Solution Manual for Fundamental Accounting Principles 24th Edition by Wild

Chapter 1

Wild and Shaw, FAP 24e Solutions Manual: Chapter 1

9. Accounting is described as a service activity because it serves decision-makers by

providing information to help them make better business decisions.

10. Some accounting-related professions include consultant, financial analyst,

underwriter, financial planner, appraiser, FBI investigator, market researcher, and

system designer.

11. Ethics rules require that auditors avoid auditing clients in which they have a direct

investment, or if the auditor’s fee is dependent on the figures in the client’s reports.

This will help prevent others from doubting the quality of the auditor’s report.

12. In addition to preparing tax returns, tax accountants help companies and individuals

plan future transactions to minimize the amount of tax to be paid. They are also

actively involved in estate planning and in helping set up organizations. Some tax

accountants work for regulatory agencies such as the IRS or the various state

departments of revenue. These tax accountants help to enforce tax laws.

13. The objectivity concept means that financial statement information is supported by

independent, unbiased evidence other than someone’s opinion or imagination.

14. This treatment is justified by both the cost principle and the going-concern

assumption.

15. The revenue recognition principle provides guidance for managers and auditors so

they know when to recognize revenue. If revenue is recognized too early, the

business looks more profitable than it is. On the other hand, if revenue is

recognized too late the business looks less profitable than it is. This principle

demands that revenue be recognized when it is both earned (when service or

product is provided) and can be measured reliably. The amount of revenue should

equal the value of the assets received or expected to be received from the

business’s operating activities covering a specific time period.

16. Business organizations can be organized as a sole proprietorship, partnership,

corporation, or LLC. These forms have implications for legal entity and liability,

business life, taxation, and number of owners as follows.

Proprietorship Partnership Corporation LLC

Business entity yes yes yes yes

Legal entity no no yes yes

Limited liability no no yes yes

Unlimited life no no yes yes

Business Taxed no no yes no

One owner allowed yes no yes yes

17. (a) Assets are resources owned or controlled by a company that are expected to

yield future benefits. (b) Liabilities are creditors’ claims on assets that reflect

obligations to provide assets, products, or services to others. (c) Equity is the

owner’s claim on assets and is equal to assets minus liabilities. (d) Net assets refer

to equity.

18. Equity is increased by investments from the owner and by net income (which is the

excess of revenues over expenses). It is decreased by withdrawals by the owner

and by a net loss (which is the excess of expenses over revenues

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