500 = 5,000 –0– + 8,000 + 6,300 – 2,950 – 700
May 29 +£2,300 +2,300
13,850 + 1,300 + 500 + 2,300 = 5,000 2,300 + 8,000 + 6,300 – 2,950 – 700
May 30 –150 –150 (g)
£13,700 + £ 1,300 + £500 + £2,300 = £5,000 + £2,300 + £8,000 + £6,300 – £3,100 – £700
£17,800 £17,800
LO: 1.8
Difficulty: Hard
AACSB: Analytic

(a) Rent Expense (e) Service Revenue
(b) Advertising Expense (f) Salaries and Wages Expense
(c) Service Revenue (g) Utilities Expense
(d) Dividends
(b) PAULIS CONSULTING LTD.

Income Statement
Revenues
Service revenue (£3,000 + £3,300)................ £6,300
Expenses
Salaries and wages expense ........................ £2,100
Rent expense ................................................. 800
Utilities expense ............................................ 150
Advertising expense ..................................... 50
Total expenses ....................................... 3,100
Net income ............................................................. £3,200
(c) PAULIS CONSULTING LTD.

May 31, 2017
Assets
Equipment .................................................................... £ 2,300
Supplies ....................................................................... 500
Accounts receivable ................................................... 1,300
Cash ............................................................................. 13,700
Total assets .......................................................... £17,800

Equity
Retained earnings ($3,200 – $700) ..................... 2,500
Total equity ................................................... £10,500
Liabilities
Notes payable ...................................................... 5,000
Total equity and liabilities.................................................. £17,800
LO:1.7, 1.8
Difficulty: Hard
AACSB: Analytic
PROBLEM 1-5B
(a) John Paul George Ringo

Company Company Company Company
(a) £28,000 (d) £40,000 (g) £129,000 (j) £ 40,000
(b) 95,000 (e) 38,000 (h) 80,000 (k) 225,000
(c) 4,000 (f) 10,000 (i) 408,000 (l) 460,000
(b) JOHN COMPANY

Retained earnings, January 1 ............................. £ 0

Add: Net income ................................................. 15,000
15,000
Less: Dividends ................................................... 7,000
Retained earnings December 31 ......................... £ 8,000
(c) The sequence of preparing financial statements is income statement,

retained earnings statement, and statement of financial position. The
interrelationship of the retained earnings statement to the other
financial statements results from the fact that net income from the
income statement is reported in the retained earnings statement and
ending retained earnings reported in the retained earnings statement is
the amount reported for retained earnings on the statement of financial
position.
LO: 1.7, 1.8

Difficulty: Hard
AACSB: Analytic
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 her investment in the business. If she decides
to transfer ownership to another student, she can do so without
dissolving the corporation.
(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 personal 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.
MC1 (Continued)
(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
Expenses: Advertising Expense, Supplies Expense, Utilities Expense,

Insurance 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.
LO: 1.7, 1.8

Difficulty: Medium
BLOOMCODE: Synthesis
BYP 1-1 FINANCIAL REPORTING PROBLEM
(a) TSMC’s total assets at December 31, 2013 were NT$ 1,263,054.9 million
and at December 31, 2012 were NT$ 961,354.5 million.
(b) TSMC had NT$ 242,695.4 million of cash and cash equivalents at
December 31, 2013.
(c) TSMC had accounts payable totaling NT$ 14,670.3 million on December
31, 2013 and NT$ 14,490.4 million on December 31, 2012.
(d) TSMC reports revenues for 2012 of NT$ 506,745.2 million and for 2013
of NT$ 597,024.2 million.
(e) From 2012 to 2013, TSMC’s net income increased NT$ 21,895.1 million
from NT$ 166,123.8 million to NT$ 188,018.9 million.
LO: 1.8
Difficulty: Medium
BLOOMCODE: Analysis
AACSB: Analytic
BYP 1-2 COMPARATIVE ANALYSIS PROBLEM
(a) Nestlé Petra Foods

(in millions) (in thousands)
1. Total assets CHF 120,442 US$465,896
2. Accounts (trade) receivable CHF 12,206 US$ 76,742
(net)
3. Net sales CHF 92,158 US$508,800
4. Net income (profit) CHF 10,015 US$ 20,555
(b) Nestlé Petra Foods

Receivables as a 10.13% 16.47%
percentage of total assets.
Net income as a percentage 10.87% 4.04%

of sales (revenue).
LO: 1.8
Difficulty: Medium
BLOOMCODE: Analysis/Evaluation
AACSB: Analytic
BYP 1-3 REAL–WORLD FOCUS
(a) The field is normally divided into three broad areas: auditing, financial/
tax, and management accounting.
(b) The skills required in these areas:
People skills, sales skills, communication skills, analytical skills, ability

to synthesize, creative ability, initiative, computer skills.
(c) The skills required in these areas differ as follows:
Financial Management
Auditing and Tax Accounting
People skills Medium Medium Medium
Sales skills Medium Medium Low
Communication skills Medium Medium High
Analytical skills High Very High High
Ability to synthesize Medium Low High
Creative ability Low Medium Medium
Initiative Medium Medium Medium
Computer skills High High Very High
(d) Some key job options in accounting:
Auditing: Work in auditing involves checking accounting ledgers

and financial statements within corporations and government. This
work is becoming increasingly computerized and can rely on
sophisticated random sampling methods. Auditing is the bread-and-
butter work of accounting. This work can involve significant travel
and allows you to really understand how money is being made in the
company that you are analyzing. It’s a great background!
Budget Analysis: Budget analysts are responsible for developing and

managing an organization’s financial plans. There are plentiful jobs in
this area in government and private industry. Besides quantitative
skills many budget analyst jobs require good people skills because of
negotiations involved in the work.
BYP 1-3 (Continued)
Financial: Financial accountants prepare financial statements based on

general ledgers and participate in important financial decisions involving
mergers and acquisitions, benefits/ERISA planning, and long-term finan-
cial projections. This work can be varied over time. One day you may
be running spreadsheets. The next day you may be visiting a customer
or supplier to set up a new account and discuss business. This work
requires a good understanding of both accounting and finance.
Management Accounting: Management accountants work in companies

and participate in decisions about capital budgeting and line of busi-
ness analysis. Major functions include cost analysis, analysis of new
contracts, and participation in efforts to control expenses efficiently.
This work often involves the analysis of the structure of organizations.
Is responsibility to spend money in a company at the right level of our
organization? Are goals and objectives to control costs being communi-
cated effectively? Historically, many management accountants have
been derided as “bean counters.” This mentality has undergone major
change as management accountants now often work side by side with
marketing and finance to develop new business.
Tax: Tax accountants prepare corporate and personal income tax state-
ments and formulate tax strategies involving issues such as financial
choice, how to best treat a merger or acquisition, deferral of taxes,
when to expense items and the like. This work requires a thorough
understanding of economics and the tax code. Increasingly, large corpo-
rations are looking for persons with both an accounting and a legal
background in tax. A person, for example, with a JD and a CPA would
be especially desirable to many firms.
(e) Junior Staff Accountant $46,000 – $63,000
LO: 1.7, 1.8, 1.9

Difficulty: Medium
BYP 1-4 DECISION–MAKING ACROSS THE ORGANIZATION
(a) The estimate of the £4,900 loss was based on the difference between
the £20,000 invested in the driving range and the bank balance of
£15,100 at March 31. This is not a valid basis for determining income
because it only shows the change in cash between two points in time.
(b) The statement of financial position at March 31 is as follows:
CHIP-SHOT DRIVING RANGE COMPANY LTD.

March 31, 2017
Assets
Building ....................................................................... £ 6,000
Equipment ................................................................... 800
Cash ............................................................................. 15,100
Total assets ......................................................... £21,900

Equity
Retained earnings ............................................... 1,650 £21,650
Liabilities
Accounts payable (£150 + £100) ........................ 250
Total equity and liabilities .......................... £21,900
As shown in the statement of financial position, the equity at March 31 is

£21,650. The estimate of £1,650 of net income is the difference between the
initial investment of £20,000 and £21,650. This was not a valid basis for
determining net income because changes in equity between two points in
time may have been caused by factors unrelated to net income. For
example, there may be dividends and/or additional capital investments by the
shareholders.
BYP 1-4 (Continued)
(c) Actual net income for March can be determined by adding dividends
to the change in equity during the month as shown below:
Equity, March 31, per statement of financial position .......... £21,650

Equity, March 1 ......................................................................... (20,000)
Increase in equity ..................................................................... 1,650
Add: Dividends ....................................................................... 800
Net income ................................................................................ £ 2,450
Alternatively, net income can be found by determining the revenues

earned [described in (d) below] and subtracting expenses.
(d) Revenues earned can be determined by adding expenses incurred

during the month to net income. March expenses were Rent, £1,000;
Salaries and Wages, £400; Advertising, £750; and Utilities, £100 for a
total of £2,250. Revenues earned, therefore, were £4,700 (£2,250 +
£2,450). Alternatively, since all revenues are received in cash, revenues
earned can be computed from an analysis of the changes in cash as
follows:
Beginning cash balance ........................................ £20,000

Less: Cash payments
Caddy shack.......................................... £6,000
Golf balls and clubs.............................. 800
Rent ........................................................ 1,000
Advertising ............................................ 600
Salaries and wages............................... 400
Dividends............................................... 800 9,600
Cash balance before revenues ............................. 10,400
Cash balance, March 31......................................... 15,100
Revenues earned ................................................... £ 4,700
LO: 1.8
Difficulty: Hard
BLOOMCODE: Evaluation
AACSB: Analytic
BYP 1-5 COMMUNICATION ACTIVITY
To: Erin Danielle

From: Student
I have received the statement of financial position of Liverpool Company

Ltd. as of December 31, 2017. A number of items in this statement of
financial position are not properly reported. They are:
1. The statement of financial position should be dated as of a specific

date, not for a period of time. Therefore, it should be dated “December
31, 2017.”
2. Cash should be reported after Supplies on the statement of financial

position.
3. Accounts receivable should be shown as an asset, not a liability, and

reported between Cash and Supplies on the statement of financial
position.
4. Accounts payable should be shown as a liability, not an asset. The note

payable is also a liability and should be reported in the liability section.
5. Liabilities and equity should be shown on the statement of financial

position. Share capital—ordinary is not a liability.
6. Share capital—ordinary and retained earnings are part of equity.

BYP 1-5 (Continued)
A correct statement of financial position is as follows:
LIVERPOOL COMPANY LTD.

December 31, 2017
Assets
Equipment ............................................................... £22,500
Supplies ................................................................... 2,000
Accounts receivable ............................................... 6,000
Cash ......................................................................... 9,000
Total assets ....................................................... £39,500

Equity
Share capital—ordinary .................................. £23,000
Retained earnings ........................................... (2,000)
Total liabilities.......................................... £21,000
Liabilities
Notes payable .................................................. 10,500
Accounts payable ........................................... 8,000
Total liabilities.......................................... 18,500
Total equity and liabilities ...................................... £39,500
LO: 1.8
Difficulty: Medium
BLOOMCODE: Evaluation
AACSB: Communication
BYP 1-6 ETHICS CASE
(a) The students should identify all of the stakeholders in the case; that is,
all the parties that are affected, either beneficially or negatively, by the
action or decision described in the case. The list of stakeholders in this
case are:
 Jeff Hunter, interviewee.

 Both Baltimore firms.
 Great Northern College.
(b) The students should identify the ethical issues, dilemmas, or other con-
siderations pertinent to the situation described in the case. In this case
the ethical issues are:
 Is it proper that Jeff charged both firms for the total travel costs
rather than split the actual amount of $296 between the two firms?
 Is collecting $592 as reimbursement for total costs of $296 ethical

behavior?
 Did Jeff deceive both firms or neither firm?
(c) Each student must answer the question for himself/herself. Would you
want to start your first job having deceived your employer before your
first day of work? Would you be embarrassed if either firm found out
that you double-charged? Would your school be embarrassed if your
act was uncovered? Would you be proud to tell your professor that
you collected your expenses twice?
LO: 1.3
Difficulty: Medium
BLOOMCODE: Evaluation/Ethics
GAAP EXERCISES
GAAP 1-1
The International Accounting Standards Board, IASB, and the Financial

Accounting Standards Board, FASB, are two key players in developing
international accounting standards. The IASB releases international
standards known as International Financial Reporting Standards (IFRS).
The FASB releases U.S. standards, referred to a Generally Accepted
Accounting Principles or GAAP.
LO: 1.4, 1.10

Difficulty: Easy
GAAP 1-2
Accounting standards have developed in different ways because the

standard setters have responded to different user needs. In some
countries, the primary users of financial statements are private investors;
in others the primary users are taxing authorities or central government
planners.
LO: 1.3, 1.4, 1.10

Difficulty: Easy
GAAP 1-3
A single set of high-quality accounting standards is needed because of

increases in multinational corporations, mergers and acquisitions, use of
information technology, and international financial markets.
LO: 1.4, 1.10

Difficulty: Easy
GAAP 1-4
Currently the internal control standards applicable to Sarbanes-Oxley

(SOX) apply only to large public companies listed on U.S. exchanges. If
such standards were adopted by non-U.S. companies, users of statements
would benefit from more uniform regulation and U.S. companies would be
competing on a more “even” playing field. The disadvantage of adopting
SOX would be the additional cost associated with its required internal
control measures.
LO: 1.10
Difficulty: Easy
GAAP 1-5 GAAP FINANCIAL REPORTING PROBLEM
(a) Apple’s total assets at September 28, 2013 were $207,000 million and
at September 29, 2012 were $176,064 million.
(b) Apple had $14,259 million of cash and cash equivalents at September 28,
2013.
(c) Apple had accounts payable totaling $22,367 million on September 28,
2013 and $21,175 million on September 29, 2012.
(d) Apple reports net sales for three consecutive years as follows:
2011 $108,249 million

2012 $156,508 million
2013 $170,910 million
(e) From 2012 to 2013, Apple’s net income decreased $4,696 million from
$41,733 million to $37,037 million.
LO: 1.8
Difficulty: Medium

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Solution Manual

Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso

11. The basic accounting equation is Assets = Liabilities + Equity.

16. (a) Decrease assets and decrease equity.

17. (a) Income statement. (d) Statement of financial position.

20. (a) Ending equity balance ........................................................................................ £198,000

(b) Ending equity balance ........................................................................................ £198,000

21. (a) Total revenues (£30,000 + £70,000) .................................................................. £100,000

(b) Total expenses (£26,000 + £40,000) ................................................................. £66,000

(c) Total revenues ................................................................................................... £100,000

BRIEF EXERCISE 1-1

(a) ¥88,000 – ¥50,000 = ¥38,000 (Equity).

BRIEF EXERCISE 1-2

(a) £120,000 + £232,000 = £352,000 (Total assets).

BRIEF EXERCISE 1-3

(a) (€870,000 + €150,000) – (€500,000 – €80,000) = €600,000

BRIEF EXERCISE 1-4

(a) X = £90,000 + £150,000 + £450,000 – £320,000 – £40,000

(b) £57,000 = X + £23,000 + £50,000 – £35,000 – £7,000

(c) £600,000 = (£600,000 x 2/3) + X (Equity)

BRIEF EXERCISE 1-5

A (a) Accounts receivable A (d) Supplies

BRIEF EXERCISE 1-6

Assets Liabilities Equity

BRIEF EXERCISE 1-7

BRIEF EXERCISE 1-8

E (a) Advertising expense D (e) Dividends

BRIEF EXERCISE 1-9

R (a) Received cash for services performed

Equity and Liabilities

BRIEF EXERCISE 1-11

CI (a) Other comprehensive income

SOLUTIONS FOR DO IT! REVIEW EXERCISES

1. False. The three steps in the accounting process are identification,

LO: 1.1, 1.2

LO: 1.3, 1.4, 1.5

1. Dividends is dividends (D); it decreases equity.

Assets = Liabilities + Equity

(1) + R23,000 + R23,000

(b) Net income is R$21,700, computed as follows:

(c) The ending equity balance of Rivera Company SA is R$23,500. By

Total assets [as computed in (a)] ............................. R$51,500

C Analyzing and interpreting information.

(a) Internal users

(b) I Can we afford to give our employees a pay raise?

Leon Manternach, president of Manternach SE, instructed Carla Ruden, the

The stakeholders include shareholders and creditors of Manternach,

In general, even though IFRS allows companies to revalue property, plant,

Carla’s alternatives are to report the land at €100,000 or to report it at

1. Correct. The fair value principle allows companies to revalue property,

2. Correct. The monetary unit assumption requires that companies include

3. Incorrect. The economic entity assumption requires that the activities of

Asset Liability Equity

1. Increase in assets and increase in equity.

(a) 1. Shareholders invested £15,000 cash in the business.

(b) Investment ................................................................................ £15,000

(c) Service revenue ....................................................................... £9,100

J. L. KANG & CO. Ltd.