| Content | Solution Manual for Financial Accounting 5th Edition By David Spiceland
Chapter 1
A Framework for Financial Accounting
INSTRUCTOR’S MANUAL
Authors’ Perspectives
Part A: Accounting as a Measurement/Communication Process
LO1-1 Describe the two primary functions of financial accounting.
LO1-2 Understand the business activities that financial accounting measures.
LO1-3 Determine how financial accounting information is communicated through financial statements.
LO1-4 Describe the role that financial accounting plays in the decision-making process.
Eliminate the Misconception – It’s important on Day 1 to change any misconception students have about financial accounting. Most students think this is going to be another math class. Chapter 1 begins by explaining that this is not the case. Financial accounting is described as “the language companies use to tell their financial story.” The concept of storytelling has broad appeal across all business students. Companies tell their financial stories using financial statements and related disclosures.
- Illustration 1-2 (with video) presents a simple framework students can use to visualize financial accounting. This illustration looks more like a business class than a math class. We can simplify the course by explaining to students that they will need to learn two functions of accounting over the semester: (1) how to measure business activities and (2) how to communicate those measurements. To better understand why accountants measure and communicate the way they do, students will also see how financial accounting helps investors, creditors, and others in making decisions.
Start Simple – The financial accounting course can be intimidating to many students, most of whom have never had an accounting course. We can simplify the measurement-communication-decision making nature of financial accounting with the following illustrations:
- Illustration 1-4 provides a complete list of the measurement categories students will need to know. Students will see many account titles throughout the semester, and this may seem overwhelming to them at first. However, we can explain that all of these accounts fall into six easy-to-learn categories (Note: hold off on introducing gains and losses until later chapters). Seeing only these six measurement categories makes the measurement function seem more attainable.
- Illustration 1-9 (with video) provides the full set of financial statements students will need to know. More detailed financial statements are shown previously in Illustration 1-5 through 1-8. Seeing the full set of financial statements in a single illustration helps students realize that learning the communication role of financial accounting is manageable.
- Illustration 1-10 was created by the Pathways Commission of the American Accounting Association. Accounting serves an important role in a prosperous society by measuring economic activity and communicating useful information to help investors and creditors make good decisions. We can confidently tell our students that financial accounting matters and has relevance to the well-being of our society.
PART B: Financial Accounting Information
LO1-5 Explain the term generally accepted accounting principles (GAAP) and describe the role of GAAP in financial accounting.
Accounting is a Dynamic Social Science – Many students are surprised to learn that the formal rules of financial accounting are established by a private-sector body, the Financial Accounting Standards Board. Some are also surprised to find out that separate rules have been established outside of the United States by the International Accounting Standards Board. The differences in standards between the two boards reflect the fact that accounting is a social science, unlike the formal sciences (mathematics, physics, chemistry, etc.). The rules of the formal sciences do not differ across countries (for example, in all countries, 2 2 = 4, and water is made up of two atoms of hydrogen and one atom of oxygen). However, the rules of financial accounting do not exist on their own; they are developed by the society for which they exist. Differences in beliefs and economic conditions across countries can lead to differences in accounting standards and practices, as well as changes over time in the same country. Many students will find the dynamic nature of a social science like accounting far more exciting than mathematics.
Intriguing Role of the Auditor – The description of financial accounting as “the language companies use to tell their financial story” was introduced in Part A. In Part B, students are introduced briefly to the role of an independent auditor in providing verification that companies are telling their story accurately. Students are highly interested in cases of financial statement fraud, and instructors can explain that topics covered throughout the book will demonstrate how fraud occurs. There are two types of auto-gradable assignments at the end of each chapter that can be assigned related to financial statement fraud: | Solution Manual for Ethical Obligations and Decision-Making in Accounting 5th Edition By Mintz
Chapter 1 -- Discussion Questions
Suggested Discussion and Solutions
- A common ethical dilemma used to distinguish between philosophical reasoning methods is the following. Imagine that you are standing on a footbridge spanning some trolley tracks. You see that a runaway trolley is threatening to kill five people. Standing next to you, in between the oncoming trolley and the five people, is a railway worker wearing a large backpack. You quickly realize that the only way to save the people is to push the man off the bridge and onto the tracks below. The man will die, but the bulk of his body and the pack will stop the trolley from reaching the others. (You quickly understand that you can’t jump yourself because you aren’t large enough to stop the trolley, and there’s no time to put on the man’s backpack.) Legal concerns aside, would it be ethical for you to save the five people by pushing this stranger to his death? Use the deontological and teleological methods to reason out what you would do and why.
Is it Ethical to Save Five People at the Expense of One?
Lessons from the Talmud
The Trolley Problem is a thought experiment in ethics, first introduced by Philippa Foot in 1967. Others have also extensively analyzed the problem including Judith Jarvis Thomason, Peter Unger, and Frances Kamm as recently as 1996. The authors used these problems in ethics class to challenge students’ moral intuition.
The choice is between saving five lives at the cost of taking one life. Before we get to the “answers,” we want to explain how one researcher is using MRI technology to map brain responses while analyzing the dilemma. Joshua Greene at Harvard University was more concerned to understand why we have the intuitions, so he used functional Magnetic Resonance Imaging, or fMRI, to examine what happens in people’s brains when they make these moral judgments.
Greene found that people asked to make a moral judgment about “personal” violations, like pushing the stranger off the footbridge, showed increased activity in areas of the brain associated with the emotions. This was not the case with people asked to make judgments about relatively “impersonal” violations like throwing a switch. Moreover, the minority of subjects who did consider that it would be right to push the stranger off the footbridge took longer to reach this judgment than those who said that doing so would be wrong. Interesting results to say the least.
Many do not believe it to be ethical to intentionally end someone else's life whether it is to save others or not. Most do not believe it is a moral responsibility to sacrifice one life in order that others may go on. If you push someone in the way to save others, you may as well say you killed a man. How could you forgive yourself? The man has a family and people who love him, so how could you explain your actions to his family?
We have no right to sacrifice the life of one person to save others. There is a saying from the Talmud, an authoritative record of rabbinic discussions on Jewish law, Jewish ethics, customs, legends and stories: “Whoever destroys a soul, it is considered as if he destroyed an entire world. And whoever saves a life, it is considered as if he saved an entire world.”
We have no right to decide who lives and who dies. Yes, if we can save one person without harming others we have a moral obligation to do so. However, to save one life while sacrificing others is an arbitrary act in many ways. What if the one sacrificed is a humanitarian, well-respected and well-known person who works tirelessly for the poor and others who can’t help themselves? What if those saved are criminals who committed murder and escaped from prison. You see the dilemma? Who are we to judge who is a good person, and be saved, and who is a bad person? We should focus on leading the best possible life we can; to serve others whether through medicine, the clergy, the law, a teacher, nurse, or first-responder.
Utilitarianism might be used to rationalize saving the life of five people by sacrificing one person’s life. We could say that more people benefit than are harmed by taking that action. This is consistent with act utilitarianism. On the other hand, a rule utilitarianism approach would posit that certain rules should never be violated in the name of maximizing net benefits. One rule is that it is wrong to take a life of another. Thus, rule utilitarianism is a modifying force on the literal application of act utilitarianism. | Solution Manual for Managerial Accounting for Managers 5th Edition by Noreen
Chapter 1
Managerial Accounting and Cost Concepts
Questions
1-1 The three major types of product costs in a manufacturing company are direct materials, direct labor, and manufacturing overhead.
1-2
- Direct materials are an integral part of a finished product and their costs can be conveniently traced to it.
- Indirect materials are generally small items of material such as glue and nails. They may be an integral part of a finished product but their costs can be traced to the product only at great cost or inconvenience.
- Direct labor consists of labor costs that can be easily traced to particular products. Direct labor is also called “touch labor.”
- Indirect labor consists of the labor costs of janitors, supervisors, materials handlers, and other factory workers that cannot be conveniently traced to particular products. These labor costs are incurred to support production, but the workers involved do not directly work on the product.
- Manufacturing overhead includes all manufacturing costs except direct materials and direct labor. Consequently, manufacturing overhead includes indirect materials and indirect labor as well as other manufacturing costs.
1-3 A product cost is any cost involved in purchasing or manufacturing goods. In the case of manufactured goods, these costs consist of direct materials, direct labor, and manufacturing overhead. A period cost is a cost that is taken directly to the income statement as an expense in the period in which it is incurred.
1-4
- Variable cost: The variable cost per unit is constant, but total variable cost changes in direct proportion to changes in volume.
- Fixed cost: The total fixed cost is constant within the relevant range. The average fixed cost per unit varies inversely with changes in volume.
- Mixed cost: A mixed cost contains both variable and fixed cost elements.
1-5
- Unit fixed costs decrease as the activity level increases.
- Unit variable costs remain constant as the activity level increases.
- Total fixed costs remain constant as the activity level increases.
- Total variable costs increase as the activity level increases.
1-6
- Cost behavior: Cost behavior refers to the way in which costs change in response to changes in a measure of activity such as sales volume, production volume, or orders processed.
- Relevant range: The relevant range is the range of activity within which assumptions about variable and fixed cost behavior are valid.
1-7 An activity base is a measure of whatever causes the incurrence of a variable cost. Examples of activity bases include units produced, units sold, letters typed, beds in a hospital, meals served in a cafe, service calls made, etc.
1-8 The linear assumption is reasonably valid providing that the cost formula is used only within the relevant range.
1-9 A discretionary fixed cost has a fairly short planning horizon—usually a year. Such costs arise from annual decisions by management to spend on certain fixed cost items, such as advertising, research, and management development. A committed fixed cost has a long planning horizon—generally many years. Such costs relate to a company’s investment in facilities, equipment, and basic organization. Once such costs have been incurred, they are “locked in” for many years.
1-10 Yes. As the anticipated level of activity changes, the level of fixed costs needed to support operations may also change. Most fixed costs are adjusted upward and downward in large steps, rather than being absolutely fixed at one level for all ranges of activity.
1-11 The traditional approach organizes costs by function, such as production, selling, and administration. Within a functional area, fixed and variable costs are intermingled. The contribution approach income statement organizes costs by behavior, first deducting variable expenses to obtain contribution margin, and then deducting fixed expenses to obtain net operating income.
1-12 The contribution margin is total sales revenue less total variable expenses.
1-13 A differential cost is a cost that differs between alternatives in a decision. An opportunity cost is the potential benefit that is given up when one alternative is selected over another. A sunk cost is a cost that has already been incurred and cannot be altered by any decision taken now or in the future.
1-14 No, differential costs can be either variable or fixed. For example, the alternatives might consist of purchasing one machine rather than another to make a product. The difference between the fixed costs of purchasing the two machines is a differential cost. | Test Bank for Introductory Financial Accounting for Business 1st Edition By Edmonds
Introductory Financial Accounting for Business, 1e (Edmonds)
Chapter 1 An Introduction to Accounting
ISBN10: 1260299449.
ISBN13: 9781260299441.
1) Which of the following groups has the primary responsibility for establishing generally accepted accounting principles for business entities in the United States?
- A) Securities and Exchange Commission
- B) U.S. Congress
- C) International Accounting Standards Board
- D) Financial Accounting Standards Board
2) The Heritage Company is a manufacturer of office furniture. Which term best describes Heritage's role in society?
- A) Conversion agent
- B) Regulatory agency
- C) Consumer
- D) Resource owner
3) Which resource providers lend financial resources to a business with the expectation of repayment with interest?
- A) Consumers
- B) Creditors
- C) Investors
- D) Owners
4) Which type of accounting information is intended to satisfy the needs of external users of accounting information?
- A) Cost accounting
- B) Managerial accounting
- C) Tax accounting
- D) Financial accounting
5) Which of the following statements is false regarding managerial accounting information?
- A) It is often used by investors.
- B) It is more detailed than financial accounting information.
- C) It can include nonfinancial information.
- D) It focuses on divisional rather than overall profitability.
6) Financial accounting standards are known collectively as GAAP. What does that acronym stand for?
- A) Generally Accepted Accounting Principles
- B) Generally Applied Accounting Procedures
- C) Governmentally Approved Accounting Practices
- D) Generally Authorized Auditing Principles
7) International accounting standards are formulated by the IASB. What does that acronym stand for?
- A) Internationally Accepted Standards Board
- B) International Accounting Standards Board
- C) International Accountability Standards Bureau
- D) International Accounting and Sustainability Board
8) Which of the following is an example of revenue?
- A) Cash received as a result of a bank loan
- B) Cash received from investors from the sale of common stock
- C) Cash received from customers at the time services were provided
- D) Cash received from the sale of land for its original selling price
9) Which of the following is not an element of the financial statements?
- A) Net income
- B) Revenue
- C) Assets
- D) Cash
10) Algonquin Company reported assets of $50,000, liabilities of $22,000 and common stock of $15,000. Based on this information only, what is the amount of the company's retained earnings?
- A) $7,000.
- B) $57,000.
- C) $13,000.
- D) $87,000.
11) Stosch Company's balance sheet reported assets of $40,000, liabilities of $15,000 and common stock of $12,000 as of December 31, Year 1. Retained earnings on the December 31, Year 2 balance sheet is $18,000 and Stosch paid a $14,000 dividend during Year 2. What is the amount of net income for Year 2?
- A) $17,000
- B) $19,000
- C) $13,000
- D) $21,000
| Solution Manual for Financial and Managerial Accounting 8th Edition By Wild
Chapter 1
Accounting in Business
QUESTION
- The purpose of accounting is to provide decision makers with relevant and reliable information to help them make better decisions. Examples include information for people making investments, loans, and business plans.
- Technology reduces the time, effort, and cost of recordkeeping. There is still a demand for people who can design accounting systems, supervise their operation, analyze complex transactions, and interpret reports. Demand also exists for people who can effectively use computers to prepare and analyze accounting reports. Technology will never substitute for qualified people with abilities to prepare, use, analyze, and interpret accounting information.
- External users and their uses of accounting information include: (a) lenders, to measure the risk and return of loans; (b) shareholders, to assess whether to buy, sell, or hold their shares; (c) directors, to oversee the organization; (d) employees and labor unions, to judge the fairness of wages and assess future employment opportunities; and (e) regulators, to determine whether the organization is complying with regulations. Other users are voters, legislators, governmentofficials, contributors to nonprofits, suppliers, and customers.
- Business owners and managers use accounting information to help answer questions such as: What resources does an organization own? What debts are owed? How much income is earned? Are expenses reasonable for the level of sales? Are customers’ accounts being promptly collected?
- Service businesses include: Standard and Poor’s, Dun & Bradstreet, Merrill Lynch, Southwest Airlines, CitiCorp, Humana, Charles Schwab, and Prudential. Businesses offering products include Nike, Reebok, Gap, Apple, Ford Motor Co., Philip Morris, Coca-Cola, Best Buy, and WalMart.
- The internal role of accounting is to serve the organization’s internal operating functions. It does this by providing useful information for internal users in completing their tasks more effectively and efficiently. By providing this information, accounting helps the organization reach its overall goals.
- Accounting professionals offer many services including auditing, management advice, tax planning, business valuation, and money management.
- Marketing managers are likely interested in information such as sales volume, advertising costs, promotion costs, salaries of sales personnel, and sales commissions.
- Accounting is described as a service activity because it serves decision makers by providing information to help them make better business decisions.
- Some accounting-related professions include consultant, financial analyst, underwriter, financial planner, appraiser, FBI investigator, market researcher, and system designer.
QUICK STUDIES
Quick Study 1-1 (10 minutes)
| 1. |
f Technology |
| 2. |
c Recording |
| 3. |
h Recordkeeping (bookkeeping) |
Quick Study 1-2 (10 minutes)
| a. |
E External user |
g. |
E External user |
| b. |
E External user |
h. |
E External user |
| c. |
E External user |
i. |
I Internal user |
| d. |
E External user |
j. |
E External user |
| e. |
I Internal user |
k. |
E External user |
| f. |
E External user |
l. |
E External user |
| Solution Manual for College Accounting 15th Edition by Price
Chapter 16 • Notes Payable and Notes Receivable
TEACHING OBJECTIVES
- Determine whether an instrument meets all the requirements of negotiability.
- Calculate the interest on a note.
- Determine the maturity date of a note.
- Record routine notes payable transactions.
- Record discounted notes payable transactions.
- Record routine notes receivable transactions.
- Compute the proceeds from a discounted note receivable, and record transactions related to discounting of notes receivable.
- Understand how to use bank drafts and trade acceptances and how to record transactions related to those instruments.
- Define the accounting terms new to the chapter.
SECTIONS
- Accounting for Notes Payable
- Accounting for Notes Receivable
______________________________________________________________________
CHAPTER OVERVIEW/ LEARNING OBJECTIVES
Learning Link: Chapter 15 discussed accounts receivable and the accounting adjustments needed for bad debts. In Chapter 16, students will learn how to account for notes receivable and notes payable, emphasizing the treatment of interest.
- This chapter describes how to determine whether an instrument meets all the requirements of negotiability. A negotiable instrument is a financial document that contains an order or promise to pay and meets all the requirements of the Uniform Commercial Code to be transferable to another party.
- The chapter explains how to calculate interest on a note using the formula: Interest = Principal x Interest Rate x Time.
- The chapter explains that the maturity date of a note is determined at the time the note is issued, excluding the issue date itself.
- The chapter explains the routing journal entries required regarding the issuance of a note payable to purchase an asset. The chapter also explains the journal entry required to record interest and pay off the note at maturity.
- The chapter describes the journal entries required when borrowing money from a bank using a note payable which has been discounted by the bank. The borrower discounting a note payable receives the difference between the discount (interest paid up front) and the principal.
- The second part of the chapter discusses journal entries required in notes receivable It explains how to record a note received for a sale of goods, how to record interest income on the note and how to deal with a defaulted note.
- The chapter explains the discounting of notes receivable. A firm with an immediate need for cash can discount a note receivable. Notes Receivable-Discounted represents a contingent liability. If the note’s maker defaults on the note, the business must pay the bank.
- The chapter explains how to use bank drafts and trade acceptances and how to record transactions related to those instruments. Bank drafts, commercial drafts, and trade acceptances are negotiable instruments used in business.
At the beginning of the chapter, there are a few short paragraphs about Bank of America . . . Let’s read these together. . .
Ask students -“If a small business needs to borrow money, what considerations does it need to think about before it borrows the money?”
Answer: One of the most important tasks in starting a business is pulling together enough money to launch and grow. A lack of adequate funding can lead to business failure as expenses outpace profits. Funds to start a business can come from several resources, including banks and investors who will lend money on a variety of terms. Before obtaining a business loan several things should be considered:
- Can you afford the monthly payment?
- If an emergency occurred, and you had less money per month than you thought, would you still be able to pay your loan every month?
- How long will your loan last?
- Will the business be making payments for 3 months or 10 years, etc.?
- The interest being charged on the loan is an important factor as well. Business owners should try to keep the interest rate as low as possible. Will the loan be discounted by the issuer?
If so, then this will actually mean that the business is paying a higher interest rate. Keep in mind that businesses may deduct the interest paid on loans from their federal income tax return and this is advantageous for start-ups that need to reinvest all profits back into the business. And lastly, a solid business credit profile is advantageous to start-ups because it builds credibility and the business's ability to attract new creditors in the future. Borrowing money establishes business credit because the lender reports timely payments to credit bureaus that maintain a credit profile of the new business |
