INTRODUCTION TO ACCOUNTING

CHAPTER 1

INTRODUCTION TO ACCOUNTING

AND BUSINESS

DISCUSSION QUESTIONS

1.Some users of accounting information in- clude managers, employees, investors, creditors, customers, and the government.

2.The role of accounting is to provide infor- mation 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 issu- ing stock. For this reason, most companies that require large investments in property, plant, and equipment are organized as cor- porations.

4.No. The business entity concept limits the recording of economic data to transactions directly affecting the activities of the busi- ness. The payment of the interest of $3,200 is a personal transaction of Murray Stoltz and should not be recorded by Ontime Delivery Service.

5.The land should be recorded at its cost of $82,000 to A2Z Repair Service. This is con- sistent with the cost concept.

6.a. No. The offer of $1,000,000 and the increase in the assessed value should not be recognized in the accounting records.b.Cash would increase by $1,000,000, land would decrease by $525,000, and owner’s equity would increase by

$475,000.

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 rec- ords of the seller is an account payable in the records of the purchaser.

8.(a) The business incurred a net loss of

$185,000 ($615,000 – $430,000).

9.(b) The business realized net income of

$117,000 ($825,000 – $708,000).

10.Net income or net loss Owner’s equity at the end of the period Cash at the end of the period Accounting Using Excel® for Success, 2e James Reeve, Carl Warren, Jonathan Duchac (Solutions Manual All Chapters, 100% Original Verified, A+ Grade) All Chapters Solutions Manual Supplement files download link at the end of this file.1 a.. 1 / 4

PRACTICE EXERCISES

PE 1–1A

$105,000. Under the cost concept, the land should be recorded at the cost to Easy Repair Service.

PE 1–1B

$57,500. Under the cost concept, the land should be recorded at the cost to AAA Repair Service.

PE 1–2A

• A = L + OE b. A = L + OE

$800,000 = $450,000 + OE + $175,000 = – $60,000 + OE

OE = $350,000 OE = + $235,000

OE on December 31, 2012 =

$585,000 = $350,000 + $235,000

PE 1–2B

• A = L + OE b. A = L + OE

$575,000 = $125,000 + OE + $85,000 = + $30,000 + OE

OE = $450,000 OE = + $55,000

OE on December 31, 2012 =

$505,000 = $450,000 + $55,000

PE 1–3A

(2) Asset (Cash) decreases by $1,800; Liability (Accounts Payable) decreases by

$1,800.

(3) Asset (Accounts Receivable) increases by $12,500; Revenue (Delivery Ser- vice Fees) increases by $12,500.(4) Asset (Cash) increases by $6,900; Asset (Accounts Receivable) decreases by

$6,900.

(5) Asset (Cash) decreases by $4,000; Drawing (Lisa Dewar, Drawing) increases by $4,000.2 a.. 2 / 4

PE 1–3B

(2) Expense (Advertising Expense) increases by $1,200; Asset (Cash) decreases by $1,200.(3) Asset (Supplies) increases by $450; Liability (Accounts Payable) increases by $450.(4) Asset (Accounts Receivable) increases by $7,500; Revenue (Delivery Service Fees) increases by $7,500.(5) Asset (Cash) increases by $4,900; Asset (Accounts Receivable) decreases by

$4,900.

PE 1–4A

DYNASTY TRAVEL SERVICE

Income Statement For the Year Ended June 30, 2012

Fees earned ..................................................................... $950,000

Expenses:

Wages expense .......................................................... $478,000 Office expense ........................................................... 222,000 Miscellaneous expense ............................................. 16,000 Total expenses ....................................................... 716,000 Net income ....................................................................... $234,000

PE 1–4B

ESCAPE TRAVEL SERVICE

Income Statement For the Year Ended November 30, 2012

Fees earned ..................................................................... $942,500

Expenses:

Wages expense .......................................................... $562,500 Office expense ........................................................... 391,625 Miscellaneous expense ............................................. 15,875 Total expenses ....................................................... 970,000 Net loss ............................................................................ $ 27,500 3 a.. 3 / 4

PE 1–5A

DYNASTY TRAVEL SERVICE

Statement of Owner’s Equity For the Year Ended June 30, 2012

Nancy Coleman, capital, July 1, 2011 ............................ $250,000 Additional investment by owner during year ................ $ 60,000 Net income for the year .................................................. 234,000

$294,000

Less withdrawals............................................................. 36,000 Increase in owner’s equity ............................................ 258,000 Nancy Coleman, capital, June 30, 2012 ......................... $508,000

PE 1–5B

ESCAPE TRAVEL SERVICE

Statement of Owner’s Equity For the Year Ended November 30, 2012

Brett Daniels, capital, December 1, 2011 ....................... $475,000 Additional investment by owner during year ................ $ 45,000 Net loss for the year ........................................................ (27,500)

$ 17,500

Less withdrawals............................................................. (25,000) Decrease in owner’s equity ............................................ (7,500) Brett Daniels, capital, November 30, 2012 .................... $467,500

PE 1–6A

DYNASTY TRAVEL SERVICE

Balance Sheet June 30, 2012

Assets Liabilities Cash ................................. $156,000 Accounts payable .............. $ 24,000 Accounts receivable ....... 64,000 Supplies ........................... 12,000 Owner’s Equity Land .................................. 300,000 Nancy Coleman, capital ..... 508,000 Total liabilities and Total assets ..................... $532,000 owner’s equity ................ $532,000 4 a..

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