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CHAPTER 1
THE ROLE OF ACCOUNTING IN BUSINESS
CLASS DISCUSSION QUESTIONS
1. The objective of most businesses is to
maximize profits. Profit is the difference
between the amounts received from
2. A manufacturing business changes ba-
sic inputs into products that are sold to
customers. In contrast, a merchandising
business purchases products in a form
that can be sold to customers without any
3. A manufacturing business changes ba-
sic inputs into products that are sold to
customers. A service business provides
services rather than products to cus-
tomers. A restaurant, such as McDo-
nald’s, has characteristics of both a
4. The corporate form allows the company
to obtain large amounts of resources by
issuing stock. In addition, in a corpora-
tion the stockholders’ liability to creditors
as corporations.
5. The business emphasis of KIA is a low-
cost emphasis. In contrast, the business
emphasis of BMW is a premium-price
just over $15,000, but a new BMW starts for just
over $30,000.
6. Super Wal-Mart will compete for customers us-
should attempt to compete using a premium-
price emphasis. For example, your friend could
offer personalized service to customers such as
knowing customers’ names and providing a
friendly atmosphere, home delivery of medi-
automobiles, high-end or premium art pieces,
jewelry, consumer electronics, and a host of
practical and miscellaneous items.
8. No. The stakeholders within a group do not al-
ways share the same interests. For example,
Airlines could include issuing stock, borrowing
from banks, and paying dividends. Examples of
investing activities could include purchasing new
aircraft, acquiring new terminal facilities, and
upgrading its computerized reservation systems.
other stakeholders to use in assessing the eco-
nomic performance and condition of the busi-
ness.
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earnings that have occurred over a spe-
cific period of time. The balance sheet
presents a listing of the assets, liabilities,
and the balance sheet. Finally, the Cash bal-
ance at the end of the period will appear on the
balance sheet and the statement of cash flows.
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EXERCISES
E1–1
1. service
6. merchandise
11. manufacturing
E1–2
1. a—low-cost
5. a—low-cost
10. a—low-cost
E1–3
E1–4
E1–5
4
E1–6
E1–7
E1–8
Company Chang
Company Henry
Company Nagel
Company Wilcox
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E1–9
E1–10
E1–11
E1–12
1. a—asset
2. b—liability
6. a—asset
7. b—liability
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E1–13
WEBBER COMPANY
Statement of Stockholders’ Equity
For the Month Ended June 30, 20Y7
E1–14
MAYNARD SERVICES
Income Statement
For the Month Ended August 31, 20Y5
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E1–15
In each case, solve for a single unknown, using the following equation:
Stockholders’ Equity (beginning) + Additional Issue of Capital Stock – Dividends
+ Revenue – Expenses = Stockholders’ Equity (ending)
KS Stockholders’ equity at end of year ($660,000 – $360,000) ……… $ 300,000
Stockholders’ equity at beginning of year ($550,000 – $325,000). . 2 25 ,0 00
Increase in stockholders’ equity …………………………………………… $ 75,000
Add decrease due to net loss ($115,000 – $130,000) ……………… 15,000
$ 90,000
Deduct additional issue of capital stock ……………………………….. (100,000)
Dividends ……………………………………………………………………….. (c) $ (10,000)
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E1–16
a. MONTANA INTERIORS
Balance Sheet
October 31, 20Y8
MONTANA INTERIORS
Balance Sheet
November 30, 20Y8