1.Some users of accounting information include managers, employees, investors, creditors,

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.In addition, accounting provides information to others to use in assessing the economic performance and condition of the business.

3.The corporate form allows the company to obtain large amounts of resources by issuing stock.For this reason, most companies that require large investments in property, plant, and equipment are organized as corporations.

4.No. The business entity concept limits the recording of economic data to transactions directly affecting the activities of the business. The payment of the interest of $4,500 is a personal transaction of Josh Reilly and should not be recorded by Dispatch Delivery Service.

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 in the accounting records because land is recorded on the cost basis.b.Cash would increase by $2,125,000, land would decrease by $900,000, and owner’s equity would increase by $1,225,000.

7.An account receivable is a claim against a customer for goods or services sold. An account payable is an amount owed to a creditor for goods or services purchased. Therefore, an account receivable in the records of the seller is an account payable in the records of the purchaser.

8.(b)The business realized net income of $91,000 ($679,000 – $588,000).

• (a)The business incurred a net loss of $75,000 ($640,000 – $715,000).
• (a)Net income or net loss

(b)Owner’s equity at the end of the period (c)Cash at the end of the period

CHAPTER 1

INTRODUCTION TO ACCOUNTING AND BUSINESS

DISCUSSION QUESTIONS

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CHAPTER 1 Introduction to Accounting and Business

PE 1-1A

$380,000. Under the cost concept, the land should be recorded at the cost to Clairemont Repair Service.

PE 1-1B

$437,500. Under the cost concept, the land should be recorded at the cost to Higgins Repair Service.

PE 1-2A

• A = L + OE

$675,000 = $215,000 + OE

OE = $460,000

• A = L + OE

+$112,300 = +$32,000 + OE

OE = +$80,300

OE on December 31, 2019 = $460,000 + $80,300

= $540,300

PE 1-2B

a.A = L + OE

$395,000 = $97,000 + OE

OE = $298,000

b.A = L + OE

–$65,000 = +$36,000 + OE

OE = –$101,000

OE on December 31, 2019 = $298,000 – $101,000

= $197,000

PE 1-3A

(2) Asset (Accounts Receivable) increases by

$13,750;

Revenue (Delivery Service Fees) increases by $13,750.(3) Liability (Accounts Payable) decreases by

$2,500;

Asset (Cash) decreases by $2,500.(4) Asset (Cash) increases by

$9,000;

Asset (Accounts Receivable) decreases by $9,000.(5) Asset (Cash) decreases by

$1,000;

Owner's Equity (Jerome Foley, Drawing) decreases by $1,000.

PRACTICE EXERCISES

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CHAPTER 1 Introduction to Accounting and Business

PE 1-3B

(2) Expense (Advertising Expense) increases by $4,850; Asset (Cash) decreases by $4,850.(3) Asset (Supplies) increases by $2,100; Liability (Accounts Payable) increases by $2,100.(4) Asset (Accounts Receivable) increases by $14,700; Revenue (Delivery Service Fees) increases by $14,700.(5) Asset (Cash) increases by $8,200; Asset (Accounts Receivable) decreases by $8,200.

PE 1-4A

Fees earned $2,180,000

Expenses:

Wages expense $1,300,000 Office expense 400,000 Miscellaneous expense 25,000 Total expenses 1,725,000 Net income $ 455,000

PE 1-4B

Fees earned $750,000

Expenses:

Wages expense $450,000 Office expense 295,000 Miscellaneous expense 12,000 Total expenses 757,000 Net loss$ (7,000) Income Statement For the Year Ended August 31, 2019

ADVENTURE TRAVEL SERVICE

Income Statement For the Year Ended April 30, 2019

SENTINEL TRAVEL SERVICE

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CHAPTER 1 Introduction to Accounting and Business

PE 1-5A

Jerome Foley, capital, May 1, 2018 $1,020,000 Additional investment by owner during year $ 60,000 Net income for the year 455,000 Withdrawals (40,000) Increase in owner’s equity 475,000 Jerome Foley, capital, April 30, 2019 $1,495,000

PE 1-5B

Barb Schroeder, capital, September 1, 2018 $380,000 Additional investment by owner during year $ 36,000 Net loss for the year (7,000) Withdrawals (18,000) Increase in owner’s equity 11,000 Barb Schroeder, capital, August 31, 2019 $391,000

PE 1-6A

Cash$ 197,000 Accounts receivable 485,000 Supplies18,000 Land900,000 Total assets $1,600,000 Accounts payable $ 105,000 Jerome Foley, capital 1,495,000 Total liabilities and owner’s equity $1,600,000

SENTINEL TRAVEL SERVICE

Statement of Owner’s Equity For the Year Ended August 31, 2019

ADVENTURE TRAVEL SERVICE

Statement of Owner’s Equity For the Year Ended April 30, 2019 Owner’s Equity Liabilities Assets

ADVENTURE TRAVEL SERVICE

Balance Sheet April 30, 2019 1-4 © 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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