[经济学]ASolutionsManualforPeterCarey1feb.doc

Chapter 1Accounting in ActionANSWERS TO QUESTIONS1.Yes, this is correct. Virtually every organisation and person in our society uses accounting information. Businesses, investors, creditors, government agencies, and not-for-profit organisations must use accounting information to operate effectively. We can group these users into 2 types: internal and external usersInternal users who include managers require specific information about the day to day operations of the organization whilst external users who include shareholders, banks, creditors, regulators require less detailed financial information which focuses on their specific needs.2.Accounting is the process of identifying, recording, and communicating the economic events of an entity to interested users of the information. The first step of the accounting process is therefore to identify events that are: (a) considered evidence of economic activity and (b) relevant to a particular business entity. Once identified and measured, the events are recorded to provide a permanent history of the financial activities of the entity. 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 reports. A vital element in the communication process is the accountants ability and responsibility to analyse and interpret the reported information.3.(a)Internal users are those who manage 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.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. It involves score keeping. Accounting, on the other hand, involves the entire accounting process, including identifying, measuring, recording, and communicating and therefore focuses on attention directing and problem solving activities.6.Jack Jones Travel Agency should report the land at $85000 on its 31 December 2007 balance sheet. An important concept that accountants follow is the cost principle. The cost principle states that assets should be recorded at their historical cost. Cost has an important advantage over other valuations: it is reliable and faithfully represents what the entity paid for the land. Cost can be objectively measured and can be verified. (Developments in accounting standards now allow us an alternative to cost to show the lands value at fair value presumably ($93000).This alternative measurement system presumably provides more relevant information for users for investment decision making.7.The monetary unit assumption requires that only transaction data capable of being expressed in terms of money should be included in the accounting records. An important part of the monetary unit assumption is the added assumption that the unit of measurement remains sufficiently constant over time. The assumption of a stable monetary unit has been challenged because of the significant decline in the purchasing power of the dollar. 8.The economic entity assumption requires that the activities of the entity be kept separate and distinct from the activities of its owners and all other economic entities. The implication of this assumption include drawings being treated as a deduction from the owners entitlements rather than a cost incurred in earning income. Owners equity is shown in the balance sheet separately from outside claims (liabilities).9.The three basic forms of business organisations are: (1) proprietorship, (2) partnership, and (3) company.10.One of the advantages Teresa Bono would enjoy is that ownership of a company is represented by transferable shares. This would allow Teresa to raise money easily by selling a part of her ownership in the company. Also, because ownership can be transferred without dissolving the company, the company enjoys an unlimited life. Another advantage is that because holders of the shares (shareholders) enjoy limited liability, they are not personally liable for the debts of the company. 11.The basic accounting equation is Assets = Liabilities + Owners Equity.12.(a)Assets are resources controlled by an entity. Liabilities are claims against assets. Put more simply, liabilities are existing debts and obligations. Owners equity is the owners claim on total assets.(b)Owners equity is affected by owners investments, drawings, income and expenses (Net profit or loss).13.The liabilities are: (b) Accounts payable and (g) Salaries payable.14.Yes, an entity can enter into a transaction in which only the left side (Asset Side) of the basic 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 example is if equipment is purchased, an increase in the Equipment account which is offset by a decrease in the Cash.15.Business transactions are the economic events of the entity recorded by accountants because they affect the basic equation.(a)The death of the owner of the company is not a business transaction as it does not affect the basic equation. (b)Supplies purchased on account is a business transaction as it affects the basic equation.(c)An employee being fired is not a business transaction as it does not affect the basic equation.(d)A withdrawal of cash from the business is a business transaction as it affects the basic equation.16.Corporate governance is the system in which entities are directed or controlled, managed and administered. Corporate governance helps ensure that the goals and hence the decision made by management are aligned with those of the shareholders.17.The principles of corporate governance still apply to small business. Those principles, monitoring and assessing risk, optimizing performance, creating value and providing accountability still apply to small businesses but the risk of companies objectives not equating to owners is less likely in small business There is no separation of ownership from control in these organizations and the goals and hence decisions made by management should be aligned with the owners.18.ASXCGC principles and recommendations capitulate best business practice. While these principles do not have a legal backing, much of their contents are covered by current legislations. Eg. Insider trading, mandatory audit committee. The top 500 companies are required to follow these principles, and if they opt not to, they must provide reasons for non-compliance.19. Corporate social responsibility reporting can lead to increased capital investment by ethical investors who see such companies as a worthwhile investment due to their social and environment responsibility as well as providing them with competitive returns. Such companies may be seen to attract increased revenues from ethical customers who buy from these companies on the basis of their awareness of their social responsibilities. Difficulties of social responsibility reporting include lack of benchmarks, difficulties in quantifying non financial information and costs involved with the gathering of such data.20.The three components of triple bottom line reporting are:(i)Social bottom line(ii)Environment bottom line(iii)Economic bottom line(i) Social bottom line includes how the entity deals with issues such as employee working conditions, safety and security and the entities support and contribution to community services(ii) Environment bottom line looks at how an entity is products or operations impact on the environment(iii) Economic bottom line refers to the entities profitability and business strategy as reflected in the financial reports.21. Information on environmental and social matters is considered important to users for assessing whether an organization is being socially and environmentally responsible. This information can influence users when making an important decision such as whether to invest, lend, supply or buy products from this organization. 22.(a)Generally accepted accounting principles (GAAP) are a set of standards and rules, having substantial authoritative support, that are recognised as a general guide for financial reporting.(b)The bodies that provide authoritative support for GAAP are the Australian Accounting Standards Board (AASB) and the Australian and Securities Investments Commission (ASIC).23.The framework consists of the following:(1)Objectives of financial reporting.(2)Qualitative characteristics of accounting information.(3)Elements of financial statements.(4)Concepts of capital and capital maintenance.24.(a)According to the framework, the objectives of financial reporting are to provide information that: (1) is useful to those making economic decisions, (2) to show the results of the stewardship of management or the accountability of management for the resources entrusted to it.(b)The qualitative characteristics are: (1) relevance, (2) faithful representation, (3) comparability, (4) understandability, (5) verifiability, and (6) timeliness.25.Income should generally be recognised in the accounting period in which it is earned (not received). The sales basis involves an exchange transaction between the seller and buyer and the sales price provides an objective measure of the amount of sales income realised.26.Income from layby sales is recognised when the goods are delivered. However, if experience indicates that most such sales are consummated, sales revenue can be recognised when a significant deposit is received provided the goods are on hand, identified and ready for delivery to the buyer.27.Initially, the subscription received in advance should be recognized as a liability (unearned revenue).If the items involved are of similar value in each time period (such as a magazine), subscription is recognised on a straight line basis over the period in which the items are dispatched. If the items are not of similar value in each time period, subscription is recognised on the basis of the sales value of the item delivered relative to the total estimated sales value of all items covered by the subscription.28.The two constraints are balancing the benefits and costs of accounting information and materiality. Balancing the benefits and costs involves using judgment as to whether the benefits derived from information exceed the cost of providing it. Some information may be beneficial however the cost of providing the information would outweigh the benefits and hence the information may not be required to be provided. Similarly only items that are considered to be material will be disclosed in the financial statements. An item is considered to be material if its omission, misstatement or nondisclosure would likely affect users decisions. In considering whether an item is material both the nature and/or the amount must be considered. In determining $ values AASB 1031 gives guidelines as:10% is material29.Accounting standards are not uniform throughout the world although considerable progress has been made since the mid/late 1990s in developing international financial reporting standards that have been accepted by various countries. For example, Australia and the European Union adopted IFRS in 2005. Many Asian countries are progressing their move towards IFRS. The US has committed to converge its standards with IFRS.30.Comparability is an enhancing qualitative characteristic of financial information. With the globalization of reporting entities it is important that the users of these entities reports can make important decisions based on the assumption that consistent and comparable accounting principles are used throughout the world. This will provide participants in international capital markets with better quality information on which to base investment and credit decisions. This is desirable because, all other things being equal, the more soundly based those decisions, the more likely it will be that funds are directed to those entities who can use them most productively and that capital will be appropriately processed for a given level of risk. Due to globalization of capital markets, the standards should be comparable.31.There has been quite a bit of research done in relation to this question, however, there is no definitive answer. Students may like to consider the following points: Impact of ones values and upbringing Impact of religion on ethics Impact of importance of family Ones principles and morals Impact of various codes of conduct Legal and professional consequences of acting ethically/unethically Impact of personal reputation and community standing.32. For information to be recorded, it must first meet the definition and recognition criteria associated with the appropriate element in the balance sheet. Is Intellectual property an Asset to Monash University? Definition CriteriaYes/NoWhyFuture economic benefitsYesCan be sold, enhances reputation leading to increase funding and attract more students. Controlled by the entityYesIf Monash has an exclusive use or control over the material.Past transactionYesIt has been fully developedRecognition CriteriaYes/NoWhyProbable future economic benefitYesIt is more likely to be sold or enhance reputationCan be measured reliablyYes/NoYes: If like material has been sold or purchasedNo: If there is no active marketSOLUTIONS TO BRIEF EXERCISESBRIEF EXERCISE 1-1(a)$90 000 $50 000 = $40 000 (Owners Equity).(b)$45 000 + $70 000 = $115 000 (Assets).(c)$94 000 $65 000 = $29 000 (Liabilities).BRIEF EXERCISE 1-2(a)$100 000 + $232 000 = $332 000 (Total assets).(b)$190 000 $80 000 = $110 000 (Total liabilities).(c)$600 000 0.5($600 000) = $300 000 (Owners equity).BRIEF EXERCISE 1-3(a)($870 000 + $150 000) ($500 000 $80 000) = $600 000 (Owners equity).(b)($500 000 + $100 000) + ($870 000 $500 000 $70 000) = $900 000 (Assets).(c)($870 000 $80 000) ($870 000 $500 000 + $120 000) = $300 000 (Liabilities).BRIEF EXERCISE 1-4A(a)Accounts receivableA(d)Office suppliesL(b)Salaries payableOE(e)Owners investmentA(c)EquipmentL(f)Notes payableBRIEF EXERCISE 1-5(a) True(b) TrueBRIEF EXERCISE 1-6(a)Yes(b)No(c)YesBRIEF EXERCISE 1-7(a)Yes(b)No(c)YesBRIEF EXERCISE 1-8(a) Predictive(b) Confirmatory(c) Substance over form(d) Accuracy(e) Understandability(f) Timeliness(g) Materiality(h) Cost versus benefitBRIEF EXERCISE 1-9(a) Faithful representation(b) Comparability(c) RelevantBRIEF EXERCISE 1-10(a) 1(b) 2(c) 3(d) 4BRIEF EXERCISE 1-11 (a) For information to be recorded, it must first meet the definition and recognition criteria associated with the appropriate element in the balance sheet. Should the money spent on developing a new software be recorded as an Asset to Microsoft?Definition CriteriaYes/NoWhyFuture economic benefitsYesPast experience suggests this expenditure has led to commercial sales, unlike some research and development expenditure which may not lead to commercial outcomes.Controlled by the entityYesAssuming Microsoft has got the patent and exclusive right to the use of this program.Past transactionYesMoney has been spent on its developmentRecognition CriteriaYes/NoWhyProbable future economic benefitYesIt is more likely to generate benefits based on the past experience on development expenditure on previous Windows programs eg. XP and Vista.Can be measured reliablyYesYes: based on the amount that Microsoft has spent(b) For information to be recorded, it must first meet the definition and recognition criteria associated with the appropriate element in the balance sheet. Would an organisation report an employees sick leave entitlement? Definition CriteriaYes/NoWhyPresent obligationYesOnce an employee is contracted the organisation is legally bound to provide 10 days sick leave per annumPast eventYesThe employee and the organisation have signed a written work place agreement Outflow of resources embodying economic benefitsYesThe employee will be paid a salary (cash) to compensate for days lost due to sicknessRecognition CriteriaYes/NoWhyProbable future economic benefitYesIt is more likely rather than less likely that an employee will be sick during the course of the yearCan be measured reliablyYesYes: presumably past data can be sourced to provide an accurate estimate of the amount likely, on average ,to be paid to an employee who claims sick leave BRIEF EXERCISE 1-12I) Increase Cash $460 Increase Insurance revenue* $ 460 2) Increase Commission Exp * $46? Increase Commission Payable (L) $46?Meets element definition*Insurance revenue is increased as it represents an increase in an economic benefit in the form of an increase in an asset (cash) resulting