Solutions Manual for

Solutions Manual for Financial Accounting 15 th Edition By Carl Warren James Reeve Jonathan Duchac (All Chapters, 100% Original Verified, A+ Grade) 1 / 4

1-1 © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHAPTER 1

INTRODUCTION TO ACCOUNTING AND BUSINESS

DISCUSSION QUESTIONS

• Some users of accounting information include managers, employees, investors, creditors, customers, and

the government.

• 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.

• 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.

• No. The business entity assumption 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.

• The land should be recorded at its cost of $167,500 to Reliable Repair Service. This is consistent with the

cost principle.

• No. The offer of $2,000,000 and the increase in the assessed value should not be recognized in the

accounting records.

• Cash would increase by $2,125,000, land would decrease by $900,000, and stockholders’ equity

would increase by $1,225,000.

• 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.

• (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) Common stock and retained earnings at the end of the period (c) Cash at the end of the period

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CHAPTER 1 Introduction to Accounting and Business 1-2 © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

BASIC EXERCISES

BE 1–1

$275,000. Under the cost principle, the land should be recorded at the cost to Ritts Roofing.

BE 1–2

• A = L + SE

$395,000 = $97,000

SE = $298,000

• A = L + SE

–$65,000 = $36,000

SE = –$101,000

SE on December 31, 20Y2 = $298,000 SE on December 31, 20Y3 = $197,000

BE 1–3

(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.

BE 1–4

Paradise Travel Service Income Statement For the Year Ended May 31, 20Y6 Fees earned $ 900,000

Expenses:

Wages expense $450,000 Office expense 300,000 Miscellaneous expense 15,000 Total expenses (765,000) Net income $ 135,000

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CHAPTER 1 Introduction to Accounting and Business 1-3 © 2019 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

BE 1–5

Paradise Travel Service Statement of Stockholders’ Equity For the Year Ended May 31, 20Y6 Common Stock Retained Earnings Total Balances, June 1, 20Y5 $ 60,000 $300,000 $360,000 Issued common stock 40,000 40,000 Net income 135,000 135,000 Dividends (10,000) (10,000) Balances, May 31, 20Y6 $100,000 $425,000 $525,000

BE 1–6

Paradise Travel Service Balance Sheet May 31, 20Y6 Assets Cash $ 52,000 Accounts receivable 38,000 Supplies 3,000 Land 450,000 Total assets $ 543,000 Liabilities Accounts payable $ 18,000 Stockholders’ Equity Common stock $100,000 Retained earnings 425,000 Total stockholders’ equity 525,000 Total liabilities and stockholders’ equity $ 543,000

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