ch01_1_Partial_ - CHAPTER1 StudyObjectives 1 2 3 4 5 6

CHAPTER 1
Introduction to Financial Statements
Study Objectives
1. Describe the primary forms of business organization.
2. Identify the users and uses of accounting information.
3. Explain the three principal types of business activity.
4. Describe the content and purpose of each of the financial statements.
5. Explain the meaning of assets, liabilities, and stockholder’s equity, and state the basic
accounting equation.
6. Describe the components that supplement the financial statements in an annual report.
Summary of Questions by Study Objectives and Bloom’s Taxonomy
Item SO BT Item SO BT Item SO BT Item SO BT Item SO BT
Questions
1. 1 K 5. 2 C 9. 4 C 13. 5 AP 17. 5 C
2. 1 K 6. 2 C 10. 4 C 14. 5 K 18. 6 K
3. 1 K 7. 3 C 11. 4 K 15. 5 K 19. 6 C
4. 2 C 8. 4 K 12. 4 C 16. 5 AP 20. 6 K
Brief Exercises
1. 1 K 4. 4 C 6. 4, 5 K 8. 5 AP 10. 5 K
2. 2 K 5. 4, 5 AP 7. 4 K 9. 5 AP 11. 6 K
3. 4, 5 K
Exercises
1. 1, 2, 4,
6 K
5. 4 AP 8. 4, 5 AP 11. 5 AP 14. 5 AP
2. 3 C 6. 4 AP 9. 4, 5 AP 12. 5 AP 15. 5 AP
3. 3, 4 C 7. 4 C 10. 4, 5 AP 13. 5 AP 16. 6 K
4. 4 AP
Problems: Set A
1. 1 C 2. 2, 4,
5 K
3. 4, 5 A 4. 4, 5 AP 5. 4, 5 AP
Problems: Set B
1. 1 C 2. 2, 4,
5 K
3. 4, 5 AP 4. 4, 5 AP 5. 4, 5 AP
1-1

ASSIGNMENT CHARACTERISTICS TABLE
Problem
Number Description
Difficulty
Level
Time
Allotted (min.)
1A Determine forms of business organization. Simple 15–20
2A Identify users and uses of financial statements. Simple 15–20
3A Prepare an income statement, retained earnings state-
ment, balance sheet, and discuss results.
Moderate 40–50
4A Determine items included in a statement of cash flows,
prepare the statement, and comment.
Moderate 30–40
5A Comment on proper accounting treatment and prepare
a corrected balance sheet.
Moderate 40–50
1B Determine forms of business organization. Simple 15–20
2B Identify users and uses of financial statements. Simple 15–20
3B Prepare an income statement, retained earnings state-
ment, balance sheet, and discuss results.
Moderate 40–50
4B Determine items included in a statement of cash flows,
prepare the statement, and comment.
Moderate 30–40
5B Comment on proper accounting treatment and prepare
a corrected income statement.
Moderate 40–50
1-2

ANSWERS TO QUESTIONS
1. The three basic forms of business organizations are (1) sole proprietorship, (2) partnership, and
(3) corporation.
2. Advantages of a corporation are limited liability (stockholders not being personally liable for cor-
porate debts), easy transferability of ownership, and easier to raise funds. Disadvantages of a
corporation are increased taxation and government regulations.
3. Proprietorships and partnerships receive favorable tax treatment compared to corporations and
are easier to form than corporations. Disadvantages of proprietorships and partnerships are un-
limited liability (proprietors/partners are personally liable for all debts) and difficulty in obtaining
financing compared to corporations.