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Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 1-1
CHAPTER 1
Accounting in Action
ASSIGNMENT CLASSIFICATION TABLE
Study Objectives QuestionsBrief
Exercises Do It! ExercisesA
ProblemsB
Problems
1. Explain whataccounting is.
1, 2, 5 1, 2, 4 1
2. Identify the users anduses of accounting.
3, 4 1 2
3. Understand why ethicsis a fundamental businessconcept.
3
4. Explain accountingstandards and themeasurement principles.
6, 7 1 4
5. Explain the monetaryunit assumption andthe economic entityassumption.
8, 9, 10, 11 4
6. State the accountingequation, and defineits components.
12, 13, 14 1, 2, 3,4, 5
2 5, 6,7, 11
1A, 2A,4A
1B, 2B,4B
7. Analyze the effects ofbusiness transactions onthe accounting equation.
15, 16,17, 19
6, 7, 8, 9 3 6, 7, 8, 11 1A, 2A,4A, 5A
1B, 2B,4B, 5B
8. Understand the fourfinancial statementsand how they areprepared.
18, 20, 2122, 23
10, 11 4 9, 10, 12,13, 14, 15,16, 17
2A, 3A,4A, 5A
2B, 3B,4B, 5B
1-2 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
ASSIGNMENT CHARACTERISTICS TABLE
ProblemNumber Description
DifficultyLevel
Time Allotted(min.)
1A Analyze transactions and compute net income. Moderate 40–50
2A Analyze transactions and prepare income statement,retained earnings statement, and statement of financialposition.
Moderate 50–60
3A Prepare income statement, retained earnings statement,and statement of financial position.
Moderate 50–60
4A Analyze transactions and prepare financial statements. Moderate 40–50
5A Determine financial statement amounts and prepareretained earnings statement.
Moderate 40–50
1B Analyze transactions and compute net income. Moderate 40–50
2B Analyze transactions and prepare income statement,retained earnings statement, and statement of financialposition.
Moderate 50–60
3B Prepare income statement, retained earnings statement,and statement of financial position.
Moderate 50–60
4B Analyze transactions and prepare financial statements. Moderate 40–50
5B Determine financial statement amounts and prepareretained earnings statement.
Moderate 40–50
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 1-3
WEYGANDT IFRS 1ECHAPTER 1
ACCOUNTING IN ACTION
Number SO BT Difficulty Time (min.)
BE1 6 AP Simple 2–4
BE2 6 AP Simple 3–5
BE3 6 AP Moderate 4–6
BE4 6 AP Moderate 4–6
BE5 6 C Simple 2–4
BE6 7 C Simple 2–4
BE7 7 C Simple 2–4
BE8 7 C Simple 2–4
BE9 7 C Simple 1–2
BE10 8 AP Simple 3–5
BE11 8 C Simple 2–4
DI1 1, 2, 4 K Simple 2–4
DI2 6 K Simple 2–4
DI3 7 AP Simple 6–8
DI4 8 AP Moderate 8–10
EX1 1 C Moderate 5–7
EX2 2 C Simple 6–8
EX3 3 C Moderate 6–8
EX4 4, 5 C Moderate 6–8
EX5 6 C Simple 4–6
EX6 6, 7 C Simple 6–8
EX7 6, 7 C Simple 4–6
EX8 7 AP Moderate 12–15
EX9 8 AP Simple 12–15
EX10 8 AP Moderate 8–10
EX11 6, 7 AP Moderate 6–8
EX12 8 AP Simple 8–10
EX13 8 AN Simple 8–10
EX14 8 AP Simple 10–12
EX15 8 AP Simple 6–8
EX16 8 AP Moderate 6–8
EX17 8 AP Moderate 8–10
1-4 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
ACCOUNTING IN ACTION (Continued)
Number SO BT Difficulty Time (min.)
P1A 6, 7 AP Moderate 40–50
P2A 6–8 AP Moderate 50–60
P3A 8 AP Moderate 50–60
P4A 6–8 AP Moderate 40–50
P5A 7, 8 AP Moderate 40–50
P1B 6, 7 AP Moderate 40–50
P2B 6–8 AP Moderate 50–60
P3B 8 AP Moderate 50–60
P4B 6–8 AP Moderate 40–50
P5B 7, 8 AP Moderate 40–50
BYP1 8 AN Simple 10–15
BYP2 8 AN, E Simple 10–15
BYP3 9 C, AN Simple 15–20
BYP4 8 E Moderate 15–20
BYP5 8 E Simple 12–15
BYP6 3 E Simple 10–12
BLOOM’S TAXONOMY TABLE
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 1-5
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1-6 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
ANSWERS TO QUESTIONS
1. Yes, this is correct. Virtually every organization and person in our society uses accountinginformation. Businesses, investors, creditors, government agencies, and not-for-profit organizationsmust use accounting information to operate effectively.
2. Accounting is the process of identifying, recording, and communicating the economic events ofan organization to interested users of the information. The first step of the accounting process istherefore to identify economic events that are relevant to a particular business. Once identifiedand measured, the events are recorded to provide a history of the financial activities of theorganization. Recording consists of keeping a chronological diary of these measured events in anorderly and systematic manner. The information is communicated through the preparation anddistribution 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 toanalyze and interpret the reported information.
3. (a) Internal users are those who plan, organize, and run the business and therefore are officersand other decision makers.
(b) To assist management, accounting provides internal reports. Examples include financialcomparisons of operating alternatives, projections of income from new sales campaigns,and forecasts of cash needs for the next year.
4. (a) Investors (owners) use accounting information to make decisions to buy, hold, or sell shares.(b) Creditors use accounting information to evaluate the risks of granting credit or lending money.
5. Bookkeeping usually involves only the recording of economic events and therefore is just one partof the entire accounting process. Accounting, on the other hand, involves the entire process ofidentifying, recording, and communicating economic events.
6. Karen Sommers Travel Agency should report the land at $90,000 on its December 31, 2011statement of financial position. An important concept that accountants follow is the cost principle.The cost principle states that assets should be recorded at their cost. Cost has an importantadvantage over other valuations: it is reliable. Cost can be objectively measured and can beverified.
7. Fair value is defined as the price received to sell an asset or settle a liability.
8. The monetary unit assumption requires that only transaction data capable of being expressed interms of money be included in the accounting records. This assumption enables accounting toquantify (measure) economic events.
9. The economic entity assumption requires that the activities of the entity be kept separate anddistinct from the activities of its owners and all other economic entities.
10. The three basic forms of business organizations are: (1) proprietorship, (2) partnership, and(3) corporation.
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 1-7
Questions Chapter 1 (Continued)
11. One of the advantages Maria Gonzalez would enjoy is that ownership of a corporation is repre-sented by transferable shares. This would allow Maria to raise money easily by selling a partof 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 corporateentity. Also, because ownership can be transferred without dissolving the corporation, the corporationenjoys an unlimited life.
12. The basic accounting equation is Assets = Liabilities + Equity.
13. (a) Assets are resources owned by a business. Liabilities are claims against assets. Put moresimply, 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.
14. The liabilities are: (b) Accounts payable and (g) Salaries payable.
15. Yes, a business can enter into a transaction in which only the left side of the accounting equationis affected. An example would be a transaction where an increase in one asset is offset bya decrease in another asset. An increase in the Equipment account which is offset by a decreasein the Cash account is a specific example.
16. Business transactions are the economic events of the enterprise recorded by accountantsbecause they affect the basic equation.
(a) No, the death of the president of the company is not a business transaction as it does notaffect 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.
17. (a) Decrease assets and decrease equity.(b) Increase assets and decrease assets.(c) Increase assets and increase equity.(d) Decrease assets and decrease liabilities.
18. (a) Income statement. (d) Statement of financial position.(b) Statement of financial (e) Statement of financial position and retained
position. earnings statement.(c) Income statement. (f) Statement of financial position.
19. No, this treatment is not proper. While the transaction does involve a receipt of cash, it does notrepresent revenues. Revenues are the gross increase in equity resulting from business activitiesentered into for the purpose of earning income. This transaction is simply an additional investmentmade by one of the owners of the business.
20. Yes. Net income does appear on the income statement—it is the result of subtracting expensesfrom revenues. In addition, net income appears in the retained earnings statement—it is shownas an addition to the beginning-of-period retained earnings. Indirectly, the net income of a company isalso included in the statement of financial position. It is included in the Retained Earnings accountwhich appears in the equity section of the statement of financial position.
1-8 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
Questions Chapter 1 (Continued)
21. (a) Ending equity balance ...................................................................................................... $198,000Beginning equity balance................................................................................................. 168,000Net income.......................................................................................................................... $ 30,000
(b) Ending equity balance ...................................................................................................... $198,000Beginning equity balance................................................................................................. 168,000
30,000Deduct: Investment .......................................................................................................... 13,000Net income.......................................................................................................................... $ 17,000
22. (a) Total revenues (£20,000 + £70,000) ............................................................................. £90,000
(b) Total expenses (£26,000 + £40,000)............................................................................. £66,000
(c) Total revenues ................................................................................................................... £90,000Total expenses................................................................................................................... 66,000Net income.......................................................................................................................... £24,000
23. Nestlé’s accounting equation (in millions of Swiss Francs) at December 31, 2008 was CHF106,215 =CHF51,299 + CHF54,916.
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 1-9
SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 1-1
(a) ¥90,000 – ¥50,000 = ¥40,000 (Equity).(b) ¥40,000 + ¥70,000 = ¥110,000 (Assets).(c) ¥94,000 – ¥60,000 = ¥34,000 (Liabilities).
BRIEF EXERCISE 1-2
(a) $120,000 + $232,000 = $352,000 (Total assets).(b) $190,000 – $80,000 = $110,000 (Total liabilities).(c) $800,000 – 0.5($800,000) = $400,000 (Equity).
BRIEF EXERCISE 1-3
(a) (€800,000 + €150,000) – (€500,000 – €80,000) = €530,000 (Equity).
(b) (€500,000 + €100,000) + (€800,000 – €500,000 – €70,000) = €830,000 (Assets).
(c) (€800,000 – €80,000) – (€800,000 – €500,000 + €120,000) = €300,000 (Liabilities).
BRIEF EXERCISE 1-4
Equity
Retained EarningsAssets = Liabilities +
ShareCapital + Revenues – Expenses – Dividends
(a) X = £ 90,000 + £150,000 + £450,000 – £320,000 – £40,000X = £ 90,000 + £240,000X = £330,000
(b) $57,000 = X + $25,000 + $50,000 – $35,000 – $7,000$57,000 = X + $33,000X = $24,000 ($57,000 – $33,000)
(c) €600,000 = (€600,000 X 2/3) + X (Equity)€600,000 = €400,000 + XX = €200,000
1-10 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
BRIEF EXERCISE 1-5
A (a) Accounts receivable A (d) Office supplies L (b) Salaries payable E (e) Share capital—ordinary A (c) Equipment L (f) Notes payable
BRIEF EXERCISE 1-6
Assets Liabilities Equity
(a) + + NE(b) + NE +(c) – NE –
BRIEF EXERCISE 1-7
Assets Liabilities Equity(a) + NE +(b) – NE –(c) NE NE NE
BRIEF EXERCISE 1-8
E (a) Advertising expense D (e) Dividends R (b) Commission revenue R (f) Rent revenue E (c) Insurance expense E (g) Utilities expense E (d) Salaries expense
BRIEF EXERCISE 1-9
R (a) Received cash for services performed NE (b) Paid cash to purchase equipment E (c) Paid employee salaries
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 1-11
BRIEF EXERCISE 1-10
LOPEZ COMPANYStatement of Financial Position
December 31, 2011
AssetsAccounts receivable.................................................................................. $ 72,500Cash................................................................................................................ 49,000
Total assets ......................................................................................... $121,500
Equity and LiabilitiesEquity
Share capital—ordinary................................................................... $ 31,500Liabilities
Accounts payable.............................................................................. 90,000Total equity and liabilities...................................................... $121,500
BRIEF EXERCISE 1-11
FP (a) Notes payable IS (b) Advertising expense FP (c) Share capital—ordinary FP (d) Cash IS (e) Service revenue RE (f) Dividends
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. True.4. False. The primary accounting standard-setting body in the United
States is the Financial Accounting Standards Board (FASB).5. True.
1-12 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
DO IT! 1-2
(1) Dividends is dividends (D); it decreases equity.(2) Rent Revenue is a 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 capital
shares (I); it increases equity.
DO IT! 1-3
Assets = Liabilities + Equity
Retained EarningsCash +
AccountsReceivable =
AccountsPayable +
ShareCapital + Revenues – Expenses – Dividends
(1) +R20,000 +R20,000
(2) +R20,000 –R20,000
(3) +R2,000 –R2,000(4) –R 5,000 –R5,000
DO IT! 1-4
(a) The total assets are R$49,500, comprised of Cash R$7,000, AccountsReceivable R$13,500, and Equipment R$29,000.
(b) Net income is R$21,000, computed as follows:
RevenuesService revenue.................................................. R$54,000
ExpensesSalaries expense ................................................ R$16,500Rent expense....................................................... 10,500Advertising expense ......................................... 6,000
Total expenses .......................................... 33,000Net income .................................................................... R$21,000
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 1-13
DO IT! 1-4 (Continued)
(c) The ending equity balance of Santos Company is R$21,500. By rewritingthe accounting equation, we can compute R$ Equity as Assets minusLiabilities, as follows:
Total assets [as computed in (a)]............................ R$49,500Less: Liabilities
Notes payable .................................................. R$25,000Accounts payable ........................................... 3,000 28,000
Equity................................................................................ R$21,500
Note that it is not possible to determine the company’s equity in any otherway, because the beginning balance for equity is not provided.
1-14 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
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 dollars and cents. C Preparing accounting reports. C Reporting information in a standard format. I Selecting economic activities relevant to the company. R Summarizing economic events.
EXERCISE 1-2
(a) Internal usersMarketing managerProduction supervisorStore managerVice-president of finance
External usersCustomersTaxing authorityLabor unionsSecurities regulatorSuppliers
(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?
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 1-15
EXERCISE 1-3
Larry Smith, president of Smith Company, instructed Ron Rivera, the head ofthe accounting department, to report the company’s land in their accountingreports at his assumed market 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 measurementapproaches, cost should be used whenever there are questions regarding thereliability of a market value. In this case, valuation of land is too subjectiveand therefore the cost principle should be used.
The stakeholders include shareholders and creditors of Smith Company,potential shareholders and creditors, other users of Smith’s accountingreports, Larry Smith, and Ron Rivera. All users of Smith’s accounting reportscould be harmed by relying on information which violates accountingprinciples. Larry Smith could benefit if the company is able to attract moreinvestors, but would be harmed if the fraudulent reporting is discovered.Similarly, Ron Rivera could benefit by pleasing his boss, but would beharmed if the fraudulent reporting is discovered.
Ron’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 since it wouldmislead many people who rely on Smith’s accounting reports to make finan-cial decisions. Ron should report the land at its cost of $100,000. He shouldtry to convince Larry Smith that this is the appropriate course of action, butbe prepared to resign his position if Smith insists.
EXERCISE 1-4
1. Correct. IFRS allows companies to revalue property, plant and equipmentto fair value. However, most companies choose not to instead, due toreliability concern 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 includein the accounting records only transaction data that can be expressedin terms of money.
3. Incorrect. The economic entity assumption requires that the activities ofthe entity be kept separate and distinct from the activities of its ownerand all other economic entities.
1-16 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
EXERCISE 1-5
Asset Liability EquityCash Accounts payable Share capital—ordinaryCleaning equipment Notes payableCleaning supplies Salaries payableAccounts receivable
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.4. Increase in assets and increase in equity.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.9. Increase in assets and increase in equity.
EXERCISE 1-7
1. (c) 5. (d)2. (d) 6. (b)3. (a) 7. (e)4. (b) 8. (f)
EXERCISE 1-8
(a) 1. Shareholders invested $15,000 cash in the business.2. Purchased office 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 $8,300 in revenue, receiving $4,600 cash and $3,700 on
account.5. Paid $1,500 cash on accounts payable.
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 1-17
EXERCISE 1-8 (Continued)
6. Paid $2,000 cash dividends to shareholders.7. Paid $650 cash for rent.8. Collected $450 cash from customers on account.9. Paid salaries of $4,900.
10. Incurred $500 of utilities expense on account.
(b) Investment ............................................................................................. $15,000Service revenue ................................................................................... 8,300Dividends ............................................................................................... (2,000)Rent expense ........................................................................................ (650)Salaries expense.................................................................................. (4,900)Utilities expense................................................................................... (500)Increase in equity ................................................................................ $15,250
(c) Service revenue ................................................................................... $ 8,300Rent expense ........................................................................................ (650)Salaries expense.................................................................................. (4,900)Utilities expense................................................................................... (500)Net income............................................................................................. $ 2,250
EXERCISE 1-9
S. MOSES & CO.Income Statement
For the Month Ended August 31, 2011 Revenues
Service revenue ................................................................... $8,300Expenses
Salaries expense.................................................................. $4,900Rent expense ........................................................................ 650Utilities expense................................................................... 500
Total expenses ............................................................ 6,050Net income...................................................................................... $2,250
1-18 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
EXERCISE 1-9 (Continued)
S. MOSES & CO.Retained Earnings Statement
For the Month Ended August 31, 2011 Retained earnings, August 1................................................... $ 0Add: Net income....................................................................... 2,250
2,250Less: Dividends ......................................................................... 2,000
Retained earnings, August 31................................... $ 250
S. MOSES & CO.Statement of Financial Position
August 31, 2011
AssetsOffice equipment......................................................................... $ 5,000Supplies ......................................................................................... 750Accounts receivable .................................................................. 3,250Cash ................................................................................................ 8,250
Total assets.......................................................................... $17,250
Equity and LiabilitiesEquity
Share capital—ordinary ................................................... $15,000Retained earnings.............................................................. 250 $15,250
LiabilitiesAccounts payable .............................................................. 2,000
Total equity and liabilities........................................ $17,250
EXERCISE 1-10
(a) Equity—12/31/10 (TL400,000 – TL250,000) ................................ TL150,000Equity—1/1/10 ..................................................................................... 100,000Increase in Equity .............................................................................. 50,000Add: Dividends ................................................................................. 15,000Net income for 2010 .......................................................................... TL 65,000
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 1-19
EXERCISE 1-10 (Continued)
(b) Equity—12/31/11 (TL460,000 – TL300,000)......................... TL160,000Equity—1/1/11—see (a)............................................................. 150,000Increase in equity ....................................................................... 10,000Less: Additional investment.................................................. 50,000Net loss for 2011......................................................................... TL 40,000
(c) Equity—12/31/12 (TL590,000 – TL400,000)........................ TL190,000Equity—1/1/12—see (b) ........................................................... 160,000Increase in equity ...................................................................... 30,000Less: Additional investment................................................. 15,000
15,000Add: Dividends ........................................................................ 30,000Net income for 2012.................................................................. TL 45,000
EXERCISE 1-11
(a) Total assets (beginning of year)............................................ £ 95,000Total liabilities (beginning of year) ....................................... 85,000Total equity (beginning of year)............................................. £ 10,000
(b) Total equity (end of year)......................................................... £ 40,000Total equity (beginning of year)............................................. 10,000Increase in equity ....................................................................... £ 30,000
Total revenues............................................................................. £215,000Total expenses ............................................................................ 175,000Net income.................................................................................... £ 40,000
Increase in equity ........................................... £ 30,000Less: Net income........................................... £40,000Add: Dividends ............................................. 24,000 (16,000)Additional investment................................... £ 14,000
(c) Total assets (beginning of year)............................................ £129,000Total equity (beginning of year)............................................. 80,000Total liabilities (beginning of year) ....................................... £ 49,000
1-20 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
EXERCISE 1-11 (Continued)
(d) Total equity (end of year) ............................................................ £130,000Total equity (beginning of year)................................................ 80,000Increase in equity........................................................................... £ 50,000
Total revenues ................................................................................ £100,000Total expenses................................................................................ 55,000Net income ....................................................................................... £ 45,000
Increase in equity................................................. £ 50,000Less: Net income ................................................ £45,000
Additional investment ........................... 25,000 (70,000)Dividends................................................................ £ 20,000
EXERCISE 1-12
LINDA STANLEY CO.Income Statement
For the Year Ended December 31, 2011 Revenues
Service revenue.............................................................. $62,500Expenses
Salaries expense............................................................ $30,000Rent expense................................................................... 10,400Utilities expense............................................................. 3,100Advertising expense ..................................................... 1,800
Total expenses....................................................... 45,300Net income ................................................................................ $17,200
LINDA STANLEY CO.Retained Earnings Statement
For the Year Ended December 31, 2011 Retained earnings, January 1................................................................... $48,000Add: Net income......................................................................................... 17,200
65,200Less: Dividends............................................................................................ 6,000Retained earnings, December 31............................................................. $59,200
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 1-21
EXERCISE 1-13
MENDEZ COMPANYStatement of Financial Position
December 31, 2011
AssetsEquipment..................................................................................... €46,000Supplies......................................................................................... 8,000Accounts receivable.................................................................. 8,500Cash................................................................................................ 15,000
Total assets ......................................................................... €77,500
Equity and LiabilitiesEquity
Share capital—ordinary................................................... €50,000Retained earnings (€17,500 – €10,000) ....................... 7,500 €57,500
LiabilitiesAccounts payable.............................................................. 20,000
Total equity and liabilities...................................... €77,500
EXERCISE 1-14
(a) Camping fee revenues..................................................................... $140,000General store revenues ................................................................... 50,000
Total revenue ............................................................................. 190,000Expenses.............................................................................................. 150,000Net income........................................................................................... $ 40,000
(b) DEER PARKStatement of Financial Position
December 31, 2011
AssetsEquipment............................................................................................ $105,500Supplies................................................................................................ 2,500Cash....................................................................................................... 23,000
Total assets ................................................................................ $131,000
1-22 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
EXERCISE 1-14 (Continued)
DEER PARKStatement of Financial Position (Continued)
December 31, 2011 Equity and Liabilities
EquityShare capital—ordinary ......................................... $20,000Retained earnings.................................................... 40,000
Total equity........................................................ $ 60,000Liabilities
Notes payable............................................................ 60,000Accounts payable .................................................... 11,000
Total liabilities.................................................. 71,000Total equity and liabilities................................................ $131,000
EXERCISE 1-15
SILVA CRUISE COMPANYIncome Statement
For the Year Ended December 31, 2011 Revenues
Ticket revenue............................................................ R$325,000Expenses
Salaries expense....................................................... R$142,000Maintenance expense.............................................. 95,000Property tax expense............................................... 10,000Advertising expense ................................................ 3,500
Total expenses.................................................. 250,500Net income ........................................................................... R$ 74,500
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 1-23
EXERCISE 1-16
KEVIN AND JOHNSON, ATTORNEYS AT LAWRetained Earnings Statement
For the Year Ended December 31, 2011 Retained earnings, January 1.......................................................... $ 23,000Add: Net income................................................................................ 139,000*
162,000Less: Dividends .................................................................................. 79,000Retained earnings, December 31 ................................................... $ 83,000
*Legal service revenue ...................................................................... $350,000Total expenses ................................................................................... 211,000Net income........................................................................................... $139,000
EXERCISE 1-17
BORNEO COMPANYStatement of Cash Flows
For the Year Ended December 31, 2011 Cash flows from operating activities
Cash receipts from revenues ............................... Rp600,000Cash payments for expenses............................... (410,000)Net cash provided by operating activities 190,000
Cash flows from investing activitiesPurchase of equipment .......................................... (100,000)
Cash flows from financing activities ..........................Sale of shares ............................................................ Rp350,000Payment of cash dividends................................... (20,000) 330,000
Net increase in cash......................................................... 420,000Cash at the beginning of the period............................ 30,000Cash at the end of the period........................................ Rp450,000
1-24 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
(a)
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PROBLEM 1-1A
SOLUTIONS TO PROBLEMS
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 1-25
PROBLEM 1-1A (Continued)
Key to Retained Earnings Column(b) Rent expense(c) Advertising expense(d) Service revenue(e) Dividends(f) Salaries expense(g) Utilities expense(h) Service revenue
(b) Service revenue (£5,100 + £750)................................. £5,850Expenses
Salaries ...................................................................... £2,000Rent ............................................................................. 400Advertising ............................................................... 250Utilities ....................................................................... 140 2,790
Net income....................................................... £3,060
PROBLEM 1-2A
1-26 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
(a)
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$29,
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$29,
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Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 1-27
PROBLEM 1-2A (Continued)
(b) NASHVILLE VETERINARY CLINICIncome Statement
For the Month Ended September 30, 2011 Revenues
Service revenue .......................................................... $8,000Expenses
Salaries expense......................................................... $1,700Rent expense ............................................................... 900Advertising expense.................................................. 300Utilities expense.......................................................... 170
Total expenses ................................................... 3,070Net income............................................................................. $4,930
NASHVILLE VETERINARY CLINICRetained Earnings Statement
For the Month Ended September 30, 2011 Retained earnings, September 1 .................................................... $ 700Add: Net income................................................................................ 4,930
5,630Less: Dividends .................................................................................. 1,000Retained earnings, September 30.................................................. $4,630
1-28 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
PROBLEM 1-2A (Continued)
NASHVILLE VETERINARY CLINICStatement of Financial Position
September 30, 2011
AssetsOffice equipment................................................................... $ 8,100Supplies ................................................................................... 600Accounts receivable ............................................................ 5,900Cash .......................................................................................... 15,200
Total assets.................................................................... $29,800
Equity and LiabilitiesEquity
Share capital—ordinary ............................................. $13,000Retained earnings........................................................ 4,630
Total equity............................................................ $17,630Liabilities
Notes payable................................................................ 10,000Accounts payable ........................................................ 2,170
Total liabilities...................................................... 12,170Total equity and liabilities ................................................. $29,800
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 1-29
PROBLEM 1-3A
(a) YOON FLYING SCHOOLIncome Statement
For the Month Ended May 31, 2011 Revenues
Lesson revenue.................................................... W7,500Expenses
Fuel expense......................................................... W2,500Rent expense ........................................................ 1,200Advertising expense........................................... 500Insurance expense.............................................. 400Repair expense..................................................... 400
Total expenses ............................................ 5,000Net income...................................................................... W2,500
YOON FLYING SCHOOLRetained Earnings Statement
For the Month Ended May 31, 2011 Retained Earnings, May 1.......................................... W 0Add: Net income ........................................................ 2,500
2,500Less: Dividends ........................................................... 1,500Retained earnings, May 31 ........................................ W1,000
YOON FLYING SCHOOLStatement of Financial Position
May 31, 2011
AssetsEquipment.............................................................................................. W64,000Accounts receivable........................................................................... 7,200Cash......................................................................................................... 5,600
Total assets .................................................................................. W76,800
1-30 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
PROBLEM 1-3A (Continued)
YOON FLYING SCHOOLStatement of Financial Position (Continued)
May 31, 2011
Equity and LiabilitiesEquity
Share capital—ordinary ......................................... W45,000Retained earnings.................................................... 1,000
Total equity........................................................ W46,000Liabilities
Notes payable............................................................ W30,000Accounts payable .................................................... 800
Total liabilities.................................................. 30,800Total equity and liabilities.............................................. W76,800
(b) YOON FLYING SCHOOLIncome Statement
For the Month Ended May 31, 2011 Revenues
Lesson revenue (W7,500 + W900) ................. W8,400Expenses
Fuel expense (W2,500 + W1,500) ................... W4,000Rent expense........................................................ 1,200Advertising expense .......................................... 500Insurance expense ............................................. 400Repair expense .................................................... 400
Total expenses............................................ 6,500Net income ..................................................................... W1,900
YOON FLYING SCHOOLRetained Earnings Statement
For the Month Ended May 31, 2011 Retained Earnings, May 1 ......................................... W 0Add: Net income ........................................................ 1,900
1,900Less: Dividends .......................................................... 1,500Retained Earnings, May 31....................................... W 400
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 1-31
(a)
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= = = = = = = = = = = =
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$23,
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$23,
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PROBLEM 1-4A
1-32 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
PROBLEM 1-4A (Continued)
Key to Retained Earnings Column(a) Rent expense (e) Service revenue(b) Service revenue (f) Utilities expense(c) Dividends (g) Salaries expense(d) Gasoline expense
(b) MILLER DELIVERIESIncome Statement
For the Month Ended June 30, 2011 Revenues
Service revenue ($4,400 + $1,500)......................... $5,900Expenses
Salaries expense ......................................................... $1,000Rent expense................................................................ 500Utilities expense.......................................................... 250Gasoline expense ....................................................... 100
Total expenses.................................................... 1,850Net income ............................................................................. $4,050
(c) MILLER DELIVERIESStatement of Financial Position
June 30, 2011
AssetsDelivery Van........................................................................... $12,000Supplies .................................................................................. 150Accounts receivable ........................................................... 3,150Cash ......................................................................................... 8,200
Total assets................................................................... $23,500
Equity and LiabilitiesEquity
Share capital—ordinary ............................................ $10,000Retained earnings....................................................... 3,850
Total equity........................................................... $13,850Liabilities
Notes payable............................................................... 9,500Accounts payable ....................................................... 150
Total liabilities..................................................... 9,650Total equity and liabilities................................................. $23,500
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 1-33
PROBLEM 1-5A
(a) KarmaCompany
YatesCompany
McCainCompany
DenchCompany
(a) $ 45,000 (d) $50,000 (g) $120,000 (j) $ 80,000(b) 115,000 (e) 62,000 (h) 70,000 (k) 250,000(c) 10,000 (f) 48,000 (i) 431,000 (l) 435,000
(b) YATES COMPANYRetained Earnings Statement
For the Year Ended December 31, 2011 Retained earnings, January 1 ................................. $20,000Add: Net income....................................................... 35,000
55,000Less: Dividends ......................................................... 48,000Retained earnings, December 31 .......................... $ 7,000
(c) The sequence of preparing financial statements is income statement,retained earnings statement, and statement of financial position. Theinterrelationship of the retained earnings statement to the other financialstatements results from the fact that net income from the incomestatement is reported in the retained earnings statement and endingretained earnings reported in the retained earnings statement is theamount reported for retained earnings on the statement of financialposition.
PROBLEM 1-1B
1-34 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
(a)
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= = = = = = = = = =
+€30
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300
+000
0+
300
+000
0+
300
+000
0+
300
+–30
0+
0
+000
0
+
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+ + + + + +
+€10
,000
10,
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,000
10
,000
10
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–€9,
500
+ 9,
500
+ 9,
500
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+ 9,
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9,50
0
– – – – – – – – – – – –
€ 4
00 400
400
3
00 700
700
700
700
700
2,
200
2,90
0
€2
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– – – – –
€200 20
0
200
200
€2
00
(a)
(b)
(c)
(d)
(e)
€16,
400
€16,
400
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 1-35
PROBLEM 1-1B (Continued)
Key to Retained Earnings Column
(a) Rent Expense (d) Dividends(b) Advertising Expense (e) Salaries Expense(c) Service Revenue
(b) Service revenue ................................................................ €9,500Expenses
Salaries ...................................................................... €2,200Rent ............................................................................. 400Advertising ............................................................... 300 2,900
Net income....................................................... €6,600
PROBLEM 1-2B
1-36 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
(a)
CIN
DY
BE
LT
ON
, A
TT
OR
NE
Y A
T L
AW
Cas
h+
Acc
ou
nts
Rec
eiva
ble
+S
up
plie
s+
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ice
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uip
men
t=
No
tes
Pay
able
+A
cco
un
tsP
ayab
le+
Sh
are
Cap
ital
+R
etai
ned
Ear
nin
gs
+R
even
ues
–E
xpen
ses
–D
ivid
end
s
Bal
.
1. 2. 3. 4. 5. 6. 7. 8.
$4,0
00
+1,4
00
5,4
00
–2,7
00
2,7
00
+3,0
00
5,7
00
–4
00
5,3
00
–4,2
50
1,0
50
–7
50
3
00
+2,0
00
2,3
00
$2,3
00
+ + + + + + + + +
$1,5
00
–1,4
00
1
00
00,0
00
1
00
+6,0
00
6,1
00
00,0
00
6,1
00
00,0
00
6,1
00
00,0
00
6,1
00
00,0
00
6,1
00
$6,1
00
+ + + + + + + + +
$500
0000
500
0000
500
0000
500
0000
500
0000
500
0000
500
0000
500
$500
+ + + + + + + + +
$5,0
00
00,0
00
5,0
00
00,0
00
5,0
00
00,0
00
5,0
00
+1,0
00
6,0
00
00,0
00
6,0
00
00,0
00
6,0
00
00,0
00
6,0
00
$6,0
00
= = = = = = = = =
+$2,
000
+ 2,
000
+$2,
000
+ +
$4,2
00
00,0
00
4,2
00
–2,7
00
1,5
00
00,0
00
1,5
00
+6
00
2,1
00
00,0
00
2,1
00
00,0
00
2,1
00
00,0
00
2,1
00
+2
50
$2,3
50
+ + + + + + + + +
$6,0
00
6,00
0
6,00
0
6,00
0
6,00
0
6,00
0
6,00
0
6,00
0
$6,0
00
+ + + + + + + + +
$ 8
00
000,
000
800
000,
000
80
0
800
000,
000
800
800 80
0
000,
000
800
$ 8
00
+ + + + + +
+$9,
000
9,00
0
9,00
0
9,00
0
9,00
0
9,00
0
$9,0
00
– – – –
–$3,
000
–900
–35
0
4,25
0
4,25
0
4,25
0
–2
50
$4.5
00
– – –
–$75
0
750
750
$750
(a)
(b)
(c)
(d)
(e)
(f)
$14,
900
$14,
900
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 1-37
PROBLEM 1-2B (Continued)
(b) CINDY BELTON, ATTORNEY AT LAWIncome Statement
For the Month Ended August 31, 2011 Revenues
Service revenue...................................................... $9,000Expenses
Salaries expense.................................................... $3,000Rent expense .......................................................... 900Advertising expense............................................. 350Utilities expense..................................................... 250
Total expenses .............................................. 4,500Net income........................................................................ $4,500
CINDY BELTON, ATTORNEY AT LAWRetained Earnings Statement
For the Month Ended August 31, 2011 Retained earnings, August 1 ...................................... $ 800Add: Net income........................................................... 4,500
5,300Less: Dividends ............................................................. 750Retained earnings, August 31.................................... $4,550
1-38 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
PROBLEM 1-2B (Continued)
CINDY BELTON, ATTORNEY AT LAWStatement of Financial Position
August 31, 2011
AssetsOffice equipment................................................................. $ 6,000Supplies ................................................................................. 500Accounts receivable .......................................................... 6,100Cash ........................................................................................ 2,300
Total assets.................................................................. $14,900
Equity and LiabilitiesEquity
Share capital—ordinary ........................................... $6,000Retained earnings...................................................... 4,550
Total equity.......................................................... $10,550
LiabilitiesNotes payable.............................................................. 2,000Accounts payable ...................................................... 2,350
Total liabilities.................................................... 4,350Total equity and liabilities.................................................. $14,900
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 1-39
PROBLEM 1-3B
(a) DIVINE COSMETICS CO.Income Statement
For the Month Ended June 30, 2011 Revenues
Service revenue ................................................... ¥6,000Expenses
Supplies expense ................................................ ¥1,600Gas and oil expense ........................................... 800Advertising expense........................................... 500Utilities expense................................................... 300
Total expenses ............................................ 3,200Net income...................................................................... ¥2,800
DIVINE COSMETICS CO.Retained Earnings Statement
For the Month Ended June 30, 2011 Retained Earnings, June 1 ........................................ ¥ 0Add: Net income ........................................................ 2,800
2,800Less: Dividends ........................................................... 1,200Retained Earnings, June 30 ...................................... ¥1,600
DIVINE COSMETICS CO.Statement of Financial Position
June 30, 2011
AssetsEquipment.............................................................................................. ¥25,000Cosmetic supplies............................................................................... 2,000Accounts receivable........................................................................... 4,000Cash......................................................................................................... 11,000
Total assets .................................................................................. ¥42,000
1-40 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
PROBLEM 1-3B (Continued)
DIVINE COSMETICS CO.Statement of Financial Position (Continued)
June 30, 2011
Equity and LiabilitiesEquity
Share capital—ordinary ........................................... ¥26,200Retained earnings...................................................... 1,600
Total equity.......................................................... ¥27,800Liabilities
Notes payable.............................................................. 13,000Accounts payable ...................................................... 1,200
Total liabilities.................................................... 14,200Total equity and liabilities.................................................. ¥42,000
(b) DIVINE COSMETICS CO.Income Statement
For the Month Ended June 30, 2011 Revenues
Service revenue (¥6,000 + ¥800) .................... ¥6,800Expenses
Supplies expense................................................ ¥1,600Gas and oil expense (¥800 + ¥100)................ 900Advertising expense .......................................... 500Utilities expense.................................................. 300
Total expenses............................................ 3,300Net income ..................................................................... ¥3,500
DIVINE COSMETICS CO.Retained Earnings Statement
For the Month Ended June 30, 2011 Retained earnings, June 1 ........................................ ¥ 0Add: Net income........................................................ 3,500
3,500Less: Dividends........................................................... 1,200Retained earnings, June 30...................................... ¥2,300
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 1-41
(a)
GE
LL
ER
CO
NS
UL
TIN
G
Ass
ets
Lia
bili
ties
Eq
uit
y
Ret
ain
ed E
arn
ing
s
Dat
eC
ash
+
Acc
ou
nts
Rec
eiva
ble
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up
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s+
Off
ice
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men
t=
No
tes
Pay
able
+
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ou
nts
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able
+
Sh
are
Cap
ital
+R
even
ues
–E
xpen
ses
–D
ivid
end
s
May
1
May
2
May
3
May
5
May
9
May
12
May
15
May
17
May
20
May
23
May
26
May
29
May
30
+$ 8
,000
8,00
0
–
800
7,20
0
7,20
0
–50
+ 7
,150
+3,
000
10,1
50
–
700
9,45
0
9,45
0
–3,
000
6,45
0
–
500
5
,950
+3,
000
+
8,95
0
+5,
000
13
,950
13,9
50
–
150
$13
,800
+ + + + + + + + + + +
+$5,
300
5,30
0
5,30
0
5,30
0
–3,
000
2,30
0
2,30
0
2,30
0
$ 2
,300
+ + + + + + +
+$50
0
500
500
+05
0
500
500
500
500
500
500
500
500
$500
+ +
+ + +
+$2,
800
2,80
0
$2,8
00
= = = = = = = = = = = = =
+$5,
000
5,00
0
5,00
0
$5,0
00+
+$
500
5
00
50
0
500
500
500
500
–5
00
–
0– +
+
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+2,8
00
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00
+ + + + + + + + + + +
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000
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0
8,00
0
8,00
0
8,00
0
8,00
0
8,00
0
8,00
0
8,00
0
8,00
0
8,00
0
8,00
0
8,00
0
$8,0
00
+ + + + + + + + + + +
+$3,
000
3,00
0
3,00
0
+5,3
00
8,30
0
8,30
0
8,30
0
8,30
0
8,30
0
8,30
0
$8,3
00
– – – – – – – – – – – –
–$ 8
00 800
800
–50
850
850
850
850
–3,0
00
3,85
0
3,85
0
3,85
0
3,85
0
3,85
0
–1
50
$4,0
00
– – – – – – – –
–$70
0
700
700
700
700
700
700
700
$700
(a)
(b)
(c)
(d)
(e)
(f)
(g)
$19,
400
$19
,400
PROBLEM 1-4B
1-42 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
PROBLEM 1-4B (Continued)
Key to Retained Earnings Column
(a) Rent Expense (e) Service Revenue(b) Advertising Expense (f) Salaries Expense(c) Service Revenue (g) Utilities Expense(d) Dividends
(b) GELLER CONSULTINGIncome Statement
For the Month Ended May 31, 2011 Revenues
Service revenue ($3,000 + $5,300)................... $8,300Expenses
Salaries expense ................................................... $3,000Rent expense.......................................................... 800Utilities expense.................................................... 150Advertising expense ............................................ 50
Total expenses.............................................. 4,000Net income ....................................................................... $4,300
(c) GELLER CONSULTINGStatement of Financial Position
May 31, 2011
AssetsOffice equipment................................................................... $ 2,800Supplies ................................................................................... 500Accounts receivable ............................................................ 2,300Cash........................................................................................... 13,800
Total assets.................................................................... $19,400
Equity and LiabilitiesEquity
Share capital—ordinary ............................................. $8,000Retained earnings........................................................ 3,600
Total equity............................................................ $11,600Liabilities
Notes payable................................................................ 5,000Accounts payable ........................................................ 2,800
Total liabilities...................................................... 7,800Total equity and liabilities.................................................. $19,400
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 1-43
PROBLEM 1-5B
(a) McKaneCompany
SelaraCompany
GordonCompany
HindiCompany
(a) $30,000 (d) $40,000 (g) $124,000 (j) $ 50,000(b) 95,000 (e) 45,000 (h) 80,000 (k) 225,000(c) 5,000 (f) 28,000 (i) 413,000 (l) 460,000
(b) McKANE COMPANYRetained Earnings Statement
For the Year Ended December 31, 2011 Retained earnings, January 1................................... $ 0Add: Net income......................................................... 15,000
15,000Less: Dividends ........................................................... 10,000Retained earnings December 31 ............................. $ 5,000
(c) The sequence of preparing financial statements is income statement,retained earnings statement, and statement of financial position. Theinterrelationship of the retained earnings statement to the other financialstatements results from the fact that net income from the incomestatement is reported in the retained earnings statement and endingretained earnings reported in the retained earnings statement is theamount reported for retained earnings on the statement of financialposition.
1-44 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
BYP 1-1 FINANCIAL REPORTING PROBLEM
(a) Cadbury’s total assets at December 31, 2008 were £8,895 million and atDecember 31, 2007 were £11,338 million.
(b) Cadbury had £251 million of cash and cash equivalents at December 31,2008.
(c) Cadbury had trade and other payables totaling £1,551 million onDecember 31, 2008 and £1,701 million on December 31, 2007.
(d) Cadbury reports revenues for three consecutive years as follows:
2007 £5,384 million2008 £4,699 million
(e) From 2007 to 2008, Cadbury’s net income (profit for the period)decreased £416 million from £407 million to £366 million.
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 1-45
BYP 1-2 COMPARATIVE ANALYSIS PROBLEM
(a) (in millions) Cadbury Nestlé1. Total assets £ 8,895 CHF106,2152. Accounts (notes) receivable, (net) £ 1,067 CHF 13,4423. Net sales £ 5,384 CHF109,9084. Net income £ 366 CHF 19,051
(b) Cadbury NestléReceivables/Total assets 12.0% 12.7%Net income/Sales 6.8% 17.3%
1-46 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
BYP 1-3 EXPLORING THE WEB
(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, abilityto synthesize, creative ability, initiative, computer skills.
(c) The skills required in these areas differ as follows:
AuditingFinancialand Tax
ManagementAccounting
People skills Medium Medium MediumSales skills Medium Medium LowCommunication skills Medium Medium HighAnalytical skills High Very High HighAbility to synthesize Medium Low HighCreative ability Low Medium MediumInitiative Medium Medium MediumComputer skills High High Very High
(d) Some key job functions in accounting:
Auditing: Work in audit involves checking accounting ledgers andfinancial statements within corporations and government. This workis becoming increasingly computerized and can rely on sophisticatedrandom sampling methods. Audit is the bread-and-butter work ofaccounting. This work can involve significant travel and allows youto really understand how money is being made in the company thatyou are analyzing. It’s great background!
Budget Analysis: Budget analysts are responsible for developing andmanaging an organization’s financial plans. There are plentiful jobs inthis area in government and private industry. Besides quantitativeskills many budget analyst jobs require good people skills because ofnegotiations involved in the work.
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 1-47
BYP 1-3 (Continued)
Financial: Financial accountants prepare financial statements based ongeneral ledgers and participate in important financial decisions involvingmergers and acquisitions, benefits/ERISA planning, and long-term finan-cial projections. This work can be varied over time. One day you maybe running spreadsheets. The next day you may be visiting a customeror supplier to set up a new account and discuss business. This workrequires a good understanding of both accounting and finance.
Management Accounting: Management accountants work in companiesand participate in decisions about capital budgeting and line of busi-ness analysis. Major functions include cost analysis, analysis of newcontracts, 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 ourorganization? Are goals and objectives to control costs being communi-cated effectively? Historically, many management accountants havebeen derided as “bean counters.” This mentality has undergone majorchange as management accountants now often work side by side withmarketing 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 financialchoice, how to best treat a merger or acquisition, deferral of taxes,when to expense items and the like. This work requires a thoroughunderstanding of economics and the tax code. Increasingly, large corpo-rations are looking for persons with both an accounting and a legalbackground in tax. A person, for example, with a JD and a CPA wouldbe especially desirable to many firms.
(e) Junior Staff Accountant $46,000 – $63,000
1-48 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
BYP 1-4 DECISION MAKING ACROSS THE ORGANIZATION
(a) The estimate of the $6,100 loss was based on the difference betweenthe $25,000 invested in the driving range and the bank balance of$18,900 at March 31. This is not a valid basis for determining incomebecause 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 COMPANYStatement of Financial Position
March 31, 2011
AssetsCaddy shack .......................................................................... $ 8,000Equipment .............................................................................. 800Cash ......................................................................................... 18,900
Total assets................................................................... $27,700
Equity and LiabilitiesEquity
Share capital—ordinary ............................................. $25,000Retained earnings........................................................ 2,450 $27,450
LiabilitiesAccounts payable ($150 + $100) ............................. 250
Total equity and liabilities ................................ $27,700
As shown in the statement of financial position, the equity at March 31is $27,450. The estimate of $2,450 of net income is the differencebetween the initial investment of $25,000 and $27,450. This was not avalid basis for determining net income because changes in equitybetween two points in time may have been caused by factors unrelatedto net income. For example, there may be dividends and/or additionalcapital investments by the shareholders.
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 1-49
BYP 1-4 (Continued)
(c) Actual net income for March can be determined by adding dividendsto the change in equity during the month as shown below:
Equity, March 31, per statement of financial position............. $27,450Equity, March 1..................................................................................... 25,000Increase in equity ................................................................................ 2,450Add: Dividends................................................................................... 1,000Net income............................................................................................. $ 3,450
Alternatively, net income can be found by determining the revenuesearned [described in (d) below] and subtracting expenses.
(d) Revenues earned can be determined by adding expenses incurredduring the month to net income. March expenses were Rent, $1,000;Wages, $400; Advertising, $750; and Utilities, $100 for a total of $2,250.Revenues earned, therefore, were $5,700 ($2,250 + $3,450). Alternatively,since all revenues are received in cash, revenues earned can be com-puted from an analysis of the changes in cash as follows:
Beginning cash balance............................................... $25,000Less: Cash payments
Caddy shack ................................................ $8,000Golf balls and clubs................................... 800Rent................................................................. 1,000Advertising ................................................... 600Wages............................................................. 400Dividends ...................................................... 1,000 11,800
Cash balance before revenues .................................. 13,200Cash balance, March 31 ............................................... 18,900Revenues earned............................................................ $ 5,700
1-50 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
BYP 1-5 COMMUNICATION ACTIVITY
To: Lynn BenedictFrom: Student
I have received the statement of financial position of London Company as ofDecember 31, 2011. A number of items in this statement of financial positionare 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 31,2011.”
2. Cash should be reported after Supplies on the statement of financialposition.
3. Accounts receivable should be shown as an asset, not a liability, andreported between Cash and Supplies on the statement of financialposition.
4. Accounts payable should be shown as a liability, not an asset. The notepayable is also a liability and should be reported in the liability section.
5. Liabilities and equity should be shown on the statement of financialposition. Share capital—ordinary is not a liability.
6. Share capital—ordinary and retained earnings are part of equity.
Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only) 1-51
BYP 1-5 (Continued)
A correct statement of financial position is as follows:
LONDON COMPANYStatement of Financial Position
December 31, 2011
AssetsEquipment........................................................................... £25,500Supplies............................................................................... 2,000Accounts receivable........................................................ 6,000Cash...................................................................................... 9,000
Total assets ................................................................. £42,500
Equity and LiabilitiesEquity
Share capital—ordinary......................................... £26,000Retained earnings ................................................... (2,000)
Total liabilities ................................................. £24,000Liabilities
Notes payable ........................................................... 10,500Accounts payable.................................................... 8,000
Total liabilities.................................................. 18,500Total equity and liabilities ............................................. £42,500
1-52 Copyright © 2011 John Wiley & Sons, Inc. Weygandt, IFRS, 1/e, Solutions Manual (For Instructor Use Only)
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 theaction or decision described in the case. The list of stakeholders in thiscase are:
� Steve Baden, 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 casethe ethical issues are:
� Is it proper that Steve charged both firms for the total travel costsrather than split the actual amount of $296 between the two firms?
� Is collecting $592 as reimbursement for total costs of $296 ethicalbehavior?
� Did Steve deceive both firms or neither firm?
(c) Each student must answer the question for himself/herself. Would youwant to start your first job having deceived your employer before yourfirst day of work? Would you be embarrassed if either firm found outthat you double-charged? Would your school be embarrassed if youract was uncovered? Would you be proud to tell your professor thatyou collected your expenses twice?
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