Solution Manual for
Financial and
Managerial
Accounting, 14th
Edition, Carl Warren,
James M. Reeve,
Jonathan Duchac,
ISBN-10: 1337119202,
ISBN-13:
9781337119207
, 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 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.
5. The land should be recorded at its cost of $167,500 to Reliable Repair Service. This is consistent
with the cost principle.
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 stockholders’
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) Retained earnings at the end of the period
(C) Cash at the end of the period
1-1
.
,
, CHAPTER 1 Introduction to Accounting and Business
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. A = L + SE
$395,000 = $97,000 + SE
SE = $298,000
B. A = L + SE
–$65,000 = +$36,000 + SE
SE = –$101,000
SE on December 31, 2018 = $298,000 – $101,000
SE on December 31, 2018 = $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, 2018
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
1-2
Financial and
Managerial
Accounting, 14th
Edition, Carl Warren,
James M. Reeve,
Jonathan Duchac,
ISBN-10: 1337119202,
ISBN-13:
9781337119207
, 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 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.
5. The land should be recorded at its cost of $167,500 to Reliable Repair Service. This is consistent
with the cost principle.
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 stockholders’
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) Retained earnings at the end of the period
(C) Cash at the end of the period
1-1
.
,
, CHAPTER 1 Introduction to Accounting and Business
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. A = L + SE
$395,000 = $97,000 + SE
SE = $298,000
B. A = L + SE
–$65,000 = +$36,000 + SE
SE = –$101,000
SE on December 31, 2018 = $298,000 – $101,000
SE on December 31, 2018 = $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, 2018
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
1-2
