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.
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
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTE Introduction to Accounting and
PRACTICE EXERCISES
PE 1–1A
$345,000. Under the cost concept, the land should be recorded at the cost
to Integrity 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
$942,000 = $584,000 + OE
OE = $358,000
b. A = L + OE
+$113,000 = +$44,000 + OE
OE = +$69,000
OE on December 31, 2014 =
$427,000 = $358,000 + $69,000
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, 2014 =
$197,000 = $298,000 – $101,000
PE 1–3A
(2) Asset (Cash) decreases by $3,750;
Liability (Accounts Payable) decreases by $3,750.
(3) Asset (Accounts Receivable) increases by $22,400;
Revenue (Delivery Service Fees) increases by $22,400.
(4) Asset (Cash) increases by $11,300;
Asset (Accounts Receivable) decreases by $11,300.
(5) Asset (Cash) decreases by $6,000;
Asset (Gates Deeter, Drawing) increases by $6,000.
1-2
, CHAPTE Introduction to Accounting and
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
SUNSET TRAVEL SERVICE
Income Statement
For the Year Ended April 30, 2014
Fees earned $1,673,000
Expenses:
Wages expense $660,000
Office expense 488,000
Miscellaneous expense 34,000
Total expenses 1,182,000
Net income $ 491,000
PE 1–4B
SENTINEL TRAVEL SERVICE
Income Statement
For the Year Ended August 31, 2014
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
, CHAPTE Introduction to Accounting and
PE 1–5A
SUNSET TRAVEL SERVICE
Statement of Owner’s Equity
For the Year Ended April 30, 2014
Craig Daws, capital, May 1, 2013 $300,000
Additional investment by owner during year $ 75,000
Net income for the year 491,000
$566,000
Less withdrawals 66,000
Increase in owner’s equity 500,000
Craig Daws, capital, April 30, 2014 $800,000
PE 1–5B
SENTINEL TRAVEL SERVICE
Statement of Owner’s Equity
For the Year Ended August 31, 2014
Barb Schroeder, capital, September 1, 2013 $380,000
Additional investment by owner during year $36,000
Net loss for the year (7,000)
$29,000
Less withdrawals 18,000
Increase in owner’s equity 11,000
Barb Schroeder, capital, August 31, 2014 $391,000
PE 1–6A
SUNSET TRAVEL SERVICE
Balance Sheet
April 30, 2014
Assets Liabilities
Cash $274,000 Accounts payable $ 61,000
Accounts receivable 124,000
Supplies 13,000 Owner’s Equity
Land 450,000 Craig Daws, capital 800,000
Total liabilities and
Total assets $861,000 owner’s equity $861,000
1-4
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.
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
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTE Introduction to Accounting and
PRACTICE EXERCISES
PE 1–1A
$345,000. Under the cost concept, the land should be recorded at the cost
to Integrity 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
$942,000 = $584,000 + OE
OE = $358,000
b. A = L + OE
+$113,000 = +$44,000 + OE
OE = +$69,000
OE on December 31, 2014 =
$427,000 = $358,000 + $69,000
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, 2014 =
$197,000 = $298,000 – $101,000
PE 1–3A
(2) Asset (Cash) decreases by $3,750;
Liability (Accounts Payable) decreases by $3,750.
(3) Asset (Accounts Receivable) increases by $22,400;
Revenue (Delivery Service Fees) increases by $22,400.
(4) Asset (Cash) increases by $11,300;
Asset (Accounts Receivable) decreases by $11,300.
(5) Asset (Cash) decreases by $6,000;
Asset (Gates Deeter, Drawing) increases by $6,000.
1-2
, CHAPTE Introduction to Accounting and
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
SUNSET TRAVEL SERVICE
Income Statement
For the Year Ended April 30, 2014
Fees earned $1,673,000
Expenses:
Wages expense $660,000
Office expense 488,000
Miscellaneous expense 34,000
Total expenses 1,182,000
Net income $ 491,000
PE 1–4B
SENTINEL TRAVEL SERVICE
Income Statement
For the Year Ended August 31, 2014
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
, CHAPTE Introduction to Accounting and
PE 1–5A
SUNSET TRAVEL SERVICE
Statement of Owner’s Equity
For the Year Ended April 30, 2014
Craig Daws, capital, May 1, 2013 $300,000
Additional investment by owner during year $ 75,000
Net income for the year 491,000
$566,000
Less withdrawals 66,000
Increase in owner’s equity 500,000
Craig Daws, capital, April 30, 2014 $800,000
PE 1–5B
SENTINEL TRAVEL SERVICE
Statement of Owner’s Equity
For the Year Ended August 31, 2014
Barb Schroeder, capital, September 1, 2013 $380,000
Additional investment by owner during year $36,000
Net loss for the year (7,000)
$29,000
Less withdrawals 18,000
Increase in owner’s equity 11,000
Barb Schroeder, capital, August 31, 2014 $391,000
PE 1–6A
SUNSET TRAVEL SERVICE
Balance Sheet
April 30, 2014
Assets Liabilities
Cash $274,000 Accounts payable $ 61,000
Accounts receivable 124,000
Supplies 13,000 Owner’s Equity
Land 450,000 Craig Daws, capital 800,000
Total liabilities and
Total assets $861,000 owner’s equity $861,000
1-4
