1
Accounting Concepts
and Procedures
ANSWERS TO DISCUSSION QUESTIONS AND
CRITICAL THINKING/ETHICAL CASE
2. Sole proprietorship—1 owner; unlimited liability; easy to form; limited life
3. Businesses are classified as service, merchandise, or manufacturing.
5. The three elements of the basic accounting equation are assets, liabilities, and
owner’s equity.
7. True. The sum of the left side of the equation (assets) must equal the sum of the
right side of the equation (liabilities and owner’s equity).
9. False. Revenue is a subdivision of owner’s equity.
11. False. It is non-business expense of the owner; a subdivision of owner’s equity. It is
not a business expense.
13. Revenue less Expenses; an income statement shows performance over time.
15. The question in this case is whether Paul should be allowed to “pad” his expense
account with an additional $100 of expenses. I feel that Paul should only be allowed
SOLUTIONS TO CONCEPT CHECKS
1.
a.
A
b.
A
c.
L
d.
A
e.
OE
f.
A
2.
a.
Liabilities
b.
Total Assets
c.
Accounts Payable
3.
a.
I
b.
S
4.
5.
b.
J. Penny, Capital
d.
J. Penny, Withdrawals
f.
Advertising Expense
g.
Taxi Fees Earned
6.
c.
Accounts Payable
d.
Grooming Fees Earned
7.
a,b,d
8.
a.
IS
b.
BS
c.
BS
d.
BS
e.
IS
f.
IS
g.
OE
h.
BS
9.
a.
OE
b.
BS
c.
BS
d.
IS
SOLUTIONS TO SET A EXERCISES
1A-1.
a.
$30,000
=$8,000 + $22,000
b.
$105,000
=$7,000 + $98,000
c.
$25,000
=$11,000 + OE
1A-2.
Assets =
Liabilities + Owner’s Equity
Cash +
Equipment =
Accounts +
Payable
Matty, Capital
a.
+130,000
+130,000
b.
(1,100)
+1,100
c.
+950
+950
1A-3.
RIDEOUT COMPANY CLEANERS
BALANCE SHEET
NOVEMBER 30, 201X
Assets
Liabilities and Owner’s Equity
Cash
$71
0
0
0
Liabilities
Equipment
12
0
0
0
Accounts Payable
$15
1
0
0
15
1
0
0
Total Liabilities
Owner’s Equity
B. Rideout, Capital
67
9
0
0
Total Liabilities and
Total Assets
$83
0
0
0
Owner’s Equity
$83
0
0
0
EXERCISES(CONTINUED)
1A-4.
ASSETS
=
LIABILITIES
+
OWNER’S EQUITY
B.
B.
Accounts
Computer
Accounts
Black,
Black,
Cash
+
Rec.
+
Equip.
=
Payable
+
Capital
–
Withd.
+
Revenues
–
Expenses
a.
+60,000
+60,000
b.
+7,000
+7,000
c.
(100)
+100
d.
+14,300
+14,300
e.
+30,600
+30,600
f.
(3,600)
+3,600
g.
(1,470)
+1,470
Remember, as withdrawals or expenses increase, the end result is to reduce owner’s equity.
Copyright © 2016 Pearson Education, Inc. 1-5
EXERCISES (CONTINUED)
1A-5.
(a)
FREDERICK REALTY
INCOME STATEMENT
MONTH ENDED NOVEMBER 30, 201X
Revenue:
Professional Fees
$3
0
0
0
Operating Expenses:
Salaries Expense
$
5
5
0
Utilities Expense
2
0
0
Rent Expense
8
0
0
Total Operating Expenses
1
5
5
0
Net Income
$1
4
5
0
(b)
FREDERICK REALTY
STATEMENT OF OWNER’S EQUITY
MONTH ENDED NOVEMBER 30, 201X
S. Frederick, Capital, November 1, 201X
$9
0
0
0
Net Income for November
$1
4
5
0
Less: Withdrawals for November
(1
2
0)
Increase in Capital
1
3
3
0
S. Frederick, Capital, November 30, 201X
$10
3
3
0
(c)
FREDERICK REALTY
BALANCE SHEET
NOVEMBER 30, 201X
Assets
Liabilities and Owner’s Equity
Cash
$4
8
0
0
Liabilities
Accounts Receivable
1
2
3
0
Accounts Payable
$4
0
0
0
Office Equipment
8
3
0
0
Owner’s Equity
S. Frederick, Capital
10
3
3
0
Total Liabilities and
Total Assets
$14
3
3
0
Owner’s Equity
$14
3
3
0
SOLUTIONS TO SET B EXERCISES
1B-1.
1B–2.
Assets =
Liabilities + Owner’s Equity
Cash +
Equipment =
Accounts +
Payable
Mandy, Capital
a.
+114,000
+114,000
b.
(1,600)
+1,600
c.
+1,150
+1,150
1B-3.
ROLLAND COMPANY CLEANERS
BALANCE SHEET
JUNE 30, 201X
ASSETS
LIABILITIES AND OWNER’S EQUITY
Cash
$52
0
0
0
Liabilities
Equipment
36
0
0
0
Accounts Payable
$11
0
0
0
Total Liabilities
$11
0
0
0
Owner’s Equity
B. Rolland, Capital
$77
0
0
0
Total Liabilities and
Total Assets
$88
0
0
0
Owner’s Equity
$88
0
0
0
EXERCISES(CONTINUED)
1B-4.
ASSETS
=
LIABILITIES
+
OWNER’S EQUITY
B.
B.
Accounts
Computer
Accounts
Bell,
Bell,
Cash
+
Rec.
+
Equip.
=
Payable
+
Capital
–
Withdr.
+
Revenues
–
Expenses
a.
+45,000
+45,000
b.
+9,500
+9,500
c.
(75)
+75
d.
+14,100
+14,100
e.
+29,600
+29,600
f.
(3,400)
+3,400
g.
(1,500)
+1,500
Remember, as withdrawals or expenses increase, the end result is to reduce owner’s equity.
EXERCISES (CONTINUED)
1B-5.
(a)
FRENCH REALTY
INCOME STATEMENT
MONTH ENDED SEPTEMBER 30, 201X
Revenue:
Professional Fees
$3
4
0
0
Operating Expenses:
Salaries Expense
$
4
2
5
Utilities Expense
3
0
0
Rent Expense
4
7
5
Total Operating Expenses
1
2
0
0
Net Income
$2
2
0
0
(b)
FRENCH REALTY
STATEMENT OF OWNER’S EQUITY
MONTH ENDED SEPTEMBER 30, 201X
S. French, Capital, September 1, 201X
$6
0
5
0
Net Income for September
$2
2
0
0
Less: Withdrawals for September
(2
0
0)
Increase in Capital
2
0
0
0
S. French, Capital, September 30, 201X
$8
0
5
0
9
0
0
7
5
0
0
0
0
4
0
0
SOLUTIONS TO SET A PROBLEMS
PROBLEM 1A-1
MORGAN’S NAIL SPA
Transaction
Assets =
Liabilities + Owner’s Equity
Cash
Store Equipment
Accounts
Payable
M. Amberson,
Capital
a.
+16,000
+16,000
b.
(3,700)
+3,700
c.
+6,050
+6,050
d.
(600)
(600)
Total
11,700
9,750
5,450
16,000
PROBLEM 1A-2
SHEA’S INTERNET SERVICE
BALANCE SHEET
PROBLEM 1A-3
Expenses
0
0
0
0
+275
275
+170
445
+1,200
1,645
1,645
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
OWNER’S
EQUITY
Computer
Service
Revenue
0
0
+800
800
+2,100
2,900
2,900
2,900
2,900
2,900
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
FONTAN COMPUTER SERVICE
R.
Fontan,
Withd.
0
0
0
0
0
0
0
+ 700
700
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
R.
Fontan,
Capital
+25,000
25,000
25,000
25,000
25,000
25,000
25,000
25,000
25,000
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
LIABILITIES
Accounts
Payable
0
+2,500
2,500
2,500
2,500
2,500
2,500
+1,200
3,700
3,700
29,255
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
=
Office
Equipment
0
+2,500
2,500
2,500
2,500
2,500
2,500
2,500
2,500
29,255
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
ASSETS
Accounts
Receivable
0
0
0
+2,100
2,100
2,100
2,100
2,100
2,100
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
Cash
+25,000
25,000
25,000
+800
25,800
25,800
(275)
25,525
(170)
25,355
25,355
(700)
24,655
a.
BALANCE
b.
BALANCE
c.
BALANCE
d.
BALANCE
e.
BALANCE
f.
BALANCE
g.
BALANCE
h.
ENDING BALANCE