ANSWERS TO DISCUSSION QUESTIONS AND

Copyright © 2016 Pearson Education, Inc. 1-1 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, and interpret financial information.

2.Sole proprietorship—1 owner; unlimited liability; easy to form; limited life Partnership—2 or more owners; unlimited liability; easy to form; limited life Corporation—Stockholders; limited liability; difficult to form; unlimited life 3.Businesses are classified as service, merchandise, or manufacturing.

4.Computer technology has greatly reduced the time required for performing the bookkeeping function.

5.The three elements of the basic accounting equation are assets, liabilities, and owner's equity.

6.Capital is the owner's current investment or equity in the assets of a business. It is one subdivision of 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).

8.False. That is the income statement.

9.False. Revenue is a subdivision of owner's equity.

10.Owner's equity is subdivided into Capital, Withdrawals, Revenue, and Expenses.

11.False. It is non-business expense of the owner; a subdivision of owner's equity. It is not a business expense.

12.False. As expenses increase, owner's equity decreases.

13.Revenue less Expenses; an income statement shows performance over time.

14.False. It calculates ending capital.

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 to expense those items that are business related. Paul's argument that he is entitled to an additional $100 is not a valid assumption. However, he should be reimbursed for any business expenses during the weekend.College Accounting 13e Jeffrey Slater (Solutions Manual All Chapters, 100% Original Verified, A+ Grade) 1 / 4

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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.Total assets = Cash $31,000 + Warehouse equipment $3,000 = $34,000 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 2 / 4

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SOLUTIONS TO SET A EXERCISES

1A-1. a. $30,000 =$8,000 + $22,000

• $105,000 =$7,000 + $98,000
• $25,000 =$11,000 + OE

OE should be $14,000

1A-2.

Assets = Liabilities + Owner’s Equity Cash + Equipment = Accounts + Payable Matty, Capital

• +130,000 +130,000
• (1,100) +1,100
• +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

• Rideout, Capital 67 9 0 0

Total Liabilities and Total Assets $83 0 0 0 Owner's Equity $83 0 0 0

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EXERCISES(CONTINUED)

1A-4.

ASSETS = LIABILITIES + OWNER'S EQUITY

• B.

Accounts Computer Accounts Black, Black, Cash + Rec. + Equip. = Payable + Capital – Withd. + Revenues – Expenses

• +60,000 +60,000
• +7,000 +7,000
• (100) +100

d.

+14,300

+14,300

• +30,600 +30,600
• (3,600) +3,600
• (1,470) +1,470

Remember, as withdrawals or expenses increase, the end result is to reduce owner's equity.

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