CHAPTER 1
INTRODUCTION TO ACCOUNTING AND BUSINESS
DISCUSSION QUESTIONS
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).
9. (a) The business incurred a net loss of $75,000 ($640,000 – $715,000).
10. (a) Net income or net loss
(b) Owner’s equity at the end of the period
(c) Cash at the end of the period
1-1
© 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.
, CHAPTER 1 Introduction to Accounting and Business
PRACTICE EXERCISES
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. A = L + OE
$675,000 = $215,000 + OE
OE = $460,000
b. 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.
1-2
© 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.
, 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
ADVENTURE TRAVEL SERVICE
Income Statement
For the Year Ended April 30, 2019
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
SENTINEL TRAVEL SERVICE
Income Statement
For the Year Ended August 31, 2019
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)
1-3
© 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.
, CHAPTER 1 Introduction to Accounting and Business
PE 1-5A
ADVENTURE TRAVEL SERVICE
Statement of Owner’s Equity
For the Year Ended April 30, 2019
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
SENTINEL TRAVEL SERVICE
Statement of Owner’s Equity
For the Year Ended August 31, 2019
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
ADVENTURE TRAVEL SERVICE
Balance Sheet
April 30, 2019
Assets
Cash $ 197,000
Accounts receivable 485,000
Supplies 18,000
Land 900,000
Total assets $1,600,000
Liabilities
Accounts payable $ 105,000
Owner’s Equity
Jerome Foley, capital 1,495,000
Total liabilities and owner’s equity $1,600,000
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.
INTRODUCTION TO ACCOUNTING AND BUSINESS
DISCUSSION QUESTIONS
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).
9. (a) The business incurred a net loss of $75,000 ($640,000 – $715,000).
10. (a) Net income or net loss
(b) Owner’s equity at the end of the period
(c) Cash at the end of the period
1-1
© 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.
, CHAPTER 1 Introduction to Accounting and Business
PRACTICE EXERCISES
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. A = L + OE
$675,000 = $215,000 + OE
OE = $460,000
b. 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.
1-2
© 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.
, 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
ADVENTURE TRAVEL SERVICE
Income Statement
For the Year Ended April 30, 2019
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
SENTINEL TRAVEL SERVICE
Income Statement
For the Year Ended August 31, 2019
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)
1-3
© 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.
, CHAPTER 1 Introduction to Accounting and Business
PE 1-5A
ADVENTURE TRAVEL SERVICE
Statement of Owner’s Equity
For the Year Ended April 30, 2019
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
SENTINEL TRAVEL SERVICE
Statement of Owner’s Equity
For the Year Ended August 31, 2019
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
ADVENTURE TRAVEL SERVICE
Balance Sheet
April 30, 2019
Assets
Cash $ 197,000
Accounts receivable 485,000
Supplies 18,000
Land 900,000
Total assets $1,600,000
Liabilities
Accounts payable $ 105,000
Owner’s Equity
Jerome Foley, capital 1,495,000
Total liabilities and owner’s equity $1,600,000
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.
