Fundamental Accounting Principles John J Wild Ken W Shaw Barbara Chiappetta Winston Kwok Sundar Venkatesh Solutions Manual Proprietary and Confidential This Manual is the property of The McGraw-Hill Companies, Inc. and protected by copyright laws. This Manual is provided only to authorized professors and instructors for use in preparing for the classes using the affiliated textbook. No other use or distribution of this Manual is permitted. This Manual may not be sold or distributed to or used by any student or other third party. No part of this Manual may be reproduced, displayed or distributed in any form or by any means, electronic or otherwise, without the prior written permission of The McGraw-Hill Companies. Singapore ? Boston ? Burr Ridge, IL ? Dubuque, IA ? Madison, WI ? New York San Francisco ? St. Louis ? Bangkok ? Kuala Lumpur ? Lisbon ? London ? Madrid Mexico City ? Milan ? Montreal ? New Delhi ? Seoul ? Sydney ? Taipei ? Toronto Chapter 01 - Accounting in Business 1-1 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 Poors, Dun (b) assist in promoting harmonization by providing a basis for reducing the number of alternative accounting treatments permitted by IFRSs; (c) assist national standard-setting bodies; (d) assist preparers of financial statements; (e) assist auditors in forming an opinion; (f) assist users of financial statements; and (g) provide those who are interested in the work of the IASB with information. 33. The Euro amounts in Adidas financial statements are rounded to the nearest million. Adidas consolidated income statement covers the fiscal year ended December 31, 2010. Adidas also reports comparative income statement for the previous year. 34. At December 31, 2010, Puma had (Euro millions) assets of 2,366.6, liabilities of 980.2 (current and non-current), and equity of 1,386.4. 35. The independent auditor for Nestl is KPMG S.A. The auditor expressly states that “The Board of Directors is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) and the requirements of Swiss law Our responsibility is to express an opinion on these consolidated financial statements based on our audit.” Chapter 01 - Accounting in Business 1-5 QUICK STUDIES Quick Study 1-1 (a) and (b) GAAP: Generally Accepted Accounting Principles Importance: GAAP are the rules that specify acceptable accounting practices. SEC: Securities and Exchange Commission Importance: The SEC is charged by Congress to set reporting rules for organizations that sell ownership shares to the public. The SEC delegates part of this responsibility to the FASB. FASB: Financial Accounting Standards Board Importance: FASB is an independent group of full-time members who are responsible for setting accounting rules. IASB: International Accounting Standards Board. Importance: Its purpose is to issue standards that identify preferred practices in the desire of harmonizing accounting practices across different countries. The vast majority of countries and financial exchanges support its activities and objectives. IFRS: International Financial Reporting Standards. Importance: A global set of accounting standards issued by the IASB. Many countries require or permit companies to comply with IFRS in preparing their financial statements. The FASB is undergoing a process with the IASB to conve