Chapter 1 Kimmel- Financial Accounting

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CHAPTER 1
Introduction to Financial Statements
Study Objectives
1. 2. 3. 4. 5. 6. Describe the primary forms of business organization. Identify the users and uses of accounting information. Explain the three principal types of business activity. Describe the content and purpose of each of the financial statements. Explain the meaning of assets, liabilities, and stockholders’ equity, and state the basic accounting equation. Describe the components that supplement the financial statements in an annual report.

Summary of Questions by Study Objectives and Bloom’s Taxonomy Item 1. 2. 3. 4. 5. 1. 2. 3. 1. 1. 2. 3. 4. 1. SO 1 1 1 2 2 1 2 3, 4 1 1, 2, 4, 6 3 3, 4 4 1 BT K K K C C K K K C Item 6. 7. 8. 9. SO 2 3 4 4 BT C C K C Item 10. 11. 12. 13. SO 4 4 4 5 BT C K C AP Item 14. 15. 16. 17. SO 5 5 5 5 BT K K AP C Item 18. 19. 20. 21. SO 6 6 6 5 BT K C K C Questions

Brief Exercises 4. 5. 4 4, 5 C AP 6. 7. 4, 5 4 K K 8. 9. 5 5 AP AP 10. 11. 5 6 K K

Do It! Review Exercises 2. 5. K C C AP C 6. 7. 8. 2. 3 4 4 4 4 2, 4, 5 2, 4, 5 K AP AP AP C 3. 9. 10. 11. 4 4, 5 4, 5 4, 5 AP AP AP AP 4. 12. 13. 14. 6 5 5 5 C AP AP AP 15. 16. 17. 5 5 6 AP AP K Exercises

Problems: Set A 3. K Problems: Set B 1. 1 C 2. 3. K 4, 5 AP 4. 4, 5 AP 5. 4, 5 AP 4, 5 AP 4. 4, 5 AP 5. 4, 5 AP

Copyright © 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

(For Instructor Use Only)

1-1

ASSIGNMENT CHARACTERISTICS TABLE
Problem Number 1A 2A 3A Difficulty Level Simple Simple Moderate Time Allotted (min.) 15–20 15–20 40–50

Description Determine forms of business organization. Identify users and uses of financial statements. Prepare an income statement, retained earnings statement, and balance sheet; discuss results. Determine items included in a statement of cash flows, prepare the statement, and comment. Comment on proper accounting treatment and prepare a corrected balance sheet. Determine forms of business organization. Identify users and uses of financial statements. Prepare an income statement, retained earnings statement, and balance sheet; discuss results. Determine items included in a statement of cash flows, prepare the statement, and comment. Comment on proper accounting treatment and prepare a corrected income statement.

4A

Moderate

30–40

5A

Moderate

40–50

1B 2B 3B

Simple Simple Moderate

15–20 15–20 40–50

4B

Moderate

30–40

5B

Moderate

40–50

1-2

Copyright © 2011 John Wiley & Sons, Inc.

Kimmel Accounting, 4/e Solutions Manual

(For Instructor Use Only)

ANSWERS TO QUESTIONS
1. The three basic forms of business organizations are (1) sole proprietorship, (2) partnership, and (3) corporation. Advantages of a corporation are limited liability (stockholders not being personally liable for corporate debts), easy transferability of ownership, and easier to raise funds. Disadvantages of a corporation are increased taxation and government regulations. Proprietorships and partnerships receive favorable tax treatment compared to corporations and are easier to form than corporations. They are also owner controlled. Disadvantages of proprietorships and partnerships are unlimited liability (proprietors/partners are personally liable for all debts) and difficulty in obtaining financing compared to corporations. Yes. A person cannot earn a living, spend money, buy on credit, make an investment, or pay taxes without receiving, using, or dispensing financial information. Accounting provides financial information to interested users through the preparation and distribution of financial statements. Internal users are managers who plan, organize, and run a business. To assist management, accounting provides timely internal reports. Examples include financial comparisons of operating alternatives, projections of income from new sales campaigns, forecasts of cash needs for the next year, and financial statements. External users are those outside the business who have either a...
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