Type:
Solution Manual
Resource:
Horngren_s Accounting, Volume 1
Edition:
11th Edition
Author(s):
Tracie Miller-Nobles Brenda Mattison Carol Meissner Peter Norwood
Contents Chapter 1: Accounting and the Business Environment ......................................................
1
Chapter 2: Recording Business Transactions .....................................................................
55
Chapter 3: Measuring Business Income: The Adjusting Process ....................................... 113 Chapter 4: Completing the Accounting Cycle .................................................................... 207 Chapter 5: Merchandising Operations ................................................................................ 335 Chapter 6: Accounting for Merchandise Inventory ............................................................ 453 Chapter 7: Accounting Information Systems ...................................................................... 537 Chapter 8: Internal Control and Cash ................................................................................. 613 Chapter 9: Receivables ....................................................................................................... 673 Chapter 10: Property, Plant, and Equipment; and Goodwill and Intangible Assets ........... 757 Chapter 11: Current Liabilities and Payroll ........................................................................ 825
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Chapter 1
Accounting and the Business Environment
Questions 1.
Accounting is a system for measuring, processing, and communicating financial information. Bookkeeping is a procedural element of accounting.
2.
a. The general public uses accounting information to manage bank accounts, loan payments, etc. b. Managers and owners of businesses use accounting to monitor expenses and revenue recorded. c. Investors and creditors use accounting information to evaluate investments and loan applications. d. Government agencies (including taxation authorities) use accounting data to create reports and collect payments. e. Not-for-profit organizations such as churches and hospitals use accounting information in much the same way as managers of businesses do—to manage their organizations.
3.
Financial accounting communicates financial information about a company to interested users who are external to the company (creditors and regulators, for example). Management accounting provides information that is used within a company to help make better future-oriented decisions.
4.
Accounting students can pursue either the ACAF certification or the CPA designation. The advanced certificate in accounting and finance prepares them for intermediate positions. The Certified Professional Accountant designation allows members to use the letter “CPA” on their business cards.
5.
The Accounting Standards Board formulates generally accepted accounting principles. It is not a government agency.
6.
Proprietorship A proprietorship has a single owner, called the proprietor, who often manages the business. The business remains a business for the life of the owner. For accounting pruposes, each proprietorship is distinct from its owner. Thus, the accounting records of the proprietorship do not include the proprietor’s personal accounting records. However, from a legal perspective, the business is the proprietor, so if the business cannot pay its debts, lenders can take the proprietor’s personal assets (cash and belongings) to pay the proprietorship’s debt.
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Horngren’s Accounting, 11Ce
Instructor’s Solutions Manual
Chapter 1
Starters (5 min.)
a. FA manager
b. FA e. MA
c. FA
S1-1
d. FA (and also MA if the owner is also a
(5 min.)
S1-2
1. The banker is an external user. 2. The balance sheet would be the best financial statement for the bank to use, as it lists all the assets, liabilities, and equities for the company.
a. b. c. d. e.
Marketing manager Canada Revenue Agency Investor Controller Supplier
(5 min.)
S1-3
(5-10 min.)
S1-4
I = Internal E = External E = External I = Internal E = External
Louise will want to consider the factors discussed in Exhibit 1–4. This shows that a corporation is the only type of business organization that has an unlimited life. Also, the corporation, not its shareholders, is responsible for business debts. In other words, Louise’s liability will be limited.
1-4
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Horngren’s Accounting, 11Ce
Chapter 1
Instructor’s Solutions Manual
(10–15 min.)
S1-5
a. Cost principle of measurement
e
Benefits of the information produced by an accounting system must be greater than the costs
b. Going concern assumption
f
Amounts may be ignored if the effect on a decision maker’s decision is not significant
c. Stable monetary unit assumption
a
Transactions are recorded based on the cash amount received or paid
d. Economic entity assumption
c
Ignore the effects of inflation in the accounting records
e. Cost–benefit constraint
b
Assumes that a business is going to continue operations indefinitely
f. Materiality constraint
d
Business must keep its accounting records separate from its owner’s accounting records (5–10 min.)
S1-6
No, an intention to rent is not a transaction because an event has not yet occurred that affects the financial position of the company and can be measured reliably. When the rental is completed or when cash changes hands, then a transaction will have taken place. (5 min.)
S1-7
Revenues are the amounts earned by Shu in return for her providing goods and services to customers. Expenses are the decreases in equity that arise from the utilization of assets or the increase in liabilities to cover the costs needed to deliver goods and services to customers.
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Horngren’s Accounting, 11Ce
Instructor’s Solutions Manual
Chapter 1
(10 min.)
S1-14
BLACK CANARY SOUND STUDIO Income Statement For the Year Ended December 31, 2019 Revenue $150,000
Service revenue Expenses Insurance expense
$ 3,000
Rent expense
18,000
Salaries expense
50,000
Supplies expense
1,000 72,000
Total expenses Net income
$ 78,000
(10 min.)
S1-15
1. Start with the accounting equation to solve for the total Owner’s Equity: A=L+E $45,800 = $15,230 + E E = $30,570 Then look at how we calculate equity and break it down to solve for the Expenses: (Hint: see Exhibit 1–10 for the following “formula.”) Ending Equity (Capital) = Investment (Capital) – Withdrawals + Revenues – Expenses $30,570 = $28,700 – $7,000 + $10,890 – Expenses Expenses = $2,020 2. If Revenues are $10,890 and Expenses are $2,080, then there is a net income of $8,870. This would mean it was “a good year” for the business because they earned a profit and did not incur a loss.
1-8
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Horngren’s Accounting, 11Ce
Chapter 1
Instructor’s Solutions Manual
Exercises (5-10 min.)
E1-1
The income statement reports the revenues and expenses of a particular entity for a period such as a month or a year. Total revenues minus total expenses equals net income, or profit. A lender would require this information in order to predict whether the borrower can generate enough income to repay the loan. The balance sheet reports the assets, liabilities, and owner’s equity of the entity at a particular point in time. The assets show the resources that the business has to work with. A lender wants to identify assets to know what can be taken if the borrower does not repay the loan. Liabilities—debts—represent creditors’ claims to the business’s assets. If the borrower already owes lots of money, he or she may be unable to repay the loan. Owner’s equity is the portion of the business assets owned outright by the owners of the business. The higher the owner’s equity, the stronger the borrower’s financial position and the greater the probability of loan repayment. Instructional Note: Student responses may vary considerably. a. b. c. d. e. f.
(5-10 min.)
E1-2
(5-10 min.)
E1-3
Sole proprietorship Partnership Sole proprietorship Corporation Partnership Corporation
1. f 2. a 3. d 4. b 5. c 6. e
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