CHAPTER 1

Accounting in Action

ASSIGNMENT CLASSIFICATION TABLE

Brief
Learning Objectives Questions Exercises Do It! Exercises Problems

1. Identify the activities and 1, 2, 3, 4, 5 1 1, 2

users associated with
accounting.

2. Explain the building blocks of 6, 7, 8, 9, 10 2 3

accounting: ethics, principles,
and assumptions.

3. State the accounting 11, 12, 13, 22 1, 2, 3, 4, 5, 6 3 5 1

equation, and define its
components.

4. Analyze the effects of 14, 15, 16, 18 7, 8, 9 4 6, 7, 8 1, 2, 4, 5

business transactions on the
accounting equation.

5. Describe the four financial 17, 19, 20, 21 10, 11 5 9, 10, 11, 12, 2, 3, 4, 5
statements and how they are 13, 14, 15, 16,
prepared. 17, 18

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ASSIGNMENT CHARACTERISTICS TABLE

Problem Difficulty Time Allotted

Number Description Level (min.)

1 Analyze transactions and compute net income. Moderate 40–50

2 Analyze transactions and prepare income statement, Moderate 50–60

owner’s equity statement, and statement of financial
position.

3 Prepare income statement, owner’s equity statement, and Moderate 50–60

statement of financial position.

4 Analyze transactions and prepare financial statements. Moderate 40–50

5 Determine financial statement amounts and prepare Moderate 40–50

owner’s equity statement.

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 WEYGANDT ACCOUNTING PRINCIPLES IFRS 1E
CHAPTER 1
ACCOUNTING IN ACTION

Number LO BT Difficulty Time (min.)

BE1 3 AP Simple 2–4
BE2 3 AP Simple 3–5
BE3 3 AP Moderate 4–6
BE4 3 AP Moderate 4–6
BE5 3 C Simple 2–4
BE6 3 C Simple 2–4
BE7 4 C Simple 2–4
BE8 4 C Simple 2–4
BE9 4 C Simple 1–2
BE10 5 AP Simple 3–5
BE11 5 C Simple 2–4
DI1 1 K Simple 2–4
DI2 2 K Simple 2–4
DI3 3 AP Simple 6–8
DI4 4 AP Moderate 8–10
DI5 5 AP Moderate 10–12
EX1 1 C Moderate 5–7
EX2 1 C Simple 6–8
EX3 2 C Moderate 6–8
EX4 2 C Moderate 6–8
EX5 3 C Simple 4–6
EX6 4 C Simple 6–8
EX7 4 C Simple 4–6
EX8 4 AP Moderate 12–15
EX9 5 AP Simple 12–15
EX10 5 AP Moderate 8–10
EX11 5 AP Moderate 6–8
EX12 5 AP Simple 8–10
EX13 5 AN Simple 8–10
EX14 5 AP Simple 10–12
EX15 5 AP Simple 6–8
EX16 5 AP Moderate 6–8
EX17 5 AP Moderate 6–8
EX18 5 C Simple 2–4

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ACCOUNTING IN ACTION (Continued)

Number LO BT Difficulty Time (min.)

P1 3, 4 AP Moderate 40–50
P2 4, 5 AP Moderate 50–60
P3 5 AP Moderate 50–60
P4 4, 5 AP Moderate 40–50
P5 4, 5 AP Moderate 40–50
CT1 5 AN Simple 10–15
CT2 5 AN Simple 10–15
CT3 6 C Simple 15–20
CT4 4 AN Moderate 15–20
CT5 5 E Simple 12–15
CT6 2 E Simple 10–12
CT7 – C Simple 10–15

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Copyright © 2018 WILEY   Weygandt, Accounting Principles, IFRS 1/e, Solutions Manual   (For Instructor Use Only)

BLOOM’S TAXONOMY TABLE

Correlation Chart between Bloom’s Taxonomy, Learning Objectives and End-of-Chapter Exercises and Problems

Learning Objective Knowledge Comprehension Application Analysis Synthesis Evaluation

1. Identify the activities and users DI1-1 Q1-1 Q1-5
associated with accounting. Q1-2 E1-1
Q1-3 E1-2
Q1-4
2. Explain the building blocks of Q1-7 Q1-6
accounting: ethics, principles, Q1-8 E1-3
and assumptions. Q1-9 E1-4
Q1-10
DI1-2
3. State the accounting equation, Q1-22 Q1-11 BE1-6 BE1-1 DI1-3
and define its components. Q1-12 E1-5 BE1-2 P1-1
Q1-13 BE1-3
BE1-5 BE1-4

4. Analyze the effects of business Q1-14 BE1-8 DI1-4 P1-4

transactions on the accounting Q1-15 BE1-9 E1-8 P1-5
equation. Q1-16 E1-6 P1-1
Q1-18 E1-7 P1-2
BE1-7
5. Describe the four financial Q1-17 Q1-20 E1-14 E1-13
statements and how they are Q1-19 Q1-21 E1-15
prepared. BE1-11 BE1-10 E1-16
E1-18 DI1-5 E1-17
E1-9 P1-2
E1-10 P1-3
E1-11 P1-4
E1-12 P1-5
Expand Your Critical Thinking Real–World Focus Financial Reporting Comparative Analysis
Considering Comparative Analysis Decision–Making Across
People, Planet, the Organization
and Profit Communication Activity
All About You
1-5
 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.

 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.

 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, managerial 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.

 4. (a) Investors (owners) use accounting information to make decisions to buy, hold, or sell owner-
ship shares of a company.
(b) Creditors use accounting information to evaluate the risks of granting credit or lending money.

 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.

 6. Benton Travel Agency should report the land at €90,000 on its December 31, 2020 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. An important concept that accountants follow is the historical cost principle.

 7. The monetary unit assumption requires that only transaction data that can be expressed in terms
of money be included in the accounting records. This assumption enables accounting to quantify
(measure) economic events.

 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.

 9. The three basic forms of business organizations are: (1) proprietorship, (2) partnership, and
(3) corporation.

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Questions Chapter 1 (Continued)

10. One of the advantages Neha Singh would enjoy is that ownership of a corporation is represented
by transferable shares. This would allow Neha 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.

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

12. (a) Assets are resources owned by a business. Liabilities are claims against assets. Put more
simply, liabilities are existing debts and obligations. Owner’s equity is the ownership claim
on total assets.
(b) Owner’s equity is affected by owner’s investments, drawings, revenues, and expenses.

13. The liabilities are: (b) Accounts payable and (g) Salaries and wages payable.

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.

15. Business transactions are the economic events of the enterprise recorded by accountants
because they affect the basic accounting equation.
(a) The death of the owner of the company is not a business transaction as it does not affect
the basic accounting equation.
(b) Supplies purchased on account is a business transaction as it affects the basic accounting
equation.
(c) An employee being fired is not a business transaction as it does not affect the basic
accounting equation.
(d) A withdrawal of cash from the business is a business transaction as it affects the basic
accounting equation.

16. (a) Decrease assets and decrease owner’s equity.

(b) Increase assets and decrease assets.
(c) Increase assets and increase owner’s equity.
(d) Decrease assets and decrease liabilities.

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

(b) Statement of financial position. (e) Statement of financial position and owner’s
(c) Income statement. equity statement.
(f) Statement of financial position.

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 owner’s equity resulting from business
activities entered into for the purpose of earning income. This transaction is simply an additional
investment made by the owner in the business.

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Questions Chapter 1 (Continued)

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 owner’s equity statement—it is shown as
an addition to the beginning-of-period capital. Indirectly, the net income of a company is also
included in the statement of financial position. It is included in the capital account which appears
in the owner’s equity section of the statement of financial position.

20. (a) Ending capital balance...................................................................................... £189,000

Beginning capital balance................................................................................. 186,000
Net income....................................................................................................... £   3,000

(b) Ending capital balance...................................................................................... £189,000

Beginning capital balance................................................................................. 186,000
  3,000
Deduct: Investment.......................................................................................... 13,000
Net loss............................................................................................................. £ 10,000

21. (a) Total revenues (£20,000 + £70,000)................................................................. £90,000

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

(c) Total revenues.................................................................................................. £90,000

Total expenses................................................................................................. 66,000
Net income....................................................................................................... £24,000

22. TSMC’s accounting equation at December 31, 2016 was NT$1,886,455,302 = NT$496,404,176 +
NT$1,390,051,126.

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 SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 1.1

(a) ¥90,000 – ¥50,000 = ¥40,000 (Owner’s Equity).

(b) ¥44,000 + ¥70,000 = ¥114,000 (Assets).
(c) ¥94,000 – ¥53,000 = ¥41,000 (Liabilities).

BRIEF EXERCISE 1.2

(a) £120,000 + £230,000 = £350,000 (Total assets).

(b) £190,000 – £89,000 = £101,000 (Total liabilities).
(c) £900,000 – 0.5(£900,000) = £450,000 (Owner’s equity).

BRIEF EXERCISE 1.3

(a) (€800,000 + €150,000) – (€300,000 – €60,000) = €710,000

(Owner’s equity).
(b) (€300,000 + €100,000) + (€800,000 – €300,000 – €70,000) = €830,000
(Assets).
(c) (€800,000 – €80,000) – (€800,000 – €300,000 + €120,000) = €100,000
(Liabilities).

BRIEF EXERCISE 1.4

Owner’s Equity

Owner’s Owner’s
Assets = Liabilities + Capital – Drawings + Revenues – Expenses

(a) X = INR90,000 + INR150,000 – INR40,000 + INR450,000 – INR340,000

X = INR90,000 + INR220,000
X = INR310,000

(b) INR57,000 = X + INR35,000 – INR7,000 + INR52,000 – INR35,000

INR57,000 = X + INR45,000
X = INR12,000 (INR57,000 – INR45,000)

(c) INR660,000 = (INR660,000 x 2/3) + X (Owner’s equity)

INR660,000 = INR440,000 + X
X = INR220,000

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BRIEF EXERCISE 1.5

A (a) Accounts receivable A (d) Supplies

L (b) Salaries and wages payable OE
(e) Owner’s capital
A (c) Equipment L (f) Notes payable

BRIEF EXERCISE 1.6

E (a) Advertising expense D (e) Owner’s drawings

R (b) Service revenue R (f) Rent revenue
E (c) Insurance expense E (g) Utilities expense
E (d) Salaries and wages expense

BRIEF EXERCISE 1.7

Assets Liabilities Owner’s Equity

(a) + + NE
(b) + NE +
(c) – NE –

BRIEF EXERCISE 1.8

Assets Liabilities Owner’s Equity

(a) + NE +
(b) – NE –
(c) NE NE NE

BRIEF EXERCISE 1.9

R (a) Received cash for services performed

NOE (b) Paid cash to purchase equipment
E (c) Paid employee salaries

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BRIEF EXERCISE 1.10

GRANDE LTD.
Statement of Financial Position
December 31, 2020

Assets
Accounts receivable....................................................................... £ 62,500
Cash................................................................................................. 49,000
Total assets............................................................................. £111,500

Owner’s Equity and Liabilities

Owner’s equity
Owner’s capital....................................................................... £ 21,500
Liabilities
Accounts payable................................................................... 90,000
Total owner’s equity and liabilities................................ £111,500

BRIEF EXERCISE 1.11

SFP (a) Notes payable

IS (b) Advertising expense
OE, SFP (c) Owner’s capital
SFP (d) Cash
IS (e) Service revenue

SOLUTIONS FOR DO IT! EXERCISES

DO IT! 1.1

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

recording, and communication.
2. True.
3. False. Financial accounting provides reports to help investors and
creditors evaluate a company.
4. True.
5. True.

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DO IT! 1.2

1. False. IFRS are issued by the IASB.

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.

DO IT! 1.3

1. Drawings is owner’s drawings (D); it decreases owner’s equity.

2. Rent Revenue is revenue (R); it increases owner’s equity.
3. Advertising Expense is an expense (E); it decreases owner’s equity.
4. When the owner puts personal assets into the business, it is investment
by owner (I); it increases owner’s equity.

DO IT! 1.4

Assets = Liabilities + Owner’s Equity

Accounts Accounts Owner’s Owner’s
Cash + Receivable = Payable + Capital – Drawings + Revenues – Expenses

(1) + R20,000 +R20,000

(2) +R20,000 – R20,000
(3) + R3,200 –R3,200
(4) – R –R2,500
2,500

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DO IT! 1.5

(a) The total assets are HK$49,000, comprised of Cash HK$6,500,

Accounts Receivable HK$13,500, and Equipment HK$29,000.

(b) Net income is HK$20,500, computed as follows:

Revenues
Service revenue........................................ HK$53,500
Expenses
Salaries and wages expense................... HK$16,500
Rent expense............................................ 10,500
Advertising expense................................ 6,000
Total expenses................................. 33,000
Net income........................................................ HK$20,500

(c) The ending owner’s equity balance of Tsui Repairs is HK$21,000. By

rewriting the accounting equation, we can compute Owner’s Equity as
Assets minus Liabilities, as follows:

Total assets [as computed in (a)]................... HK$49,000

Less: Liabilities
Notes payable........................................... HK$25,000
Accounts payable.................................... 3,000 28,000
Owner’s equity................................................. HK$21,000

Note that it is not possible to determine the company’s owner’s equity in

any other way, because the beginning balance for owner’s equity is not
provided.

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 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 users

Marketing manager
Production supervisor
Store manager
Vice-president of finance

External users
Customers
Financial regulators
Labor unions
Suppliers
Tax authorities

(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?

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EXERCISE 1.3

Angela Manternach, president of Manternach Designs, instructed Carla

Ruden, the head of the accounting department, to report the company’s land
in its 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. The historical cost principle requires that assets be recorded
and reported at their cost, because cost is faithfully representative and can
be objectively measured and verified. In this case, the historical cost
principle should be used and Land reported at €100,000, not €170,000.

The stakeholders include owners and creditors of Manternach Company,

potential owners and creditors, other users of Manternach’s accounting
reports, Angela, and Carla. All users of Manternach’s accounting reports
could be harmed by relying on information that may be unreliable. Angela
Manternach could benefit if the company is able to attract more investors,
but would be harmed if the inappropriate reporting is discovered. Similarly,
Carla could benefit by pleasing her boss, but would be harmed if the
inappropriate reporting is discovered.

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 since it may
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 Angela Manternach that this is the appropriate
course of action, but be prepared to resign her position if Manternach
insists.

EXERCISE 1.4

1. Incorrect. The historical cost principle requires that assets (such as

buildings) be recorded and reported at their 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.

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EXERCISE 1.5

Asset Liability Owner’s Equity

Cash Accounts payable Owner’s capital
Equipment Notes payable
Supplies Salaries and wages
Accounts receivable payable

EXERCISE 1.6

1. Increase in assets and increase in owner’s equity.

2. Decrease in assets and decrease in owner’s equity.
3. Increase in assets and increase in liabilities.
4. Increase in assets and increase in owner’s equity.
5. Decrease in assets and decrease in owner’s equity.
6. Increase in assets and decrease in assets.
7. Increase in liabilities and decrease in owner’s equity.
8. Increase in assets and decrease in assets.
9. Increase in assets and increase in owner’s 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. Owner 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. Performed £8,500 of services, receiving £4,000 cash and £4,500
on account.
5. Paid £1,500 cash on accounts payable.

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EXERCISE 1.8 (Continued)

6. Owner withdrew £2,000 cash for personal use.

7. Paid £560 cash for rent.
8. Collected £450 cash from customers on account.
9. Paid salaries and wages of £4,800.
10. Incurred £400 of utilities expense on account.

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

Service revenue........................................................................ 8,500
Drawings................................................................................... (2,000)
Rent expense............................................................................ (560)
Salaries and wages expense................................................... (4,800)
Utilities expense....................................................................... (400)
Increase in owner’s equity....................................................... £15,740

(c) Service revenue........................................................................ £8,500

Rent expense............................................................................ (560 )
Salaries and wages expense................................................... (4,800)
Utilities expense....................................................................... (400 )
Net income................................................................................ £2,740

EXERCISE 1.9

KANG & CO.

Income Statement
For the Month Ended August 31, 2020

Revenues
Service revenue.......................................................... £8,500
Expenses
Salaries and wages expense..................................... £4,800
Rent expense.............................................................. 560
Utilities expense......................................................... 400
Total expenses.................................................... 5,760
Net income.......................................................................... £2,740

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EXERCISE 1.9 (Continued)

KANG & CO.

Owner’s Equity Statement
For the Month Ended August 31, 2020

Owner’s capital, August 1............................................. £ 0

Add: Investments........................................................ £15,000
Net income.......................................................... 2,740 17,740
17,740
Less: Drawings............................................................. 2,000
Owner’s capital, August 31........................................... £15,740

KANG & CO.

Statement of Financial Position
August 31, 2020

Assets
Equipment....................................................................................... £ 5,000
Supplies........................................................................................... 750
Accounts receivable....................................................................... 4,050
Cash................................................................................................. £ 7,840
Total assets............................................................................. £17,640

Owner’s Equity and Liabilities

Owner’s Equity
Owner’s capital....................................................................... £15,740
Liabilities
Accounts payable................................................................... 1,900
Total owner’s equity and liabilities................................ £17,640

EXERCISE 1.10

(a) Owner’s equity—12/31/19 ( 400,000 – 250,000)................. 150,000

Owner’s equity—1/1/19........................................................... 100,000
Increase in owner’s equity..................................................... 50,000
Add: Drawings....................................................................... 12,000
Net income for 2019................................................................ 62,000

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EXERCISE 1.10 (Continued)

(b) Owner’s equity—12/31/20 ( 460,000 – 300,000)............... 160,000

Owner’s equity—1/1/20—see (a).......................................... 150,000
Increase in owner’s equity.................................................... 10,000
Less: Additional investment................................................ 34,000
Net loss for 2020.................................................................... (24,000)

(c) Owner’s equity—12/31/21 ( 590,000 – 400,000)............... 190,000

Owner’s equity—1/1/21—see (b).......................................... 160,000
Increase in owner’s equity.................................................... 30,000
Less: Additional investment................................................ 12,000
18,000
Add: Drawings..................................................................... 25,000
Net income for 2021.............................................................. 43,000

EXERCISE 1.11

(a) Total assets (beginning of year).......................................... €110,000

Total liabilities (beginning of year)...................................... 85,000
Total owner’s equity (beginning of year)............................ € 25,000

(b) Total owner’s equity (end of year)....................................... € 40,000

Total owner’s equity (beginning of year)............................ 25,000
Increase in owner’s equity.................................................... € 15,000

Total revenues....................................................................... €220,000

Total expenses...................................................................... 175,000
Net income............................................................................. € 45,000

Increase in owner’s equity.............................. € 15,000

Less: Net income............................................ € (45,000)
Add: Drawings................................................ 37,000) (8,000)
Additional investment..................................... € 7,000

(c) Total assets (beginning of year).......................................... €129,000

Total owner’s equity (beginning of year)............................ 80,000
Total liabilities (beginning of year)...................................... € 49,000

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EXERCISE 1.11 (Continued)

(d) Total owner’s equity (end of year)....................................... €130,000

Total owner’s equity (beginning of year)............................ 80,000
Increase in owner’s equity.................................................... € 50,000

Total revenues....................................................................... €100,000

Total expenses...................................................................... 60,000
Net income............................................................................. € 40,000

Increase in owner’s equity.............................. € 50,000

Less: Net income............................................ € (40,000)
Additional investment.......................... (25,000) (65,000)
Drawings........................................................... € 15,000

EXERCISE 1.12

KAREN WEIGEL CO.

Income Statement
For the Year Ended December 31, 2020

Revenues
Service revenue...................................................... $63,600
Expenses
Salaries and wages expense................................. $30,200
Rent expense.......................................................... 10,400
Utilities expense..................................................... 3,100
Advertising expense.............................................. 1,800
Total expenses............................................... 45,500
Net income..................................................................... $18,100

KAREN WEIGEL CO.

Owner’s Equity Statement
For the Year Ended December 31, 2020

Owner’s capital, January 1............................................................... $42,000

Add: Net income............................................................................. 18,100
60,100
Less: Drawings................................................................................ 6,000

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Owner’s capital, December 31......................................................... $54,100

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EXERCISE 1.13

CHENG CERAMICS
Statement of Financial Position
December 31, 2020

Assets
Equipment....................................................................................... ¥46,000
Supplies........................................................................................... 8,000
Accounts receivable....................................................................... 6,500
Cash................................................................................................. 15,000
Total assets............................................................................. ¥75,500

Owner’s Equity and Liabilities

Owner’s Equity
Owner’s capital (¥67,500 – ¥13,000)...................................... ¥54,500
Liabilities
Accounts payable................................................................... 21,000
Total owner’s equity and liabilities................................ ¥75,500

EXERCISE 1.14

(a) Camping fee revenues............................................................ £140,000

General store revenues.......................................................... 65,000
Total revenue................................................................... 205,000
Expenses................................................................................. 160,000
Net income............................................................................... £ 45,000

(b) BEAR PARK

Statement of Financial Position
December 31, 2020

Assets
Land......................................................................................... £115,500
Accounts Receivable.............................................................. 17,500
Cash......................................................................................... 23,000
Total assets...................................................................... £156,000

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EXERCISE 1.14 (Continued)

BEAR PARK
Statement of Financial Position
December 31, 2020

Owner’s Equity and Liabilities

Owner’s equity
Owner’s capital (£156,000 – £71,000)............ £ 85,000
Liabilities
Notes payable................................................. £ 60,000
Accounts payable........................................... 11,000
Total liabilities......................................... 71,000
Total owner’s equity and liabilities ...................... £156,000

EXERCISE 1.15

SEA LEGS TOURS

Income Statement
For the Year Ended December 31, 2020

Revenues
Ticket revenue................................................... R$410,000
Expenses
Salaries and wages expense............................ R$142,000
Maintenance and repairs expense................... 95,000
Advertising expense......................................... 24,500
Utilities expense................................................ 13,000
Total expenses........................................... 274,500
Net income................................................................. R$135,500

EXERCISE 1.16

HELEN ARCHER, ATTORNEY

Owner’s Equity Statement
For the Year Ended December 31, 2020

Owner’s capital, January 1...................................................... € 36,000 (a)

Add: Net income..................................................................... 119,000 (b)
155,000

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Less: Drawings........................................................................ 87,000
Owner’s capital, December 31................................................ € 68,000 (c)

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EXERCISE 1.16 (Continued)

Supporting Computations

(a) Assets, January 1, 2020......................................................... € 98,000

Liabilities, January 1, 2020..................................................... 62,000
Capital, January 1, 2020......................................................... € 36,000

(b) Legal service revenue............................................................ €330,000

Total expenses........................................................................ 211,000
Net income............................................................................... €119,000

(c) Assets, December 31, 2020.................................................... €168,000

Liabilities, December 31, 2020............................................... 100,000
Capital, December 31, 2020.................................................... € 68,000

EXERCISE 1.17

JAVA HERBALS
Statement of Cash Flows
For the Year Ended December 31, 2020

Cash flows from operating activities

Cash receipts from revenues........................... Rp600,000
Cash payments for expenses...........................    (430,000)
Net cash provided by operating activities...... Rp170,000
Cash flows investing activities
Purchase of equipment..................................... (115,000)
Cash flows from financing activities.......................
Investment by owner......................................... Rp280,000
Drawings by owner............................................     (18,000)    262,000
Net increase in cash................................................. 317,000
Cash at the beginning of the period........................        30,000
End of the period....................................................... Rp347,000

EXERCISE 1.18

Transactions 4, 5 and 7 are operating activities.

Transaction 3 is an investing activity.
Transactions 1, 2 and 6 are financing activities.

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1-24
(a) MIAOLI’S TRAVEL AGENCY
Owner’s Equity
Owner’s
Accounts Accounts Owner’s
Drawings + Revenues – Expenses
Cash + Receivable + Supplies + Equipment = Payable + Capital –

1. +NT$15,000 +NT$15,000
+ 15,000 = + 15,000
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2. +   –600 + –NT$600

+ 14,400 = + 15,000 –600
3. + –3,000 +NT$3,000 +000,000
+ 11,400 + + 3,000 = + 15,000 –600
4. +000,000 +00,000 +NT$700 + –700
+ 11,400 + + 3,000 = + 700 + + 15,000 –1,300
5. +   –900 +NT$900 +00,000 +0000 +000,000

PROBLEM 1.1
+ 10,500 + + 900 + + 3,000 = + 700 + + 15,000 –1,300
6. – +3,000 +NT$7,000 +0000 +00,000 +0000 – +NT$10,000
+ 13,500 + + 7,000 + + 900 + + 3,000 = + 700 + + 15,000 10,000 –1,300
7. +   –600 + 0,000 +0000 +00,000 +0000 + –NT$600
+ 12,900 + + 7,000 + + 900 + + 3,000 = + 700 + + 15,000 –600 10,000 –1,300
8. +   –500 + 0,000 +0000 +00,000 +–500 +000,000
+ 12,400 + + 7,000 + + 900 + + 3,000 = 200 + 15,000 –600 10,000 –1,300
9. + –2,500 + 0,000 +0000 +00,000 +0000 –2,500
+ 9,900 + + 7,000 + + 900 + + 3,000 = 200 + 15,000 –600 10,000 –3,800
10. –  +4,000 +– 4,000 +          +                                                                                          
+ NT $13,900 + + NT $3,000 + + NT $900 + + NT $3,000 = + NT $200 + +$15,000 – NT$600 + NT$10,000 – NT$3,800

NT$20,800 NT$20,800
PROBLEM 1.1 (Continued)

(b) Service revenue....................................................... NT$10,000

Expenses
Salaries and wages.......................................... NT$2,500
Advertising....................................................... 700
Rent................................................................... 600 3,800
Net income................................................ NT$ 6,200

SOLUTIONS
PROBLEM
PROBLEM1-1C
SOLUTIONS
TO PROBLEMS
1-1A
TO PROBLEMS
1-26

(a) AI FANG, ATTORNEY AT LAW

Owner’s Equity
Accounts Notes Accounts Owner’s Owner’s
Cash + Receivable + Supplies + Equipment = Payable + Payable + Capital – Drawings + Revenues – Expenses
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Bal. ¥5,000 + ¥1,500 + ¥500 + ¥6,000 = ¥4,200 + ¥8,800

1. +1,200 –1,200 0000 00,000 00,000 000,000
 6,200 +    300 +  500 +  6,000 =  4,200 +  8,800
2. –2,800 00,000 0000 00,000 –2,800 000,000
 3,400 +    300 +  500 +  6,000 =  1,400 +  8,800

PROBLEM 1.2
3. +4,000 +3,500 0000 00,000 00,000 +¥7,500
 7,400 +  3,800 +  500 +  6,000 =  1,400 +  8,800  7,500
4.   –400 00,000 0000 +2,000 +1,600 000,000
 7,000 +  3,800 +  500 +  8,000 =  3,000 +  8,800 +  7,500
5. –4,100 –¥2,800
 –900
00,000 0000 00,000 00,000  –400
 2,900 +  3,800 +  500 +  8,000 =  3,000 +  8,800 +  7,500 –4,100
6.   –700 00,000 0000 00,000 00,000 –¥700
 2,200 +  3,800 +  500 +  8,000 =  3,000 +  8,800 –700 +  7,500 –4,100
7. +2,000 00,000 0000 00,000 +¥2,000 00,000 000,000
 4,200 +  3,800 +  500 +  8,000 = + 2,000 +  3,000 +  8,800 –700 +  7,500 –4,100
8.                                                            +270                                    –270
¥4,200 + ¥3,800 + ¥500 + ¥8,000 = +¥2,000 + ¥3,270 + ¥8,800 – ¥700 + ¥7,500 – ¥4,370

¥16,500 ¥16,500
PROBLEM 1.2 (Continued)

(b) AI FANG, ATTORNEY AT LAW

Income Statement
For the Month Ended August 31, 2020

Revenues
Service revenue.............................................. ¥7,500
Expenses
Salaries and wages expense......................... ¥2,800
Rent expense.................................................. 900
Advertising expense...................................... 400
Utilities expense............................................. 270
Total expenses........................................ 4,370
Net income.............................................................. ¥3,130

AI FANG, ATTORNEY AT LAW

PROBLEM 1-2C
Owner’s Equity Statement
For the Month Ended August 31, 2020

Owner’s capital, August 1........................................................ ¥ 8,800

Add: Net income..................................................................... 3,130
11,930
Less: Drawings........................................................................ 700
Owner’s capital, August 31...................................................... ¥11,230

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PROBLEM 1.2 (Continued)

AI FANG, ATTORNEY AT LAW

Statement of Financial Position
August 31, 2020

Assets
Equipment................................................................................. ¥ 8,000
Supplies..................................................................................... 500
Accounts receivable................................................................. 3,800
Cash........................................................................................... 4,200
Total assets....................................................................... ¥16,500

Owner’s Equity and Liabilities

Owner’s Equity
Owner’s capital............................................... ¥11,230
Liabilities
Notes payable................................................. ¥ 2,000
Accounts payable........................................... 3,270
Total liabilities......................................... 5,270
Total owner’s equity and liabilities....... ¥16,500

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 PROBLEM 1.3

(a) DIVINE DESIGNS CO.

Income Statement
For the Month Ended June 30, 2020

Revenues
Service revenue............................................ $6,500
Expenses
Rent expense................................................ $1,600
Advertising expense..................................... 500
Gasoline expense......................................... 200
Utilities expense........................................... 150
Total expenses...................................... 2,450
Net income............................................................ $4,050

DIVINE DESIGNS CO.

Owner’s Equity Statement
For the Month Ended June 30, 2020

Owner’s capital, June 1........................................ $ 0

Add: Investments............................................... $12,000
Net income................................................. 4,050 16,050
16,050
Less: Drawings.................................................... 1,300
Owner’s capital, June 30...................................... $14,750

DIVINE DESIGNS CO.

Statement of Financial Position
June 30, 2020

Assets
Equipment................................................................................. $10,000
Supplies..................................................................................... 2,000
Accounts receivable................................................................. 2,800
Cash........................................................................................... 10,150

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 Total assets....................................................................... $24,950

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PROBLEM 1.3 (Continued)

DIVINE DESIGNS CO.

Statement of Financial Position (Continued)
June 30, 2020

Owner’s Equity and Liabilities

Owner’s Equity
Owner’s capital......................................... $14,750
Liabilities
Notes payable........................................... $ 9,000
Accounts payable.................................... 1,200
Total liabilities................................... 10,200
Total owner’s equity and liabilities. $24,950

(b) DIVINE DESIGNS CO.

Income Statement
For the Month Ended June 30, 2020

Revenues
Service revenue ($6,500 + $900).................. $7,400
Expenses
Rent expense................................................ $1,600
Advertising expense..................................... 500
Gasoline expense ($200 + $150).................. 350
Utilities expense........................................... 150
Total expenses...................................... 2,600
Net income............................................................ $4,800

DIVINE DESIGNS CO.

Owner’s Equity Statement
For the Month Ended June 30, 2020

Owner’s capital, June 1........................................ $ 0

Add: Investments............................................... $12,000
Net income................................................. 4,800 16,800
16,800
Less: Drawings.................................................... 1,300
Owner’s capital, June 30...................................... $15,500

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Copyright © 2018 WILEY   Weygandt, Accounting Principles, IFRS 1/e, Solutions Manual   (For Instructor Use Only)

(a) MAGUS CONSULTING

Assets = Liabilities + Owner’s Equity

Accounts Notes Accounts Owner’s Owner’s
Date Cash + Receivable+ Supplies + Equipment = Payable + Payable + Capital – Drawings + Revenues – Expenses
May 1 (€ 7,000) €7,000)
2     (900) (€ 900)

PROBLEM 1.4
3 €800 (€  800)
5     (125)   (125)
9   (4,000) € 4,000
12   (1,000) (€1,000)
15 (€6,400)  6,400
17   (2,500) (2,500)
20     (600)    (600)
23   (4,000)  (4,000)
26   (5,000) €5,000
29 €4,200  (4,200)
30 (275)                                                                                            (275)
(€ + (€2,400) + €800 + €4,200 = €5,000 + (€4,400) + €7,000) – €1,000 + €10,400 – €3,800
14,600)

€22,000 €22,000
1-31
PROBLEM 1.4 (Continued)

(b) MAISIE CONSULTING

Income Statement
For the Month Ended May 31, 2020

Revenues
Service revenue (€4,000 + €6,400)................ €10,400
Expenses
Salaries and wages expense......................... €2,500
Rent expense.................................................. 900
Utilities expense............................................. 275
Advertising expense...................................... 125
Total expenses........................................ 3,800
Net income.............................................................. €6,600

PROBLEM 1-4C
(c) MAISIE CONSULTING
Statement of Financial Position
May 31, 2020

Assets
Equipment................................................................................. € 4,200
Supplies..................................................................................... 800
Accounts receivable................................................................. 2,400
Cash...........................................................................................   14,600
Total assets....................................................................... €22,000

Owner’s Equity and Liabilities

Owner’s Equity

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 Owner’s capital.......................................... 12,600*
Liabilities
Notes payable............................................ € 5,000
Accounts payable...................................... 4,400
Total liabilities.................................... 9,400
Total owner’s equity and liabilities... €22,000

*(€7,000 + €6,600 – €1,000)

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 PROBLEM 1.5

(a) Alpha Beta Psi Omega

Company Company Company Company
(a) HK$ 39,000 (d) HK$50,000 (g) HK$129,000 (j) HK$60,00
0
(b) 110,000 (e) 40,000 (h) 88,000 (k 251,000
)
(c) 9,000 (f) 33,000 (i) 385,000 (l) 444,000

(b) ALPHA COMPANY

Owner’s Equity Statement
For the Year Ended December 31, 2020

Owner’s capital, January 1.................................. HK$39,000

Add: Investment................................................. HK$ 9,000
Net income.................................................      17,000 26,000
65,000
Less: Drawings.................................................... 15,000
Owner’s capital, December 31............................. HK$50,000

(c) The sequence of preparing financial statements is income statement,

owner’s equity statement, and statement of financial position. The
interrelationship of the owner’s equity statement to the other financial
statements results from the fact that net income from the income
statement is reported in the owner’s equity statement and ending
capital reported in the owner’s equity statement is the amount reported
for owner’s equity on the statement of financial position.

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 CT 1.1 FINANCIAL REPORTING PROBLEM

(a) TSMC’s total assets at December 31, 2016 were NT$ 1,886,455,302 and
at December 31, 2015 were NT$ 1,657,518,298 million.

(b) TSMC had NT$ 541,253,833 of cash and cash equivalents at December
31, 2016.

(c) TSMC had accounts payable totaling NT$ 26,062,351 on December 31,
2016 and NT$ 18,575,286 on December 31, 2015.

(d) TSMC reports revenues for 2015 of NT$ 947,938,344 and for 2016 of
NT$ 843,497,368 million.

(e) From 2015 to 2016, TSMC’s net income increased NT$ 27,782,069 from
NT$ 306,556,167 to NT$ 334,338,236.

PROBLEM 1-4C

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 CT 1.2 COMPARATIVE ANALYSIS PROBLEM

(a) Nestlé Delfi Limited

(in millions) (in thousands)
1. Total assets CHF 131,901 US$342,331
2. Accounts (trade) receivable CHF 12,411 US$ 61,756
(net)
3. Net sales CHF 89,469 US$402,083
4. Net income (profit) CHF 8,883 US$ 26,153

(b) Nestlé Delfi Limited

Receivables as a 9.41% 18.04%
percentage of total assets.

Net income as a percentage 9.93% 6.50%

of sales (revenue).

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 CT 1.3 REAL-WORLD FOCUS

(a) The four skill sets are: Strong leadership, Communication skills, Tech
know-how, and Business savvy.

(b) These skill sets are useful for the following reasons:
Strong leadership: Being a good leader is a major plus in the business
world. After all, strong leadership is critical to the success of any
organization, whether it is a football team, movie production company,
international accounting firm or locally owned restaurant.
Communication skills: In business and accounting there’s demand for
employees who don’t just have technical skills, but strong people
skills too. Speaking and listening abilities go a long way in a business
career.
Tech know-how: Nearly every industry is computerized in some way,
and computers are probably second nature to you. As a CPA, you’ll
need to know about existing and emerging technologies in business
environments and understand how to use them effectively.
Business savvy: Being business savvy means mastering your creative
problem-solving skills. You should know how to examine information,
interpret it and find creative solutions. Innovative answers are what
will get you respect in the business world – and so will responsibility,
ethics and honesty.

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 CT 1.4 DECISION–MAKING ACROSS THE ORGANIZATION

(a) The estimate of the £6,100 loss was based on the difference between
the £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 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.

Statement of Financial Position
March 31, 2020

Assets
Building........................................................................ £ 8,000
Equipment.................................................................... 800
Cash..............................................................................   18,900
Total assets.......................................................... £27,700

Owner’s Equity and Liabilities

Owner’s Equity
Owner’s capital (£25,000 + £2,480)..................... £27,480
Liabilities
Accounts payable (£120 + £100).........................        220
Total owner’s equity and liabilities ............. £27,700

As shown in the statement of financial position, the owner’s equity at

March 31 is £27,480. The estimate of £2,480 of net income is the difference
between the initial investment of £25,000 and £27,480. This was not a valid
basis for determining net income because changes in owner’s equity
between two points in time may have been caused by factors unrelated to
net income. For example, there may be drawings and/or additional capital
investments by the owner.

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CT 1.4 (Continued)

(c) Actual net income for March can be determined by adding withdrawals
to the change in equity during the month as shown below:

Equity, March 31, per statement of financial position........... £27,480

Equity, March 1......................................................................... (25,000)
Increase in equity..................................................................... 2,480
Add: Withdrawals................................................................... 1,000
Net income................................................................................ £ 3,480

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, £500; Advertising, £750; and Utilities, £120 for a
total of £2,370. Revenues earned, therefore, were £5,850 (£2,370 +
£3,480). 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......................................... £25,000

Less: Cash payments
Caddy shack.......................................... £8,000
Golf balls and clubs.............................. 800
Rent........................................................ 1,000
Advertising............................................. 650
Salaries and wages............................... 500
Withdrawals........................................... 1,000 11,950
Cash balance before revenues.............................. 13,050
Cash balance, March 31......................................... 18,900
Revenues earned.................................................... £ 5,850

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 CT 1.5 COMMUNICATION ACTIVITY

To: Erin Danielle

From: Student

I have received the statement of financial position of Liverpool Ltd. as of

December 31, 2020. 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, 2020.”

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 owner’s equity should be shown on the statement of

financial position. Owner’s capital and Owner’s drawings are not
liabilities.

6. Owner’s capital and Owner’s drawings are part of owner’s equity. The
drawings account is not reported on the statement of financial position
but is subtracted from Owner’s capital to determine Owner’s equity at
the end of the period.

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CT 1.5 (Continued)

A correct statement of financial position is as follows:

LIVERPOOL LTD.
Statement of Financial Position
December 31, 2020

Assets
Equipment................................................................ $25,500
Supplies.................................................................... 3,000
Accounts receivable................................................ 5,000
Cash..........................................................................     9,000
Total assets........................................................ $42,500

Owner’s Equity and Liabilities

Owner’s Equity
Owner’s capital................................................ $24,000
Liabilities
Notes payable................................................... $10,500
Accounts payable............................................ $  8,000
Total liabilities..........................................   18,500
Total owner’s equity and liabilities........................ $42,500

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 CT 1.6 ALL ABOUT YOU

(a) Answers to the following will vary depending on students’ opinions.

(1) This does not represent the hiding of assets, but rather a choice
as to the order of use of assets. This would seem to be ethical.
(2) This does not represent the hiding of assets, but rather is a change
in the nature of assets. Since the expenditure was necessary,
although perhaps accelerated, it would seem to be ethical.
(3) This represents an intentional attempt to deceive the financial aid
office. It would therefore appear to be both unethical and poten-
tially illegal.
(4) This is a difficult issue. By taking the leave, actual net income would
be reduced. The form asks the applicant to report actual net income.
However, it is potentially deceptive since you do not intend on taking
unpaid absences in the future, thus future income would be higher
than reported income.
(b) Companies might want to overstate net income in order to potentially
increase the stock price by improving investors’ perceptions of the
company. Also, a higher net income would make it easier to receive debt
financing. Finally, managers would want a higher net income to increase
the size of their bonuses.
(c) Sometimes companies want to report a lower income if they are nego-
tiating with employees. For example, professional sports teams fre-
quently argue that they can not increase salaries because they aren’t
making enough money. This also occurs in negotiations with unions.
For tax accounting (as opposed to the financial accounting in this
course) companies frequently try to minimize the amount of reported
taxable income.
(d) Unfortunately many times people who are otherwise very ethical will
make unethical decisions regarding financial reporting. They might be
driven to do this because of greed. Frequently it is because their
superiors have put pressure on them to take an unethical action, and
they are afraid to not follow directions because they might lose their
job. Also, in some instances top managers will tell subordinates that
they should be a team player, and do the action because it would help
the company, and therefore would help fellow employees.

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 CT 1.7 CONSIDERING PEOPLE, PLANET, AND PROFIT

The 5 aspirations of the company are related to sustaining (1) its business,
(2) its brands, (3) its people, (4) its communities, and (5) the planet.

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 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 as Generally Accepted
Accounting Principles or GAAP.

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.

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.

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 costs associated with its required internal
control measures.

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 GAAP 1.5 GAAP FINANCIAL REPORTING PROBLEM

(a) Apple’s total assets at September 24, 2016 were $321,686 million and
at September 26, 2015 were $290,345 million.

(b) Apple had $20,484 million of cash and cash equivalents at September 24,
2016.

(c) Apple had accounts payable totaling $37,294 million on September 24,
2016 and $35,490 million on September 26, 2015.

(d) Apple reports net sales for three consecutive years as follows:

2014 $182,795 million

2015 $233,715 million
2016 $215,639 million

(e) From 2015 to 2016, Apple’s net income decreased $7,707 million from
$53,394 million to $45,687 million.

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