1. Some users of accounting information include managers, employees, investors, creditors,
customers, and the government.
2. The role of accounting is to provide information for managers to use in operating the business.
3. The corporate form allows the company to obtain large amounts of resources by issuing stock.
4. No. The business entity concept limits the recording of economic data to transactions directly
5. The land should be recorded at its cost of $167,500 to Reliable Repair Service. This is consistent with
the cost concept.
6. a. No. The offer of $2,000,000 and the increase in the assessed value should not be recognized
7. An account receivable is a claim against a customer for goods or services sold. An account
8. (b) The business realized net income of $91,000 ($679,000 – $588,000).
9. (a) The business incurred a net loss of $75,000 ($640,000 – $715,000).
10. (a) Net income or net loss
CHAPTER 1
INTRODUCTION TO ACCOUNTING AND BUSINESS
DISCUSSION QUESTIONS
CHAPTER 1 Introduction to Accounting and Business
PE 1–1A
PE 1–1B
PE 1–2A
a. A = L + OE
$942,000 = $584,000 + OE
PE 1–2B
a. A = L + OE
$395,000 = $97,000 + OE
PE 1–3A
(2) Asset (Cash) decreases by $3,750;
Liability (Accounts Payable) decreases by $3,750.
(4) Asset (Cash) increases by $11,300;
Asset (Accounts Receivable) decreases by $11,300.
PRACTICE EXERCISES
CHAPTER 1 Introduction to Accounting and Business
PE 1–3B
(2) Expense (Advertising Expense) increases by $4,850;
PE 1–4A
Fees earned $1,673,000
Expenses:
PE 1–4B
Fees earned $750,000
Expenses:
Income Statement
For the Year Ended August 31, 2014
SUNSET TRAVEL SERVICE
Income Statement
For the Year Ended April 30, 2014
SENTINEL TRAVEL SERVICE
CHAPTER 1 Introduction to Accounting and Business
PE 1–5A
Craig Daws, capital, May 1, 2013 $300,000
Additional investment by owner during year $ 75,000
PE 1–5B
Barb Schroeder, capital, September 1, 2013 $380,000
Additional investment by owner during year $36,000
PE 1–6A
Cash $274,000 Accounts payable $ 61,000
SENTINEL TRAVEL SERVICE
Statement of Owner’s Equity
For the Year Ended August 31, 2014
SUNSET TRAVEL SERVICE
Statement of Owner’s Equity
For the Year Ended April 30, 2014
SUNSET TRAVEL SERVICE
Balance Sheet
April 30, 2014
Assets Liabilities
PE 1–6B
PE 1–7A
Cash flows from operating activities:
Cash received from customers $ 1,500,000
SUNSET TRAVEL SERVICE
Statement of Cash Flows
For the Year Ended April 30, 2014
SENTINEL TRAVEL SERVICE
Balance Sheet
CHAPTER 1 Introduction to Accounting and Business
PE 1–7B
Cash flows from operating activities:
Cash received from customers
PE 1–8A
a. Dec. 31, Dec. 31,
2014 2013
Total liabilities……………………………………………………
…
$547,800 $518,000
PE 1–8B
a. Dec. 31, Dec. 31,
2014 2013
Total liabilities……………………………………………………
…
$4,085,000 $2,880,000
$ 734,000
SENTINEL TRAVEL SERVICE
Statement of Cash Flows
For the Year Ended August 31, 2014
CHAPTER 1 Introduction to Accounting and Business
Ex. 1–1
a. 1. manufacturing 6. manufacturing 11. service
Ex. 1–2
As in many ethics issues, there is no one right answer. Oftentimes, disclosing
Ex. 1–3
a. 1. M 5. O 9. X
Ex. 1–4
EXERCISES
CHAPTER 1 Introduction to Accounting and Business
Ex. 1–6
a. $456,100 ($118,000 + $338,100)
Ex. 1–9
a. Increases assets and increases owner’s equity.
Ex. 1–10
a. (1) Total assets increased $260,000 ($440,000 – $180,000).
(2) No change in liabilities.
(2) Total liabilities decreased $69,000.
(3) No change in owner’s equity.
c. No, it is false that a transaction always affects at least two elements (Assets,
CHAPTER 1 Introduction to Accounting and Business
Ex. 1–11
1. (b) decrease
Ex. 1–12
1. c 6. c
Ex. 1–13
a. (1) Provided catering services for cash, $33,000.
(3) Payment of cash for expenses, $24,000.
(5) Withdrawal of cash by owner, $3,000.
(7) Recognition of cost of supplies used, $1,800.
b. – $20,000 ($10,000 – $30,000)
Ex. 1–14
CHAPTER 1 Introduction to Accounting and Business
Ex. 1–15
Owner’s equity at end of year ($1,125,000 – $500,000)……………………………… $625,000
Increase in owner’s equity (as determined for Juliet)………………………………
…
$175,000
Increase in owner’s equity (as determined for Juliet)………………………………
…
$175,000
…
Ex. 1–16
Juliet
Kilo
Lima
CHAPTER 1 Introduction to Accounting and Business
Ex. 1–18
a.
Lori Izzo, capital, November 1, 2014 $400,000
Ex. 1–19
Fees earned $1,100,000
Expenses:
Income Statement
For the Month Ended March 31, 2014
INFRA-SYSTEMS COMPANY
Statement of Owner’s Equity
For the Month Ended November 30, 2014
EXPLORATION SERVICES
CHAPTER 1 Introduction to Accounting and Business
Ex. 1–20
In each case, solve for a single unknown, using the following equation:
Owner’s Equity (beginning) + Investments – Withdrawals + Revenues – Expenses
= Owner’s Equity (ending)
Freeman
Owner’s equity at end of year ($1,260,000 – $330,000)……………………
…
$930,000
Heyward
Owner’s equity at end of year ($675,000 – $220,000)………………………
…
$455,000
Owner’s equity at beginning of year ($490,000 – $260,000)………………
…
230,000
…
…
…
…
Jones
Owner’s equity at end of year ($100,000 – $80,000)………………………
…
$ 20,000
…
…
…
…
…
…
…
…
…
CHAPTER 1 Introduction to Accounting and Business
Ex. 1–21
a.
Cash $ 320,000 Accounts payable $ 310,000
Cash $ 380,000 Accounts payable $ 400,000
Assets Liabilities
EBONY INTERIORS
Balance Sheet
February 28, 2014
Assets Liabilities
EBONY INTERIORS
Balance Sheet
March 31, 2014
CHAPTER 1 Introduction to Accounting and Business
Ex. 1–22
Ex. 1–23
1. (a) operating activity
Ex. 1–24
Cash flows from operating activities:
Cash received from customers
ETHOS CONSULTING GROUP
Statement of Cash Flows
For the Year Ended May 31, 2014
$637,500
CHAPTER 1 Introduction to Accounting and Business
Ex. 1–25
1. All financial statements should contain the name of the business in their
3. The year in the heading for the statement of owner’s equity should be 2014
rather than 2013.
5. In the income statement, the miscellaneous expense amount should be listed
6. In the income statement, the total expenses are incorrectly subtracted from
the sales commissions, resulting in an incorrect net income amount. The
7. In the statement of owner’s equity, the additional investment should be added
9. Accounts receivable and supplies should be listed as assets on the balance
sheet.
CHAPTER 1 Introduction to Accounting and Business
Ex. 1–25 (Concluded)
Corrected financial statements appear as follows:
Sales commissions $140,000
Expenses:
Omar Farah, capital, August 1, 2014 $0
Cash $ 8,900 Accounts payable $22,350
Assets Liabilities
WE-SELL REALTY
Income Statement
For the Month Ended August 31, 2014
WE-SELL REALTY
Statement of Owner’s Equity
For the Month Ended August 31, 2014
WE-SELL REALTY
Balance Sheet
August 31, 2014
CHAPTER 1 Introduction to Accounting and Business
Ex. 1–26
a. Year 2: $21,236 ($40,125 – $18,889)
Ex. 1–27
CHAPTER 1 Introduction to Accounting and Business
Prob. 1–1A
1. Assets = +
++=+ –+ ––– ––
(a) + 30,000 + 30,000
(b) + 1,200 + 1,200
PROBLEMS
Owner’s Equity
Accts.
Rec. Supplies
Accts.
Payable
Liabilities
Bret
Eisen,
Capital
Fees
Earned
Salaries
Expense
Auto
Exp.
Misc.
Exp.
Rent
ExpenseCash
Bret
Eisen,
Drawing
Supplies
Expense
1.
Fees earned $1,100,000
Expenses:
2.
Sung Kim, capital, January 1, 2014 $450,000
3.
Cash $210,000 Accounts payable $115,000
Balance Sheet
December 31, 2014
Assets Liabilities
ORIENTAL TRAVEL AGENCY
Income Statement
For the Year Ended December 31, 2014
ORIENTAL TRAVEL AGENCY
Statement of Owner’s Equity
For the Year Ended December 31, 2014
ORIENTAL TRAVEL AGENCY
CHAPTER 1 Introduction to Accounting and Business
Prob. 1–3A
1.
Fees earned $144,500
Expenses:
2.
Seth Feye, capital, July 1, 2014 $0
Investment on July 1, 2014 $50,000
3.
Cash $32,600 Accounts payable $ 3,400
RELIANCE FINANCIAL SERVICES
Income Statement
For the Month Ended July 31, 2014
RELIANCE FINANCIAL SERVICES
Statement of Owner’s Equity
For the Month Ended July 31, 2014
RELIANCE FINANCIAL SERVICES
Balance Sheet
July 31, 2014
Assets Liabilities