Fundamental Accounting Principles Wild 19th Edition Solutions Manual
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Fundamental Accounting Principles Wild 19th
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Chapter 1
Accounting in Business
QUESTIONS
1. 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.
2. 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.
3. 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 their interests in 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, government
officials, contributors to nonprofits, suppliers and customers.
4. 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?
5. 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 Computer, Ford Motor Co.,
Philip Morris, Coca-Cola, Best Buy, and Circuit City.
6. 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.
7. Accounting professionals offer many services including auditing, management
advice, tax planning, business valuation, and money management.
8. Marketing managers are likely interested in information such as sales volume,
advertising costs, promotion costs, salaries of sales personnel, and sales
commissions.
a. B d. CF g. B
b. I e. I h. CF
c. B f. B i. OE (and CF*)
*The more advanced student might know that this item would also appear in CF.
Interpretation: Its return of 11.9% is slightly below the 12% of its competitors.
Home Depot’s performance can be rated as average.
External users and some questions they seek to answer with accounting
information include:
1. Shareholders (investors), who seek answers to questions such as:
a. Are resources owned by a business adequate to carry out plans?
b. Are the debts owed excessive in amount?
c. What is the current level of income (and its components)?
2. Creditors, who seek answers for questions such as:
a. Does the business have the ability to repay its debts?
b. Can the business take on additional debt?
c. Are resources sufficient to cover current amounts owed?
3. Employees, who seek answers to questions such as:
a. Is the business financially stable?
b. Can the business afford to pay higher salaries?
c. What are growth prospects for the organization?
Internal users and some ways they use accounting information on their
jobs include:
1. Research and development managers, who need information on
projected costs and revenues of any proposed changes in products or
services.
2. Purchasing managers, who need to know what, when, and how much to
purchase.
3. Human resource managers, who need information about employees’
payroll, benefits, performance, and compensation.
4. Production managers, who depend on information to monitor costs and
ensure quality.
5. Distribution managers, who need reports for timely, accurate, and
efficient delivery of products and services.
1. C 5. B
2. C 6. A
3. A 7. B
4. A 8. B