1
Accounting Concepts
and Procedures
ANSWERS TO DISCUSSION QUESTIONS AND
CRITICAL THINKING/ETHICAL CASE
1. The functions of accounting are to analyze, record, classify, summarize, report,
3. Businesses are classified as service, merchandise, or manufacturing.
5. The three elements of the basic accounting equation are assets, liabilities, and
15. The question in this case is whether Paul should be allowed to “pad” his expense
account with an additional $100 of expenses. This would be unethical. Paul should
SOLUTIONS TO CONCEPT CHECKS
1. a. A
2. a. Liabilities
3. a. I
5. b. J. Penny, Capital
8. a. IS
b. BS
SOLUTIONS TO SET A EXERCISES
1A–2.
Assets =
Liabilities + Owner’s Equity
Cash +
Equipment =
c.
Accounts +
Morgan, Capital
1A–3.
RABBIT COMPANY CLEANERS
BALANCE SHEET
SEPTEMBER 30, 201X
Assets
Liabilities and Owner’s Equity
Cash
$67
0
0
0
Liabilities
Equipment
7
0
0
0
Accounts Payable
$13
0
0
0
EXERCISES (CONTINUED)
1A-4.
ASSETS
=
LIABILITIES
+
OWNER’S EQUITY
B.
B.
Accounts
Computer
Accounts
Baker,
Baker,
Cash
+
Rec.
+
Equip.
=
Payable
+
Capital
–
Withd.
+
Revenues
–
Expenses
a.
+80,000
+80,000
1A–5.
(a)
FREEMAN REALTY
INCOME STATEMENT
MONTH ENDED JUNE 30, 201X
Revenue:
Professional Fees
$3
1
0
0
Operating Expenses:
Salaries Expense
$
4
5
0
Utilities Expense
1
5
0
Rent Expense
4
5
0
(b)
FREEMAN REALTY
STATEMENT OF OWNER’S EQUITY
MONTH ENDED JUNE 30, 201X
S. Freeman, Capital, June 1, 201X
$10
2
4
5
Net Income for June
$2
0
5
0
Less: Withdrawals for June
2
5)
Increase in Capital
8
2
5
S. Freeman, Capital, June 30, 201X
$12
0
7
0
EXERCISES (CONTINUED)
(c)
FREEMAN REALTY
BALANCE SHEET
JUNE 30, 201X
Assets
Liabilities and Owner’s Equity
Cash
$5
2
0
0
Liabilities
SOLUTIONS TO SET B EXERCISES
1B–2.
Assets =
Liabilities + Owner’s Equity
Cash +
Equipment =
Accounts +
Payable
Melody, Capital
+1,650
c.
1B-3.
RAUSCHER COMPANY CLEANERS
BALANCE SHEET
NOVEMBER 30, 201X
ASSETS
LIABILITIES AND OWNER’S EQUITY
Cash
$65
0
0
0
Liabilities
Equipment
10
0
0
0
Accounts Payable
$29
0
0
0
B. Rauscher, Capital
$46
0
0
0
Total Assets
0
0
0
Owner’s Equity
$75
0
0
0
EXERCISES (CONTINUED)
1B-4.
ASSETS
=
LIABILITIES
+
OWNER’S EQUITY
B.
B.
Accounts
Computer
Accounts
Beadell,
Beadell,
Cash
+
Rec.
+
Equip.
=
Payable
+
Capital
–
Withdr.
+
Revenues
–
Expenses
1B-5.
(a)
FAIRMONT REALTY
INCOME STATEMENT
MONTH ENDED NOVEMBER 30, 201X
Revenue:
Professional Fees
$4
0
0
0
Operating Expenses:
Salaries Expense
$
3
0
0
Utilities Expense
2
5
0
Rent Expense
3
0
0
(b)
FAIRMONT REALTY
STATEMENT OF OWNER’S EQUITY
MONTH ENDED NOVEMBER 30, 201X
S. Fairmont, Capital, November 1, 201X
$10
0
1
5
Net Income for November
$3
1
5
0
Less: Withdrawals for November
7
5)
Increase in Capital
9
7
5
S. Fairmont, Capital, November 30, 201X
$12
9
9
0
(c)
FAIRMONT REALTY
BALANCE SHEET
NOVEMBER 30, 201X
ASSETS
LIABILITIES AND OWNER’S EQUITY
Cash
$4
5
0
0
Liabilities
SOLUTIONS TO SET A PROBLEMS
PROBLEM 1A-1
MELODY’S NAIL SPA
Transaction
Assets =
Liabilities + Owner’s Equity
Cash
Store Equipment
Accounts
Payable
M. Abington,
Capital
b.
(3,400)
Total
19,000
PROBLEM 1A-2
SIMON’S INTERNET SERVICE
BALANCE SHEET
NOVEMBER 30, 201X
ASSETS
LIABILITIES AND OWNER’S EQUITY
Cash
$45
0
0
0
Liabilities
Equipment
24
0
0
0
Accounts Payable
$16
5
0
0
Building
30
0
0
0
Owner’s Equity
B. Simon, Capital
5
0
0
Total Liabilities and
Total Assets
$99
0
0
0
Owner’s Equity
$99
0
0
0
PROBLEM 1A-3
Expenses
545
+800
–
+
–
+
=
+
+
h.
–
–
–
OWNER’S
EQUITY
Computer
Service
Revenue
3,500
+
+
+
FALCO COMPUTER SERVICE
R. Falco,
Withd.
0
–
–
–
R. Falco,
Capital
40,000
+
+
+
+
LIABILITIES
Accounts
Payable
6,500
+800
=
=
=
=
Computer
Equipment
6,500
+
+
+
ASSETS
Accounts
Receivable
2,200
+
+
+
Cash
40,755
BALANCE
g.
–
–
+
+
–
–
+
+
=
=
+
+
+
+
c.
PROBLEM 1A-4
(a)
WENGLER HOME DECORATING SERVICE
INCOME STATEMENT
MONTH ENDED JUNE 30, 201X
Revenue:
Home Decorating Fees
$2
4
0
0
Operating Expenses:
Advertising Expense
$
1
4
5
Repair Expense
5
5
Travel Expense
2
5
0
Supplies Expense
5
5
Rent Expense
3
7
5
Total Operating Expenses
8
8
0
Net Income
$1
5
2
0
(b)
WENGLER HOME DECORATING SERVICE
STATEMENT OF OWNER’S EQUITY
MONTH ENDED JUNE 30, 201X
J. Wengler Capital, June 1, 201X
$3
8
8
5
Net Income for June
5
Less: Withdrawals for June
0
0)
Increase in Capital
5
2
0
J. Wengler, Capital, June 30, 201X
$4
4
0
5
(c)
WENGLER HOME DECORATING SERVICE
BALANCE SHEET
JUNE 30, 201X
ASSETS
LIABILITIES AND OWNER’S EQUITY
Cash
$2
3
0
0
Liabilities
Accounts Receivable
1
2
0
0
Accounts Payable
$
2
5
0
Decorating Equipment
1
1
5
5
Owner’s Equity
J. Wengler, Capital
4
0
5
Total Liabilities and
Total Assets
$4
6
5
5
Owner’s Equity
$4
6
5
5
PROBLEM 1A-5
OWNER’ S EQUITY
Expenses
0
750
750
750
–
–
–
4,475
4,475
+
+
–
–
–
33,000
33,000
+
+
+
2,700
3,200
=
=
4,500
4,500
+
+
+
55
55
+
+
+
34,780
34,780
BALANCE
BALANCE
6/30
–
–
–
–
–
–
–
–
Catering
Revenue
0
2,575
2,575
+1,900
+
+
+
+
TRUMAN’ S CATERING SERVICE
J.
Truman,
Withd
0
0
+90
90
–
–
–
–
–
–
–
–
J.
Truman,
Capital
+33,000
33,000
33,000
33,000
+
+
+
+
+
+
+
+
+
LIABILITIES
Accounts
Payable
0
1,900
1,900
=
=
=
=
=
Equipment
+1,600
3,700
3,700
+
+
+
+
+
+
+
+
ASSETS
Accounts
Receivable
0
55
55
+
+
+
+
+
+
+
+
Cash
+33,000
33,000
(1,600)
32,970
(90)
32,880
+1,900
5/25
BALANCE
5/27
BALANCE
6/17
BALANCE
6/20
0
–
–
–
0
+
0
–
–
–
33,000
+
+
+
0
=
=
+
+
+
0
+
+
+
31,400
BALANCE