Assignment on Financial & Managerial Accounting

Chapter 1

Exercise 1.1.

The following are the four external users of accounting information

·         Lenders

·         Investors

·         Suppliers

·         Customers

The investors invest in the organization after evaluating the financial position of the organization therefore they are among the main external users of accounting information. The suppliers and lenders also evaluate the accounting information so that the financial activities of the organization. The customers also evaluate the accounting information to know about the companies well-being.

Exercise 1.2.

The terms on the left are matched with the descriptions as follows:

 Exercise 1.3.

Many accounts in the financial statements rely on the decisions regarding future events and on the evaluation of management determination. For instance, an organization that sells services/products on credit will have to make an estimation regarding the account receivables that will be uncollectable by the corporation. The estimation which the management of the organization will make will be based on the judgment of the management. these are the reasons for which accounting depends on the approximate or inexact measures (Williams, Haka, Bettner, & Carcello, 2017).

Exercise 1.4.

The two primary organizations that are responsible for setting standards in the United States are the Financial Accounting Standards Board (FASB) and the Securities and Exchange Commission (SEC). SEC has the authority to make standards for the corporations which are working in the United States. It is an autonomous agency of the united states.  FASB is a non-profit organization whose responsibility is to improve Generally Accepted Accounting Principles (GAAP) (Williams, Haka, Bettner, & Carcello, 2017).

Exercise 1.5.

FASB’s Conceptual Framework sets forth the boar’s Views on the following topics:

·         Anticipated features of accounting information

·         Aims of financial reporting

·         Basics of financial statements

·         Decisions regarding which information should be made part of the financial statements

·         Concept of Evaluations regarding financial statement amounts (Kimmel, Weygandt, & Kieso, 2018).

Exercise 1.6.

The four primary activities of the PCAOB (Public Company Accounting Oversight) includes:

·         Inspection

·         Registration

·         Standard-setting

·         Enforcement

The PCAOB is a non-profit organization which is created through the Sarbanes Oxley Act 2002 for overviewing the audit of the organizations. The PCAOB not only overviews the audit of the organization but also protects the investor’s interests. PCAOB set standards for performing the audits. The organization can register themselves with the PCAOB (Mowen, Hansen, & Heitger, 2016).

Exercise 1.7.

The sponsoring organizations of COSO are mentioned as follows:

·         AAA (American Accounting Association)

·         AICPA (American Institute of Certified Accountants)

·         FEI (Financial Executives International)

·         IIA (Institute of Internal auditors)

·         IMA (Institute of Management Accountants)

COSO performs various activities however COSO is best known for establishing the framework which is utilized by the organizations for evaluating the internal control and effectiveness of the system of the organization (Williams, Haka, Bettner, & Carcello, 2017).

Exercise 1.8.

The following are the three professional certifications which are offered in accounting:

·         Certified Management Accountant (CMA)

·         Certified Public Accountant (CPA)

·         Certified Internal Auditor (CIA)

For Certified Public Accountant (CPA) the licenses are issued by the states. For CMA and CIA the certifications are issued by IMA (Institute of Management Accountant) and IIA (Institute of Internal Auditors) (Mowen, Hansen, & Heitger, 2016).

Exercise 1.9.

The terms on the left are matched with the descriptions as follows:

 Exercise 1.10.

The accounting-related skills which are utilized in personal lives include:

·         Evaluation of loan terms

·         Retirement planning

·         Budgeting

·         Evaluation of investments (Needles & Powers, 2010).

Chapter 2

Exercise 2.1.

According to the accounting equation, the assets of the organization are equal to the equity and liabilities of the organization. The accounting equation gives a brief overview of the liabilities and assets of the organization. The following is the accounting equation:

Any decrease or increase on the left-hand side of the equation will have an effect on the right-hand side of the equation as well. Walter corporation has purchased machinery on credit for $20,000. As a result of the transaction, the asset side of the equation will enhance by $20,000 and the liabilities side of the equation will also increase by $20,000 because machinery is bought on credit (Williams, Haka, Bettner, & Carcello, 2017).

Exercise 2.2.

If the scenario is analyzed critically than it can be said that the assets of Foster Inc will decline by the amount of $25,000. As Foster has purchased a truck worth $5000 the asset side of the accounting equation will increase by 5000 however for purchasing the truck the corporation has borrowed $30,000 which means that the liabilities of the corporation will increase by $30,000. It means that the total assets will decline by 25000 (Williams, Haka, Bettner, & Carcello, 2017).

Exercise 2.3.

According to the accounting equation, the assets of the organization are equal to the equity and liabilities of the organization. The accounting equation gives a brief overview of the liabilities and assets of the organization. The equity of the organization composes of retained earnings & capital Stock (Williams, Haka, Bettner, & Carcello, 2017). Therefore, the accounting equation can be presented as:

If the scenario of Bosch corporation is analyzed then it can be seen that the corporation has purchased assets of $155,000 and the liabilities of the company are $85,000 whereas the capital stock amount is $50,000 (Williams, Haka, Bettner, & Carcello, 2017). The retained earnings of the organization can be evaluated as follows:

Exercise 2.4.

The outstanding liabilities of the White company can be evaluated with the help of the accounting equation:

Exercise 2.5

The income statement of Wiley company shows that the revenue of the company is $360,000 whereas the operating expenses of the corporation are $246,000. The company has also bought land for $66,000. The net income of the corporation can be evaluated as follows:

The purchasing of land is a non-operating activity therefore it won’t have any impact on the net income of the organization. Therefore, the net income of the organization is $114,000.

Exercise 2.6

The net income of the organization can be calculated by using the following formula:

The given values will be put in the equation for evaluating net income

Cash balance won’t have any impact on the net income of the organization.

Exercise 2.7

Change in cash occurs due to the transactions which are done in the specific period in cash. The total change in cash during the year is computed as follows:

 Exercise 2.8

In the balance sheet of Solways Company the partner’s equity section will be presented as follows:

Solway Company

Balance Sheet

Partner’s Equity

Tom Solway Capital: 25,000

Joe Solway Capital:   25,000

Total Equity:            50,000

As both partners are of equal interest the capital is transferred in equal amounts

Exercise 2.9

In the present scenario, the Solway Corporation has a capital stock worth of $48,000 and the equity amount is $60,000. The owner’s equity in the balance sheet will be presented as follows:

Solway Company

Balance Sheet

 The owner’s equity will be mentioned in the equity & liability section of the balance sheet as presented above.

Exercise 2.10.

If the scenario of Ben Washington corporation is analyzed then it can be seen that the organization has invested capital of $20,000 whereas the corporation income is $25,000. The balance of owner’s equity for the balance sheet will be evaluated as follows:

Ben Washington

Balance Sheet

References of Financial & Managerial Accounting

Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2018). Financial Accounting: Tools for Business Decision Making (9 ed.). John Wiley & Sons.

Mowen, M. M., Hansen, D. R., & Heitger, D. L. (2016). Managerial Accounting: The Cornerstone of Business Decision-Making (7 ed.). Cengage Learning.

Needles, B. E., & Powers, M. (2010). Financial Accounting (11 ed.). Cengage Learning.

Williams, J. R., Haka, S. F., Bettner, M. S., & Carcello, J. (2017). Financial & Managerial Accounting (18 ed.). McGraw-Hill Higher Education