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CHAPTER 1

Accounting in Action
ASSIGNMENT CLASSIFICATION TABLE
Brief
Exercises

A
Problems

B
Problems

5, 6,
7, 11

1A, 2A,
4A

1B, 2B,
4B

6, 7, 8, 11

1A, 2A,
4A, 5A

1B, 2B,
4B, 5B

9, 10, 12,
13, 14, 15,
16, 17

2A, 3A,
4A, 5A

2B, 3B,
4B, 5B

Study Objectives

Questions

Do It!

Exercises

1.

Explain what
accounting is.

1, 2, 5

1, 2, 4

2.

Identify the users and


uses of accounting.

3, 4

3.

Understand why ethics


is a fundamental business
concept.

4.

Explain accounting
standards and the
measurement principles.

6, 7

5.

Explain the monetary


unit assumption and
the economic entity
assumption.

8, 9, 10, 11

6.

State the accounting


equation, and define
its components.

12, 13, 14

1, 2, 3,
4, 5

7.

Analyze the effects of


business transactions on
the accounting equation.

15, 16,
17, 19

6, 7, 8, 9

8.

Understand the four


financial statements
and how they are
prepared.

18, 20, 21
22, 23

10, 11

Copyright 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

1-1

ASSIGNMENT CHARACTERISTICS TABLE


Problem
Number

1-2

Description

Difficulty
Level

Time Allotted
(min.)

1A

Analyze transactions and compute net income.

Moderate

4050

2A

Analyze transactions and prepare income statement,


retained earnings statement, and statement of financial
position.

Moderate

5060

3A

Prepare income statement, retained earnings statement,


and statement of financial position.

Moderate

5060

4A

Analyze transactions and prepare financial statements.

Moderate

4050

5A

Determine financial statement amounts and prepare


retained earnings statement.

Moderate

4050

1B

Analyze transactions and compute net income.

Moderate

4050

2B

Analyze transactions and prepare income statement,


retained earnings statement, and statement of financial
position.

Moderate

5060

3B

Prepare income statement, retained earnings statement,


and statement of financial position.

Moderate

5060

4B

Analyze transactions and prepare financial statements.

Moderate

4050

5B

Determine financial statement amounts and prepare


retained earnings statement.

Moderate

4050

Copyright 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

WEYGANDT IFRS 1E
CHAPTER 1
ACCOUNTING IN ACTION
Number

SO

BT

Difficulty

Time (min.)

BE1

AP

Simple

24

BE2

AP

Simple

35

BE3

AP

Moderate

46

BE4

AP

Moderate

46

BE5

Simple

24

BE6

Simple

24

BE7

Simple

24

BE8

Simple

24

BE9

Simple

12

BE10

AP

Simple

35

BE11

Simple

24

DI1

1, 2, 4

Simple

24

DI2

Simple

24

DI3

AP

Simple

68

DI4

AP

Moderate

810

EX1

Moderate

57

EX2

Simple

68

EX3

Moderate

68

EX4

4, 5

Moderate

68

EX5

Simple

46

EX6

6, 7

Simple

68

EX7

6, 7

Simple

46

EX8

AP

Moderate

1215

EX9

AP

Simple

1215

EX10

AP

Moderate

810

EX11

6, 7

AP

Moderate

68

EX12

AP

Simple

810

EX13

AN

Simple

810

EX14

AP

Simple

1012

EX15

AP

Simple

68

EX16

AP

Moderate

68

EX17

AP

Moderate

810

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Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

1-3

ACCOUNTING IN ACTION (Continued)


Number

SO

BT

Difficulty

Time (min.)

P1A

6, 7

AP

Moderate

4050

P2A

68

AP

Moderate

5060

P3A

AP

Moderate

5060

P4A

68

AP

Moderate

4050

P5A

7, 8

AP

Moderate

4050

P1B

6, 7

AP

Moderate

4050

P2B

68

AP

Moderate

5060

P3B

AP

Moderate

5060

P4B

68

AP

Moderate

4050

P5B

7, 8

AP

Moderate

4050

BYP1

AN

Simple

1015

BYP2

AN, E

Simple

1015

BYP3

C, AN

Simple

1520

BYP4

Moderate

1520

BYP5

Simple

1215

BYP6

Simple

1012

1-4

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Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

Q1-8
Q1-9
Q1-10
Q1-11
Q1-12
Q1-13
DI1-2
BE1-5

5. Explain the monetary unit


assumption and the economic
entity assumption.

6. State the accounting equation,


and define its components.

Copyright 2011 John Wiley & Sons, Inc.


Q1-15
Q1-16
Q1-17
Q1-19
BE1-6
BE1-7
Q1-18
Q1-20
BE1-11

Exploring the Web

8. Understand the four financial


statements and how they are
prepared.

Broadening Your Perspective

BE1-8
BE1-9
E1-6
E1-7

E1-2

Q1-5
E1-1

7. Analyze the effects of business


transactions on the accounting
equation.

Q1-14
E1-5
E1-6
E1-7

Q1-11
E1-4

Q1-6
E1-4

Q1-7
DI1-1

4. Explain accounting standards


and the measurement
principles.

Q1-3
Q1-4
E1-3

DI1-1

2. Identify the users and uses of


accounting.

Q1-1
Q1-2

3. Understand why ethics is a


fundamental business concept.

DI1-1

Knowledge Comprehension

1. Explain what accounting is.

Study Objective

E1-16
E1-17
P1-2A
P1-3A
P1-4A
P1-5A
P1-2B
P1-3B
P1-4B
P1-5B

P1-5A
P1-1B
P1-2B
P1-4B
P1-5B

DI1-3
E1-8
E1-11
P1-1A
P1-2A
P1-4A
Q1-21
Q1-22
Q1-23
BE1-10
DI1-4
E1-9
E1-10
E1-12
E1-14
E1-15

P1-2A
P1-4A
P1-1B
P1-2B
P1-4B

BE1-1
BE1-2
BE1-3
BE1-4
E1-11
P1-1A

Application

Weygandt, IFRS, 1/e, Solutions Manual

Financial Reporting
Comparative Analysis

E1-13

Analysis

Synthesis

Comparative Analysis
Decision Making Across
the Organization
Communication Activity
Ethics Case

Evaluation

Correlation Chart between Blooms Taxonomy, Study Objectives and End-of-Chapter Exercises and Problems

BLOOMS TAXONOMY TABLE

(For Instructor Use Only)

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 accountants ability and responsibility to
analyze and interpret the reported information.

3.

(a)

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 part
of the entire accounting process. Accounting, on the other hand, involves the entire process of
identifying, recording, and communicating economic events.

6.

Karen Sommers Travel Agency should report the land at $90,000 on its December 31, 2011
statement 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 important
advantage over other valuations: it is reliable. Cost can be objectively measured and can be
verified.

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 in
terms of money be included in the accounting records. This assumption enables accounting to
quantify (measure) economic events.

9.

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.

10.

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

1-6

Internal users are those who plan, organize, and run the business and therefore are officers
and other decision makers.
(b) To assist management, accounting provides internal reports. Examples include financial
comparisons of operating alternatives, projections of income from new sales campaigns,
and forecasts of cash needs for the next year.

Copyright 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

Questions Chapter 1 (Continued)


11.

One of the advantages Maria Gonzalez would enjoy is that ownership of a corporation is represented by transferable shares. This would allow Maria 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.

12.

The basic accounting equation is Assets = Liabilities + Equity.

13.

(a) Assets are resources owned by a business. Liabilities are claims against assets. Put more
simply, liabilities are existing debts and obligations. Equity is the ownership claim on total assets.
(b) Equity is affected by shareholders investments, dividends, revenues, and expenses.

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 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.

16.

Business transactions are the economic events of the enterprise recorded by accountants
because they affect the basic equation.
(a) No, the death of the president of the company is not a business transaction as it does not
affect the basic equation.
(b) Yes, supplies purchased on account is a business transaction as it affects the basic equation.
(c) No, an employee being fired is not a business transaction as it does not affect the basic
equation.

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)
(b)
(c)

Income statement.
Statement of financial
position.
Income statement.

(d)
(e)
(f)

Statement of financial position.


Statement of financial position and retained
earnings statement.
Statement of financial position.

19.

No, this treatment is not proper. While the transaction does involve a receipt of cash, it does not
represent revenues. Revenues are the gross increase in equity resulting from business activities
entered into for the purpose of earning income. This transaction is simply an additional investment
made by one of the owners of the business.

20.

Yes. Net income does appear on the income statementit is the result of subtracting expenses
from revenues. In addition, net income appears in the retained earnings statementit is shown
as an addition to the beginning-of-period retained earnings. Indirectly, the net income of a company is
also included in the statement of financial position. It is included in the Retained Earnings account
which appears in the equity section of the statement of financial position.

Copyright 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

1-7

Questions Chapter 1 (Continued)


21.

22.

23.

1-8

(a)

Ending equity balance ......................................................................................................


Beginning equity balance.................................................................................................
Net income..........................................................................................................................

$198,000
168,000
$ 30,000

(b)

Ending equity balance ......................................................................................................


Beginning equity balance.................................................................................................
Deduct: Investment ..........................................................................................................
Net income..........................................................................................................................

$198,000
168,000
30,000
13,000
$ 17,000

(a)

Total revenues (20,000 + 70,000) .............................................................................

90,000

(b)

Total expenses (26,000 + 40,000).............................................................................

66,000

(c)

Total revenues ...................................................................................................................


Total expenses...................................................................................................................
Net income..........................................................................................................................

90,000
66,000
24,000

Nestls 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)

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
Assets

Liabilities
90,000
90,000
330,000

Share
Capital

(a)

X
X
X

=
=
=

(b)

$57,000
$57,000
X

=
X
+ $25,000
=
X
+ $33,000
= $24,000 ($57,000 $33,000)

(c)

600,000
600,000
X

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


= 400,000
+ X
= 200,000

Copyright 2011 John Wiley & Sons, Inc.

+ 150,000
+ 240,000

Retained Earnings
+ Revenues Expenses Dividends
+

450,000

+ $50,000

Weygandt, IFRS, 1/e, Solutions Manual

320,000

40,000

$35,000

$7,000

(For Instructor Use Only)

1-9

BRIEF EXERCISE 1-5


A
L
A

(a) Accounts receivable


(b) Salaries payable
(c) Equipment

A
E
L

(d) Office supplies


(e) Share capitalordinary
(f) Notes payable

BRIEF EXERCISE 1-6

(a)
(b)
(c)

Assets

Liabilities

+
+

+
NE
NE

Equity
NE
+

BRIEF EXERCISE 1-7


Assets
+

NE

(a)
(b)
(c)

Liabilities
NE
NE
NE

Equity
+

NE

BRIEF EXERCISE 1-8


E
R
E
E

(a)
(b)
(c)
(d)

Advertising expense
Commission revenue
Insurance expense
Salaries expense

D
R
E

(e) Dividends
(f) Rent revenue
(g) Utilities expense

BRIEF EXERCISE 1-9


R
NE
E

1-10

(a) Received cash for services performed


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

Copyright 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

BRIEF EXERCISE 1-10


LOPEZ COMPANY
Statement of Financial Position
December 31, 2011
Assets
Accounts receivable..................................................................................
Cash ................................................................................................................
Total assets .........................................................................................

$ 72,500
49,000
$121,500

Equity and Liabilities


Equity
Share capitalordinary...................................................................
Liabilities
Accounts payable..............................................................................
Total equity and liabilities......................................................

$ 31,500
90,000
$121,500

BRIEF EXERCISE 1-11


FP
IS
FP
FP
IS
RE

(a)
(b)
(c)
(d)
(e)
(f)

Notes payable
Advertising expense
Share capitalordinary
Cash
Service revenue
Dividends
SOLUTIONS FOR DO IT! REVIEW EXERCISES

DO IT! 1-1
1.
2.
3.
4.
5.

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


recording, and communication.
True.
True.
False. The primary accounting standard-setting body in the United
States is the Financial Accounting Standards Board (FASB).
True.

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(For Instructor Use Only)

1-11

DO IT! 1-2
(1)
(2)
(3)
(4)

Dividends is dividends (D); it decreases equity.


Rent Revenue is a revenue (R); it increases equity.
Advertising Expense is an expense (E); it decreases equity.
When shareholders pay cash into the business, they receive capital
shares (I); it increases equity.

DO IT! 1-3
Assets

= Liabilities +

Accounts
Accounts
+ Receivable = Payable +

Cash
(1)
(2) +R20,000
(3)
(4) R 5,000

+R20,000
R20,000

Equity
Share
Capital

Retained Earnings
+

Revenues

Expenses Dividends

+R20,000
+R2,000

R2,000
R5,000

DO IT! 1-4
(a) The total assets are R$49,500, comprised of Cash R$7,000, Accounts
Receivable R$13,500, and Equipment R$29,000.
(b) Net income is R$21,000, computed as follows:
Revenues
Service revenue..................................................
Expenses
Salaries expense ................................................
Rent expense.......................................................
Advertising expense .........................................
Total expenses ..........................................
Net income ....................................................................

1-12

Copyright 2011 John Wiley & Sons, Inc.

R$54,000
R$16,500
10,500
6,000

Weygandt, IFRS, 1/e, Solutions Manual

33,000
R$21,000

(For Instructor Use Only)

DO IT! 1-4 (Continued)


(c) The ending equity balance of Santos Company is R$21,500. By rewriting
the accounting equation, we can compute R$ Equity as Assets minus
Liabilities, as follows:
Total assets [as computed in (a)]............................
Less: Liabilities
Notes payable ..................................................
Accounts payable ...........................................
Equity................................................................................

R$49,500
R$25,000
3,000

28,000
R$21,500

Note that it is not possible to determine the companys equity in any other
way, because the beginning balance for equity is not provided.

Copyright 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

1-13

SOLUTIONS TO EXERCISES
EXERCISE 1-1
C
R
C
R
R
C
C
I
R

Analyzing and interpreting information.


Classifying economic events.
Explaining uses, meaning, and limitations of data.
Keeping a systematic chronological diary of events.
Measuring events in dollars and cents.
Preparing accounting reports.
Reporting information in a standard format.
Selecting economic activities relevant to the company.
Summarizing economic events.

EXERCISE 1-2
(a)

Internal users
Marketing manager
Production supervisor
Store manager
Vice-president of finance
External users
Customers
Taxing authority
Labor unions
Securities regulator
Suppliers

(b)

1-14

I
E
I
E
I
I
E

Can we afford to give our employees a pay raise?


Did the company earn a satisfactory income?
Do we need to borrow in the near future?
How does the companys profitability compare to other companies?
What does it cost us to manufacture each unit produced?
Which product should we emphasize?
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)

EXERCISE 1-3
Larry Smith, president of Smith Company, instructed Ron Rivera, the head of
the accounting department, to report the companys land in their accounting
reports 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 measurement
approaches, cost should be used whenever there are questions regarding the
reliability of a market value. In this case, valuation of land is too subjective
and therefore the cost principle should be used.
The stakeholders include shareholders and creditors of Smith Company,
potential shareholders and creditors, other users of Smiths accounting
reports, Larry Smith, and Ron Rivera. All users of Smiths accounting reports
could be harmed by relying on information which violates accounting
principles. Larry Smith could benefit if the company is able to attract more
investors, but would be harmed if the fraudulent reporting is discovered.
Similarly, Ron Rivera could benefit by pleasing his boss, but would be
harmed if the fraudulent reporting is discovered.
Rons 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 would
mislead many people who rely on Smiths accounting reports to make financial decisions. Ron should report the land at its cost of $100,000. He should
try to convince Larry Smith that this is the appropriate course of action, but
be prepared to resign his position if Smith insists.
EXERCISE 1-4
1.

Correct. IFRS allows companies to revalue property, plant and equipment


to fair value. However, most companies choose not to instead, due to
reliability 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 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.

Copyright 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

1-15

EXERCISE 1-5
Asset
Cash
Cleaning equipment
Cleaning supplies
Accounts receivable

Liability
Accounts payable
Notes payable
Salaries payable

Equity
Share capitalordinary

EXERCISE 1-6
1.
2.
3.
4.
5.
6.
7.
8.
9.

Increase in assets and increase in equity.


Decrease in assets and decrease in equity.
Increase in assets and increase in liabilities.
Increase in assets and increase in equity.
Decrease in assets and decrease in equity.
Increase in assets and decrease in assets.
Increase in liabilities and decrease in equity.
Increase in assets and decrease in assets.
Increase in assets and increase in equity.

EXERCISE 1-7
1.
2.
3.
4.

(c)
(d)
(a)
(b)

5.
6.
7.
8.

(d)
(b)
(e)
(f)

EXERCISE 1-8
(a) 1.
2.
3.
4.
5.

1-16

Shareholders invested $15,000 cash in the business.


Purchased office equipment for $5,000, paying $2,000 in cash and
the balance of $3,000 on account.
Paid $750 cash for supplies.
Earned $8,300 in revenue, receiving $4,600 cash and $3,700 on
account.
Paid $1,500 cash on accounts payable.

Copyright 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

EXERCISE 1-8 (Continued)


6.
7.
8.
9.
10.

Paid $2,000 cash dividends to shareholders.


Paid $650 cash for rent.
Collected $450 cash from customers on account.
Paid salaries of $4,900.
Incurred $500 of utilities expense on account.

(b) Investment .............................................................................................


Service revenue ...................................................................................
Dividends ...............................................................................................
Rent expense ........................................................................................
Salaries expense..................................................................................
Utilities expense...................................................................................
Increase in equity ................................................................................

$15,000
8,300
(2,000)
(650)
(4,900)
(500)
$15,250

(c) Service revenue ...................................................................................


Rent expense ........................................................................................
Salaries expense..................................................................................
Utilities expense...................................................................................
Net income.............................................................................................

$ 8,300
(650)
(4,900)
(500)
$ 2,250

EXERCISE 1-9
S. MOSES & CO.
Income Statement
For the Month Ended August 31, 2011
Revenues
Service revenue ...................................................................
Expenses
Salaries expense..................................................................
Rent expense ........................................................................
Utilities expense...................................................................
Total expenses ............................................................
Net income......................................................................................

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Weygandt, IFRS, 1/e, Solutions Manual

$8,300
$4,900
650
500

(For Instructor Use Only)

6,050
$2,250

1-17

EXERCISE 1-9 (Continued)


S. MOSES & CO.
Retained Earnings Statement
For the Month Ended August 31, 2011
Retained earnings, August 1...................................................
Add: Net income.......................................................................

$
0
2,250
2,250
2,000
$ 250

Less: Dividends .........................................................................


Retained earnings, August 31...................................

S. MOSES & CO.


Statement of Financial Position
August 31, 2011
Assets
Office equipment.........................................................................
Supplies .........................................................................................
Accounts receivable ..................................................................
Cash ................................................................................................
Total assets..........................................................................

$ 5,000
750
3,250
8,250
$17,250

Equity and Liabilities


Equity
Share capitalordinary ...................................................
Retained earnings..............................................................
Liabilities
Accounts payable ..............................................................
Total equity and liabilities........................................

$15,000
250

$15,250
2,000
$17,250

EXERCISE 1-10
(a) Equity12/31/10 (TL400,000 TL250,000) ................................
Equity1/1/10 .....................................................................................
Increase in Equity ..............................................................................
Add: Dividends .................................................................................
Net income for 2010 ..........................................................................

1-18

Copyright 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

TL150,000
100,000
50,000
15,000
TL 65,000

(For Instructor Use Only)

EXERCISE 1-10 (Continued)


(b) Equity12/31/11 (TL460,000 TL300,000).........................
Equity1/1/11see (a).............................................................
Increase in equity .......................................................................
Less: Additional investment..................................................
Net loss for 2011 .........................................................................

TL160,000
150,000
10,000
50,000
TL 40,000

(c) Equity12/31/12 (TL590,000 TL400,000)........................


Equity1/1/12see (b) ...........................................................
Increase in equity ......................................................................
Less: Additional investment.................................................

TL190,000
160,000
30,000
15,000
15,000
30,000
TL 45,000

Add: Dividends ........................................................................


Net income for 2012..................................................................

EXERCISE 1-11
(a) Total assets (beginning of year)............................................
Total liabilities (beginning of year) .......................................
Total equity (beginning of year).............................................

95,000
85,000
10,000

(b) Total equity (end of year).........................................................


Total equity (beginning of year).............................................
Increase in equity .......................................................................

40,000
10,000
30,000

Total revenues.............................................................................
Total expenses ............................................................................
Net income....................................................................................

215,000
175,000
40,000

Increase in equity ...........................................


Less: Net income...........................................
Add: Dividends .............................................
Additional investment...................................

30,000
40,000
24,000

(c) Total assets (beginning of year)............................................


Total equity (beginning of year).............................................
Total liabilities (beginning of year) .......................................

Copyright 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

(16,000)
14,000
129,000
80,000
49,000

(For Instructor Use Only)

1-19

EXERCISE 1-11 (Continued)


(d) Total equity (end of year) ............................................................
Total equity (beginning of year)................................................
Increase in equity...........................................................................

130,000
80,000
50,000

Total revenues ................................................................................


Total expenses................................................................................
Net income .......................................................................................

100,000
55,000
45,000

Increase in equity.................................................
Less: Net income ................................................
Additional investment ...........................
Dividends................................................................

50,000
45,000
25,000

(70,000)
20,000

EXERCISE 1-12
LINDA STANLEY CO.
Income Statement
For the Year Ended December 31, 2011
Revenues
Service revenue..............................................................
Expenses
Salaries expense ............................................................
Rent expense...................................................................
Utilities expense.............................................................
Advertising expense .....................................................
Total expenses.......................................................
Net income ................................................................................

$62,500
$30,000
10,400
3,100
1,800
45,300
$17,200

LINDA STANLEY CO.


Retained Earnings Statement
For the Year Ended December 31, 2011
Retained earnings, January 1 ...................................................................
Add: Net income .........................................................................................
Less: Dividends............................................................................................
Retained earnings, December 31.............................................................

1-20

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$48,000
17,200
65,200
6,000
$59,200

(For Instructor Use Only)

EXERCISE 1-13
MENDEZ COMPANY
Statement of Financial Position
December 31, 2011
Assets
Equipment.....................................................................................
Supplies.........................................................................................
Accounts receivable..................................................................
Cash ................................................................................................
Total assets .........................................................................

46,000
8,000
8,500
15,000
77,500

Equity and Liabilities


Equity
Share capitalordinary...................................................
Retained earnings (17,500 10,000) .......................
Liabilities
Accounts payable..............................................................
Total equity and liabilities......................................

50,000
7,500

57,500
20,000
77,500

EXERCISE 1-14
(a) Camping fee revenues .....................................................................
General store revenues ...................................................................
Total revenue .............................................................................
Expenses..............................................................................................
Net income...........................................................................................
(b)

$140,000
50,000
190,000
150,000
$ 40,000

DEER PARK
Statement of Financial Position
December 31, 2011
Assets
Equipment............................................................................................
Supplies................................................................................................
Cash .......................................................................................................
Total assets ................................................................................

Copyright 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

$105,500
2,500
23,000
$131,000

(For Instructor Use Only)

1-21

EXERCISE 1-14 (Continued)


DEER PARK
Statement of Financial Position (Continued)
December 31, 2011
Equity and Liabilities
Equity
Share capitalordinary .........................................
Retained earnings....................................................
Total equity........................................................
Liabilities
Notes payable............................................................
Accounts payable ....................................................
Total liabilities ..................................................
Total equity and liabilities ................................................

$20,000
40,000
$ 60,000
60,000
11,000
71,000
$131,000

EXERCISE 1-15
SILVA CRUISE COMPANY
Income Statement
For the Year Ended December 31, 2011
Revenues
Ticket revenue............................................................
Expenses
Salaries expense ....................................................... R$142,000
Maintenance expense..............................................
95,000
Property tax expense...............................................
10,000
Advertising expense ................................................
3,500
Total expenses..................................................
Net income ...........................................................................

1-22

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Weygandt, IFRS, 1/e, Solutions Manual

R$325,000

250,500
R$ 74,500

(For Instructor Use Only)

EXERCISE 1-16
KEVIN AND JOHNSON, ATTORNEYS AT LAW
Retained Earnings Statement
For the Year Ended December 31, 2011
Retained earnings, January 1..........................................................
Add: Net income................................................................................
Less: Dividends ..................................................................................
Retained earnings, December 31 ...................................................

$ 23,000
139,000*
162,000
79,000
$ 83,000

*Legal service revenue ......................................................................


Total expenses ...................................................................................
Net income ...........................................................................................

$350,000
211,000
$139,000

EXERCISE 1-17
BORNEO COMPANY
Statement of Cash Flows
For the Year Ended December 31, 2011
Cash flows from operating activities
Cash receipts from revenues ...............................
Cash payments for expenses...............................
Net cash provided by operating activities
Cash flows from investing activities
Purchase of equipment ..........................................
Cash flows from financing activities ..........................
Sale of shares ............................................................
Payment of cash dividends...................................
Net increase in cash .........................................................
Cash at the beginning of the period............................
Cash at the end of the period ........................................

Copyright 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

Rp600,000
(410,000)
190,000
(100,000)
Rp350,000
(20,000)

330,000
420,000
30,000
Rp450,000

(For Instructor Use Only)

1-23

1-24

Copyright 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

11.

10.

9.

8.

7.

6.

5.

4.

3.

2.

1.

(a)

+750
+ 750
+120
+630

+000,000

6,060 +

+120

+ 6,180 +

6,060

+500 +

+ 500 +

+0000

+ 500 +

12,310

140

+0000

+ 500 +

6,200

+ 500 +

+
+0000

8,200

+0000

+ 2,000

1,000

9,200

+ 500 +

+ 500 +

+
+

+
+0000

4,100

+0000

+ 500 +

+5,100

+000,000

4,100

500

+
+500

4,600

+
+

400

+5,000

+ 5,000

+00,000

+ 5,000

+00,000

+ 5,000

+00,000

+ 5,000

+00,000

+ 5,000

+00,000

+ 5,000

+00,000

+ 5,000

+00,000

+ 5,000

+00,000

+ 5,000

5,000

+5,000

+ 5,000

+250

+0250

+0000

+0250

+0000

+ 250

+0000

+ 250

+0000

+ 250

+0000

+ 250

+250

10,0000 +

10,000 +

10,000 +

10,000 +

10,000 +

10,000 +

10,000 +

+ 00010,000 +

+ 00010,0000 +

+ 0010,000 +

+000,

0010,000

+ 10,000

12,310

5,850

5,850

+750

5,100

5,100

5,100

5,100

+5,100

2,790

2,790

2,790

140

2,650

2,000

650

650

650

250

400

400

400

1,000

1,000

1,000

1,000

1,000

1,000

Equity
Retained Earnings
+ Revenues Expenses Dividends

+10,000 +

Share
Capital

+10,000

Cash

Accounts
Accounts
+ Receivable + Supplies + Equipment = Payable +

BARONES REPAIR LTD.

(h)

(g)

(f)

(e)

(d)

(c)

(b)

(a)

SOLUTIONS TO PROBLEMS
PROBLEM 1-1A

(For Instructor Use Only)

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).................................
Expenses
Salaries ......................................................................
Rent .............................................................................
Advertising ...............................................................
Utilities .......................................................................
Net income .......................................................

Copyright 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

5,850
2,000
400
250
140

(For Instructor Use Only)

2,790
3,060

1-25

1-26

Copyright 2011 John Wiley & Sons, Inc.

8.

7.

6.

5.

4.

3.

2.

$15,200 +

+10,000

5,200 +

000,000

5,200 +

2,900

8,100 +

1,000

9,100 +

+2,500

6,600 +

800

7,400 +

+1,300

6,100 +

2,900

1.

$5,900

5,900

00,000

5,900

00,000

5,900

00,000

5,900

+5,500

400

00,000

400

1,300

1,700

00,000

$1,700

$600

600

0000

600

0000

600

0000

600

0000

600

0000

600

0000

600

0000

$600

$29,800

$ 8,100

8,100

000,000

8,100

000,000

8,100

000,000

8,100

000,000

8,100

+2,100

6,000

000,000

6,000

000,000

$ 6,000

+$10,000

2,170

+170

2,000

00,000

2,000

00,000

2,000

00,000

2,000

+1,300

700

00,000

700

2,900

$3,600

= +$10,000 + $2,170

13,000

13,000

13,000

13,000

13,000

13,000

13,000

+ $13,000

+ $13,000

Share
Capital

$29,800

$700

700

700

700

700

700

700

700

$700

$8,000

8,000

8,000

8,000

8,000

+$8,000

$ 3,070

3,070

170

$1,000

1,000

(f)

(e)
1,000

(d)
900
300
2,900

(c)

(b)

(a)

$1,700

1,000

$1,000

Retained
+ Earnings + Revenues Expenses Dividends

NASHVILLE VETERINARY CLINIC

Accounts
Office
Notes
Accounts
+ Receivable + Supplies + Equipment = Payable + Payable +

$ 9,000 +

Cash

Bal.

(a)

PROBLEM 1-2A

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

PROBLEM 1-2A (Continued)


(b)

NASHVILLE VETERINARY CLINIC


Income Statement
For the Month Ended September 30, 2011
Revenues
Service revenue ..........................................................
Expenses
Salaries expense.........................................................
Rent expense ...............................................................
Advertising expense..................................................
Utilities expense..........................................................
Total expenses ...................................................
Net income.............................................................................

$8,000
$1,700
900
300
170
3,070
$4,930

NASHVILLE VETERINARY CLINIC


Retained Earnings Statement
For the Month Ended September 30, 2011
Retained earnings, September 1 ....................................................
Add: Net income................................................................................
Less: Dividends ..................................................................................
Retained earnings, September 30..................................................

Copyright 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

$ 700
4,930
5,630
1,000
$4,630

1-27

PROBLEM 1-2A (Continued)


NASHVILLE VETERINARY CLINIC
Statement of Financial Position
September 30, 2011
Assets
Office equipment...................................................................
Supplies ...................................................................................
Accounts receivable ............................................................
Cash ..........................................................................................
Total assets....................................................................

$ 8,100
600
5,900
15,200
$29,800

Equity and Liabilities


Equity
Share capitalordinary ............................................. $13,000
Retained earnings........................................................
4,630
Total equity............................................................
Liabilities
Notes payable................................................................ 10,000
Accounts payable ........................................................
2,170
Total liabilities ......................................................
Total equity and liabilities .................................................

1-28

Copyright 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

$17,630

12,170
$29,800

(For Instructor Use Only)

PROBLEM 1-3A

(a)

YOON FLYING SCHOOL


Income Statement
For the Month Ended May 31, 2011
Revenues
Lesson revenue....................................................
Expenses
Fuel expense .........................................................
Rent expense ........................................................
Advertising expense...........................................
Insurance expense ..............................................
Repair expense.....................................................
Total expenses ............................................
Net income......................................................................

W7,500
W2,500
1,200
500
400
400
5,000
W2,500

YOON FLYING SCHOOL


Retained Earnings Statement
For the Month Ended May 31, 2011
Retained Earnings, May 1 ..........................................
Add: Net income ........................................................

0
2,500
2,500
1,500
W1,000

Less: Dividends ...........................................................


Retained earnings, May 31 ........................................

YOON FLYING SCHOOL


Statement of Financial Position
May 31, 2011
Assets
Equipment..............................................................................................
Accounts receivable...........................................................................
Cash .........................................................................................................
Total assets ..................................................................................

Copyright 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

W64,000
7,200
5,600
W76,800

(For Instructor Use Only)

1-29

PROBLEM 1-3A (Continued)


YOON FLYING SCHOOL
Statement of Financial Position (Continued)
May 31, 2011
Equity and Liabilities
Equity
Share capitalordinary .........................................
Retained earnings....................................................
Total equity........................................................
Liabilities
Notes payable............................................................
Accounts payable ....................................................
Total liabilities ..................................................
Total equity and liabilities ..............................................
(b)

W45,000
1,000
W46,000
W30,000
800
30,800
W76,800

YOON FLYING SCHOOL


Income Statement
For the Month Ended May 31, 2011
Revenues
Lesson revenue (W7,500 + W900) .................
Expenses
Fuel expense (W2,500 + W1,500) ...................
Rent expense........................................................
Advertising expense ..........................................
Insurance expense .............................................
Repair expense ....................................................
Total expenses............................................
Net income .....................................................................

W8,400
W4,000
1,200
500
400
400
6,500
W1,900

YOON FLYING SCHOOL


Retained Earnings Statement
For the Month Ended May 31, 2011
Retained Earnings, May 1 .........................................
Add: Net income ........................................................
Less: Dividends ..........................................................
Retained Earnings, May 31.......................................
1-30

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0
1,900
1,900
1,500
W 400
(For Instructor Use Only)

$10,000

June 1

Copyright 2011 John Wiley & Sons, Inc.

500

7,300 +

7,3000+

200

7,500 +

7,500 +

+ 8,550 +

Weygandt, IFRS, 1/e, Solutions Manual

June 30

June 29

June 26

June 23

500

12,000

12,000

12,000

+12,000

12,000

12,000

12,000

+ 12,000

9,500

9,500

9,500

500

10,000 +

10,000 +

10,000 +

10,000 +

10,000 +

10,000 +

+$150

+0250

+0

+0250

+ 250

+ 250

+100

+ 150

+00

+ 150

1,000

(For Instructor Use Only)


+

$150

$23,500

$3,150

$12,000

$ 9,500

$150

150

150

150

150

150

150

150

150

+$150

+050

+0012,000

10,000 +

10,000 +

+$10,000

Payable + Payable

100
+

Accounts

Liabilities
Notes

100
3,150

3,150

3,150

3,150

3,150

3,150

1,250

4,400

4,400

4,400

+$4,400

+12,000

12,000

+$12,000

Van

Delivery

MILLER DELIVERIES

9,200 +

9,300 +

250

9,550 +

$ 8,200 +

10,050 +

June 20 + +1,500

June 17

8,550 +

June 15 + +1,250

June 12

June 9 +

June 5

June 3 +

Assets
Accounts

+ Receivable + Supplies +

8,000 +

June 2 + 2,000

Cash

Date

(a)

$23,500

10,000 +

10,000 +

10,000 +

10,000 +

10,000 +

10,000 +

10,000 +

10,000 +

$10,000

Retained Earnings

Equity

$5,900

5,900

5,900

5,900

5,900

1,500

4,400

4,400

4,400

4,400

4,400

$4,400

$1,850

1,000

850

850

250

600

600

600

100

500

500

500

500

500

$ 500

$200

200

200

200

200

200

200

200

200

$200

+ Revenues Expenses Dividends

10,000 +

10,000

10,000

+$10,000

Capital

Share

(g)

(f)

(e)

(d)

(c)

(b)

(a)

PROBLEM 1-4A

1-31

PROBLEM 1-4A (Continued)


Key to Retained Earnings Column
(a) Rent expense
(b) Service revenue
(c) Dividends
(d) Gasoline expense
(b)

(e)
(f)
(g)

Service revenue
Utilities expense
Salaries expense

MILLER DELIVERIES
Income Statement
For the Month Ended June 30, 2011
Revenues
Service revenue ($4,400 + $1,500).........................
Expenses
Salaries expense ......................................................... $1,000
Rent expense................................................................
500
Utilities expense ..........................................................
250
Gasoline expense .......................................................
100
Total expenses....................................................
Net income .............................................................................

(c)

$5,900

1,850
$4,050

MILLER DELIVERIES
Statement of Financial Position
June 30, 2011
Assets
Delivery Van...........................................................................
Supplies ..................................................................................
Accounts receivable ...........................................................
Cash .........................................................................................
Total assets...................................................................

$12,000
150
3,150
8,200
$23,500

Equity and Liabilities


Equity
Share capitalordinary ............................................ $10,000
Retained earnings.......................................................
3,850
Total equity...........................................................
Liabilities
Notes payable...............................................................
9,500
Accounts payable .......................................................
150
Total liabilities .....................................................
Total equity and liabilities .................................................
1-32

Copyright 2011 John Wiley & Sons, Inc.

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$13,850

9,650
$23,500

(For Instructor Use Only)

PROBLEM 1-5A

(a)

(b)

Karma
Company
(a) $ 45,000
(b)
115,000
(c)
10,000

Yates
Company
(d) $50,000
(e)
62,000
(f)
48,000

McCain
Company
(g) $120,000
(h)
70,000
(i)
431,000

Dench
Company
(j) $ 80,000
(k)
250,000
(l)
435,000

YATES COMPANY
Retained Earnings Statement
For the Year Ended December 31, 2011
Retained earnings, January 1 .................................
Add: Net income .......................................................
Less: Dividends .........................................................
Retained earnings, December 31 ..........................

$20,000
35,000
55,000
48,000
$ 7,000

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


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

Copyright 2011 John Wiley & Sons, Inc.

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(For Instructor Use Only)

1-33

1-34

Cash

1. +10,000
+ 10,000
2. + 400
+ 9,600
3. + 2,500
+ 7,100
4. +000,000
+ 7,100
5. + 600
+ 6,500
6. +3,000
+ 9,500
7. + 200
+ 9,300
8. + 300
+ 9,000
9. + 2,200
+ 6,800
10. +4,000
+10,800

(a)

Copyright 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

16,400

+6,500
+ 6,500
+ 0,000
+ 6,500
+ 0,000
+ 6,500
+ 0,000
+ 6,500
+4,000
+2,500

+600
+ 600
+0000
+ 600
+0000
+ 600
+0000
+ 600
+0000
+ 600
+
+600
+

=
=

+2,500

+
+
0

+300
+ 300
+0000
+ 300
+0000
+ 300
+0000
+ 300
+300
+
0
+0000

10,000

16,400

+ 9,500
+
+9,500

10,000
10,000

9,500
+ 9,500

+000,000

+ 9,500
+000,000
+ + 9,500
+

+
+

Equity

2,900

700
2,200
2,900

700

700

700

400
300
700

400
400

200

200

200

200
200

Retained Earnings
Revenues Expenses Dividends

10,000

10,000

10,000

10,000

10,000

=
+2,500
+ 2,500
+00,000
+ 2,500
+00,000
+ 2,500
+00,000
+ 2,500
+00,000
+ 2,500
+00,000
+ 2,500
+00,000
+ 2,500

Share
Capital
+10,000
10,000

Accounts
Office
Accounts
+ Receivable + Supplies + Equipment = Payable +

MATRIX TRAVEL AGENCY

(e)

(c)
(d)

(b)

(a)

PROBLEM 1-1B

(For Instructor Use Only)

PROBLEM 1-1B (Continued)


Key to Retained Earnings Column
(a) Rent Expense
(b) Advertising Expense
(c) Service Revenue

(d) Dividends
(e) Salaries Expense

(b) Service revenue ................................................................


Expenses
Salaries ......................................................................
Rent .............................................................................
Advertising ...............................................................
Net income .......................................................

Copyright 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

9,500
2,200
400
300

(For Instructor Use Only)

2,900
6,600

1-35

1-36

Copyright 2011 John Wiley & Sons, Inc.

8.

7.

6.

5.

4.

3.

$2,300 +

2,300 +

+2,000

300 +

750

1,050 +

4,250

5,300 +

400

5,700 +

+3,000

2,700 +

2,700

5,400 +

+1,400

1.

2.

CINDY BELTON, ATTORNEY AT LAW

$6,100

6,100

00,000

6,100

00,000

6,100

00,000

6,100

00,000

6,100

+6,000

100

00,000

100

1,400

$1,500

$500

500

0000

500

0000

500

0000

500

0000

500

0000

500

0000

500

0000

$500

$14,900

$6,000

6,000

00,000

6,000

00,000

6,000

00,000

6,000

+1,000

5,000

00,000

5,000

00,000

5,000

00,000

$5,000

+$2,000

= +$2,000 +

= + 2,000 +

$2,350

+250

2,100

00,000

2,100

00,000

2,100

00,000

2,100

+600

1,500

00,000

1,500

2,700

4,200

00,000

$4,200

$6,000

6,000

6,000

6,000

6,000

6,000

6,000

6,000

$6,000

$14,900

$ 800

800

000,000

800

800

800

000,000

800

800

000,000

800

000,000

$ 800

$9,000

9,000

9,000

9,000

9,000

9,000

+$9,000

$4.500

250

4,250

4,250

4,250

350

900

$3,000

$750

750

750

$750

Accounts
Office
Notes
Accounts
Share
Retained
+ Receivable + Supplies + Equipment = Payable + Payable + Capital + Earnings + Revenues Expenses Dividends

$4,000 +

Cash

Bal.

(a)

(f)

(e)

(d)

(c)

(b)

(a)

PROBLEM 1-2B

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

PROBLEM 1-2B (Continued)


(b)

CINDY BELTON, ATTORNEY AT LAW


Income Statement
For the Month Ended August 31, 2011
Revenues
Service revenue......................................................
Expenses
Salaries expense....................................................
Rent expense ..........................................................
Advertising expense.............................................
Utilities expense.....................................................
Total expenses ..............................................
Net income........................................................................

$9,000
$3,000
900
350
250
4,500
$4,500

CINDY BELTON, ATTORNEY AT LAW


Retained Earnings Statement
For the Month Ended August 31, 2011
Retained earnings, August 1 ......................................
Add: Net income...........................................................

$ 800
4,500
5,300
750
$4,550

Less: Dividends .............................................................


Retained earnings, August 31 ....................................

Copyright 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

(For Instructor Use Only)

1-37

PROBLEM 1-2B (Continued)


CINDY BELTON, ATTORNEY AT LAW
Statement of Financial Position
August 31, 2011
Assets
Office equipment.................................................................
Supplies .................................................................................
Accounts receivable ..........................................................
Cash ........................................................................................
Total assets..................................................................

$ 6,000
500
6,100
2,300
$14,900

Equity and Liabilities


Equity
Share capitalordinary ...........................................
Retained earnings......................................................
Total equity..........................................................
Liabilities
Notes payable..............................................................
Accounts payable ......................................................
Total liabilities ....................................................
Total equity and liabilities ..................................................

1-38

Copyright 2011 John Wiley & Sons, Inc.

$6,000
4,550
$10,550

2,000
2,350

Weygandt, IFRS, 1/e, Solutions Manual

4,350
$14,900

(For Instructor Use Only)

PROBLEM 1-3B

(a)

DIVINE COSMETICS CO.


Income Statement
For the Month Ended June 30, 2011
Revenues
Service revenue ...................................................
Expenses
Supplies expense ................................................
Gas and oil expense ...........................................
Advertising expense...........................................
Utilities expense...................................................
Total expenses ............................................
Net income......................................................................

6,000
1,600
800
500
300
3,200
2,800

DIVINE COSMETICS CO.


Retained Earnings Statement
For the Month Ended June 30, 2011
Retained Earnings, June 1 ........................................
Add: Net income ........................................................

0
2,800
2,800
1,200
1,600

Less: Dividends ...........................................................


Retained Earnings, June 30 ......................................

DIVINE COSMETICS CO.


Statement of Financial Position
June 30, 2011
Assets
Equipment..............................................................................................
Cosmetic supplies...............................................................................
Accounts receivable...........................................................................
Cash .........................................................................................................
Total assets ..................................................................................

Copyright 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

25,000
2,000
4,000
11,000
42,000

(For Instructor Use Only)

1-39

PROBLEM 1-3B (Continued)


DIVINE COSMETICS CO.
Statement of Financial Position (Continued)
June 30, 2011
Equity and Liabilities
Equity
Share capitalordinary ........................................... 26,200
Retained earnings......................................................
1,600
Total equity..........................................................
Liabilities
Notes payable.............................................................. 13,000
Accounts payable ......................................................
1,200
Total liabilities ....................................................
Total equity and liabilities ..................................................

(b)

27,800

14,200
42,000

DIVINE COSMETICS CO.


Income Statement
For the Month Ended June 30, 2011
Revenues
Service revenue (6,000 + 800) ....................
Expenses
Supplies expense................................................
Gas and oil expense (800 + 100)................
Advertising expense ..........................................
Utilities expense ..................................................
Total expenses............................................
Net income .....................................................................

6,800
1,600
900
500
300
3,300
3,500

DIVINE COSMETICS CO.


Retained Earnings Statement
For the Month Ended June 30, 2011
Retained earnings, June 1 ........................................
Add: Net income........................................................
Less: Dividends...........................................................
Retained earnings, June 30 ......................................
1-40

Copyright 2011 John Wiley & Sons, Inc.

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0
3,500
3,500
1,200
2,300

(For Instructor Use Only)

Copyright 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

May 30

May 29

May 26

May 23

May 20

May 17

May 15

May 12

May 9

May 5

May 3

May 2

May 1

Date

(a)
Notes

Accounts

50

150

13,950 +

13,950 +

+5,000

8,950 +

+3,000

5,950 +

500

6,450 +

3,000

9,450 +

9,450 +

700

10,150 +

+3,000

7,150 +

$13,800 +

7,200 +

7,200

800

(For Instructor Use Only)


500

500

500

500

500

500

+ $500

$19,400

$ 2,300

2,300

2,300

2,300

3,000

5,300

5,300

5,300

+$5,300

500

500

+050

500

500

+$500

$2,800

2,800

+$2,800

$5,000 +

5,000

5,000

+$5,000

$2,800

2,800

+2,800

500

500

500

500

500

500

500

+$ 500

$8,000

8,000

8,000

8,000

8,000

8,000

8,000

8,000

8,000

8,000

8,000

8,000

8,000

Capital
+$8,000

Share

8,000

+ Receivable + Supplies + Equipment = Payable + Payable

Office

Liabilities

GELLER CONSULTING

+$ 8,000

Cash

Accounts

Assets

$8,300

8,300

8,300

8,300

8,300

8,300

8,300

+5,300

3,000

3,000

+$3,000

$19,400

$4,000

150

3,850

3,850

3,850

3,850

3,850

3,000

850

850

850

850

50

800

800

$ 800

$700

700

700

700

700

700

700

700

$700

+ Revenues Expenses Dividends

Retained Earnings

Equity

(g)

(f)

(e)

(d)

(c)

(b)

(a)

PROBLEM 1-4B

1-41

PROBLEM 1-4B (Continued)


Key to Retained Earnings Column
(a)
(b)
(c)
(d)
(b)

Rent Expense
Advertising Expense
Service Revenue
Dividends

(e) Service Revenue


(f) Salaries Expense
(g) Utilities Expense

GELLER CONSULTING
Income Statement
For the Month Ended May 31, 2011
Revenues
Service revenue ($3,000 + $5,300)...................
Expenses
Salaries expense ...................................................
Rent expense..........................................................
Utilities expense ....................................................
Advertising expense ............................................
Total expenses..............................................
Net income .......................................................................

(c)

$8,300
$3,000
800
150
50
4,000
$4,300

GELLER CONSULTING
Statement of Financial Position
May 31, 2011
Assets
Office equipment...................................................................
Supplies ...................................................................................
Accounts receivable ............................................................
Cash...........................................................................................
Total assets....................................................................

$ 2,800
500
2,300
13,800
$19,400

Equity and Liabilities


Equity
Share capitalordinary .............................................
Retained earnings........................................................
Total equity............................................................
Liabilities
Notes payable................................................................
Accounts payable ........................................................
Total liabilities ......................................................
Total equity and liabilities ..................................................
1-42

Copyright 2011 John Wiley & Sons, Inc.

$8,000
3,600

Weygandt, IFRS, 1/e, Solutions Manual

$11,600
5,000
2,800
7,800
$19,400
(For Instructor Use Only)

PROBLEM 1-5B

(a)

(b)

McKane
Company
(a) $30,000
(b)
95,000
(c)
5,000

Selara
Company
(d) $40,000
(e)
45,000
(f)
28,000

Gordon
Company
(g) $124,000
(h)
80,000
(i)
413,000

Hindi
Company
(j) $ 50,000
(k)
225,000
(l)
460,000

McKANE COMPANY
Retained Earnings Statement
For the Year Ended December 31, 2011
Retained earnings, January 1...................................
Add: Net income.........................................................
Less: Dividends ...........................................................
Retained earnings December 31 .............................

$
0
15,000
15,000
10,000
$ 5,000

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


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

Copyright 2011 John Wiley & Sons, Inc.

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(For Instructor Use Only)

1-43

BYP 1-1

FINANCIAL REPORTING PROBLEM

(a) Cadburys total assets at December 31, 2008 were 8,895 million and at
December 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 on
December 31, 2008 and 1,701 million on December 31, 2007.
(d) Cadbury reports revenues for three consecutive years as follows:
2007
2008

5,384 million
4,699 million

(e) From 2007 to 2008, Cadburys net income (profit for the period)
decreased 416 million from 407 million to 366 million.

1-44

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(For Instructor Use Only)

BYP 1-2

(a)
1.
2.
3.
4.

COMPARATIVE ANALYSIS PROBLEM

(in millions)
Total assets
Accounts (notes) receivable, (net)
Net sales
Net income

(b)
Receivables/Total assets
Net income/Sales

Copyright 2011 John Wiley & Sons, Inc.

Cadbury
8,895
1,067
5,384
366

Cadbury
12.0%
6.8%

Weygandt, IFRS, 1/e, Solutions Manual

Nestl
CHF106,215
CHF 13,442
CHF109,908
CHF 19,051

Nestl
12.7%
17.3%

(For Instructor Use Only)

1-45

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, ability
to synthesize, creative ability, initiative, computer skills.
(c) The skills required in these areas differ as follows:

People skills
Sales skills
Communication skills
Analytical skills
Ability to synthesize
Creative ability
Initiative
Computer skills

Auditing
Medium
Medium
Medium
High
Medium
Low
Medium
High

Financial
and Tax
Medium
Medium
Medium
Very High
Low
Medium
Medium
High

Management
Accounting
Medium
Low
High
High
High
Medium
Medium
Very High

(d) Some key job functions in accounting:


Auditing: Work in audit involves checking accounting ledgers and
financial statements within corporations and government. This work
is becoming increasingly computerized and can rely on sophisticated
random sampling methods. Audit is the bread-and-butter work of
accounting. This work can involve significant travel and allows you
to really understand how money is being made in the company that
you are analyzing. Its great background!
Budget Analysis: Budget analysts are responsible for developing and
managing an organizations financial plans. There are plentiful jobs in
this area in government and private industry. Besides quantitative
skills many budget analyst jobs require good people skills because of
negotiations involved in the work.

1-46

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(For Instructor Use Only)

BYP 1-3 (Continued)


Financial: Financial accountants prepare financial statements based on
general ledgers and participate in important financial decisions involving
mergers and acquisitions, benefits/ERISA planning, and long-term financial projections. This work can be varied over time. One day you may
be running spreadsheets. The next day you may be visiting a customer
or supplier to set up a new account and discuss business. This work
requires a good understanding of both accounting and finance.
Management Accounting: Management accountants work in companies
and participate in decisions about capital budgeting and line of business analysis. Major functions include cost analysis, analysis of new
contracts, and participation in efforts to control expenses efficiently.
This work often involves the analysis of the structure of organizations.
Is responsibility to spend money in a company at the right level of our
organization? Are goals and objectives to control costs being communicated effectively? Historically, many management accountants have
been derided as bean counters. This mentality has undergone major
change as management accountants now often work side by side with
marketing and finance to develop new business.
Tax: Tax accountants prepare corporate and personal income tax statements and formulate tax strategies involving issues such as financial
choice, how to best treat a merger or acquisition, deferral of taxes,
when to expense items and the like. This work requires a thorough
understanding of economics and the tax code. Increasingly, large corporations are looking for persons with both an accounting and a legal
background in tax. A person, for example, with a JD and a CPA would
be especially desirable to many firms.
(e) Junior Staff Accountant

Copyright 2011 John Wiley & Sons, Inc.

$46,000 $63,000

Weygandt, IFRS, 1/e, Solutions Manual

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1-47

BYP 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 COMPANY
Statement of Financial Position
March 31, 2011
Assets
Caddy shack ..........................................................................
Equipment ..............................................................................
Cash .........................................................................................
Total assets...................................................................

$ 8,000
800
18,900
$27,700

Equity and Liabilities


Equity
Share capitalordinary ............................................. $25,000
Retained earnings........................................................
2,450
Liabilities
Accounts payable ($150 + $100) .............................
Total equity and liabilities ................................

$27,450
250
$27,700

As shown in the statement of financial position, the equity at March 31


is $27,450. The estimate of $2,450 of net income is the difference
between the initial investment of $25,000 and $27,450. This was not a
valid basis for determining net income because changes in equity
between two points in time may have been caused by factors unrelated
to net income. For example, there may be dividends and/or additional
capital investments by the shareholders.

1-48

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BYP 1-4 (Continued)


(c) Actual net income for March can be determined by adding dividends
to the change in equity during the month as shown below:
Equity, March 31, per statement of financial position.............
Equity, March 1.....................................................................................
Increase in equity ................................................................................
Add: Dividends...................................................................................
Net income.............................................................................................

$27,450
25,000
2,450
1,000
$ 3,450

Alternatively, net income can be found by determining the revenues


earned [described in (d) below] and subtracting expenses.
(d) Revenues earned can be determined by adding expenses incurred
during the month to net income. March expenses were Rent, $1,000;
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 computed from an analysis of the changes in cash as follows:
Beginning cash balance...............................................
Less: Cash payments
Caddy shack ................................................
Golf balls and clubs...................................
Rent.................................................................
Advertising ...................................................
Wages.............................................................
Dividends ......................................................
Cash balance before revenues ..................................
Cash balance, March 31 ...............................................
Revenues earned............................................................

Copyright 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

$25,000
$8,000
800
1,000
600
400
1,000

11,800
13,200
18,900
$ 5,700

(For Instructor Use Only)

1-49

BYP 1-5

To:
From:

COMMUNICATION ACTIVITY

Lynn Benedict
Student

I have received the statement of financial position of London Company as of


December 31, 2011. 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,
2011.

2.

Cash should be reported after Supplies on the statement of financial


position.

3.

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


reported between Cash and Supplies on the statement of financial
position.

4.

Accounts payable should be shown as a liability, not an asset. The note


payable is also a liability and should be reported in the liability section.

5.

Liabilities and equity should be shown on the statement of financial


position. Share capitalordinary is not a liability.

6.

Share capitalordinary and retained earnings are part of equity.

1-50

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(For Instructor Use Only)

BYP 1-5 (Continued)


A correct statement of financial position is as follows:
LONDON COMPANY
Statement of Financial Position
December 31, 2011
Assets
Equipment...........................................................................
Supplies...............................................................................
Accounts receivable........................................................
Cash ......................................................................................
Total assets .................................................................

25,500
2,000
6,000
9,000
42,500

Equity and Liabilities


Equity
Share capitalordinary.........................................
Retained earnings ...................................................
Total liabilities .................................................
Liabilities
Notes payable ...........................................................
Accounts payable....................................................
Total liabilities..................................................
Total equity and liabilities .............................................

Copyright 2011 John Wiley & Sons, Inc.

Weygandt, IFRS, 1/e, Solutions Manual

26,000
(2,000)
24,000
10,500
8,000
18,500
42,500

(For Instructor Use Only)

1-51

BYP 1-6

ETHICS CASE

(a) The students should identify all of the stakeholders in the case; that is,
all the parties that are affected, either beneficially or negatively, by the
action or decision described in the case. The list of stakeholders in this
case are:
 Steve Baden, interviewee.
 Both Baltimore firms.
 Great Northern College.
(b) The students should identify the ethical issues, dilemmas, or other considerations pertinent to the situation described in the case. In this case
the ethical issues are:
 Is it proper that Steve charged both firms for the total travel costs
rather than split the actual amount of $296 between the two firms?
 Is collecting $592 as reimbursement for total costs of $296 ethical
behavior?
 Did Steve deceive both firms or neither firm?
(c) Each student must answer the question for himself/herself. Would you
want to start your first job having deceived your employer before your
first day of work? Would you be embarrassed if either firm found out
that you double-charged? Would your school be embarrassed if your
act was uncovered? Would you be proud to tell your professor that
you collected your expenses twice?

1-52

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