TESTBANK
c
, CHAPTER1 c
INTRODUCTIONTOACCOUNTINGANDBUSINESS c c c c
DISCUSSION QUESTIONS
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1. Some users of accounting information include managers, employees, investors, creditors,
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customers, and the government.
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2. The role of accounting is to provide information for managers to use in operating the business. In
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addition, accounting provides information to others to use in assessing the economic
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performance and condition of the business.
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3. The corporate form allows the company to obtain large amounts of resources by issuing stock.
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For this reason, most companies that require large investments in property, plant, and equipment are
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organized as corporations.
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4. No. The business entity concept limits the recording of economic data to transactions directly
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affecting the activities of the business. The payment of the interest of $4,500 is a personal
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transaction of Josh Reilly and should not be recorded by Dispatch Delivery Service.
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5. The land should be recorded at its cost of $167,500 to Reliable Repair Service. This is consistent with
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the cost concept.
c c c
6. a. No. The offer of $2,000,000 and the increase in the assessed value should not be recognized in
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the accounting records because land is recorded on the cost basis.
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b. Cash would increase by $2,125,000, land would decrease by $900,000, and owner’s equity
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would increase by $1,225,000.
c c c c
7. An account receivable is a claim against a customer for goods or services sold. An account
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payable is an amount owed to a creditor for goods or services purchased. Therefore, an account
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receivable in the records of the seller is an account payable in the records of the purchaser.
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8. (b) The business realized net income of $91,000 ($679,000 – $588,000).
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9. (a) The business incurred a net loss of $75,000 ($640,000 – $715,000).
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10. (a) Net income or net loss
c c c c c
(b) Owner’s equity at the end of the period c c c c c c c
(c) Cashat the end of the period c c c c c c
1-1
© 2021 Cengage Learning, Inc. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
c c c c c c c c c c c c c c c c c c c c c c c
,
, CHAPTER 1 c Introduction to Accounting and Business c c c c
PRACTICE EXERCISES c
PE 1-1A
c
$597,000. Under the cost concept, the land should be recorded at thecost to Boulder Repair
c c c c c c c c c c c c c c c
Service.
c
PE 1-1B
c
$369,500. Under the cost concept, theland should be recorded at the cost to Clementine
c c c c c c c c c c c c c c
Repair Service.
c c
PE 1-2A
c
a. A = L + OE c c
$518,000 = $165,000 + OE c c
OE = $353,000
b. A = L + OE c c
+$86,200 = +$25,000 + OE c c
OE = +$61,200
OEon December 31, 20Y9
c c c c = $353,000+ $61,200 c c
= $414,200
PE 1-2B
c
a. A = L + OE c c
$382,000 = $94,000 + OE c c
OE = $288,000
b. A = L + OE c c
–$63,000 c = +$35,000+ OE – c c c
OE = $98,000
OEon December 31, 20Y9
c c c c = $288,000 – $98,000 c c
= $190,000
PE 1-3A
c
(2) Asset (Accounts Receivable) increases by $22,400;
c c c c c
Owner’sEquity(Delivery Service Fees) increases by $22,400.
c c c c c c c
(3) Liability(AccountsPayable)decreasesby $4,100;
c c c c c
Asset (Cash) decreases by $4,100.
c c c c c
(4) Asset (Cash) increases by $14,700;
c c c c
Asset(AccountsReceivable)decreasesby$14,700.
c c c c c
(5) Asset (Cash) decreases by $1,600;
c c c c
Owner’sEquity(TerryYoung, Drawing) decreases by $1,600.
c c c c c c c
1-2
© 2021 Cengage Learning, Inc. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
c c c c c c c c c c c c c c c c c c c c c c c
c
, CHAPTER1 c
INTRODUCTIONTOACCOUNTINGANDBUSINESS c c c c
DISCUSSION QUESTIONS
c c
1. Some users of accounting information include managers, employees, investors, creditors,
c c c c c c c c c
customers, and the government.
c c c c
2. The role of accounting is to provide information for managers to use in operating the business. In
c c c c c c c c c c c c c c c c
addition, accounting provides information to others to use in assessing the economic
c c c c c c c c c c c c
performance and condition of the business.
c c c c c c
3. The corporate form allows the company to obtain large amounts of resources by issuing stock.
c c c c c c c c c c c c c c
For this reason, most companies that require large investments in property, plant, and equipment are
c c c c c c c c c c c c c c c
organized as corporations.
c c c
4. No. The business entity concept limits the recording of economic data to transactions directly
c c c c c c c c c c c c c
affecting the activities of the business. The payment of the interest of $4,500 is a personal
c c c c c c c c c c c c c c c c
transaction of Josh Reilly and should not be recorded by Dispatch Delivery Service.
c c c c c c c c c c c c c
5. The land should be recorded at its cost of $167,500 to Reliable Repair Service. This is consistent with
c c c c c c c c c c c c c c c c c
the cost concept.
c c c
6. a. No. The offer of $2,000,000 and the increase in the assessed value should not be recognized in
c c c c c c c c c c c c c c c c
the accounting records because land is recorded on the cost basis.
c c c c c c c c c c c
b. Cash would increase by $2,125,000, land would decrease by $900,000, and owner’s equity
c c c c c c c c c c c c
would increase by $1,225,000.
c c c c
7. An account receivable is a claim against a customer for goods or services sold. An account
c c c c c c c c c c c c c c c
payable is an amount owed to a creditor for goods or services purchased. Therefore, an account
c c c c c c c c c c c c c c c c
receivable in the records of the seller is an account payable in the records of the purchaser.
c c c c c c c c c c c c c c c c c
8. (b) The business realized net income of $91,000 ($679,000 – $588,000).
c c c c c c c c c c
9. (a) The business incurred a net loss of $75,000 ($640,000 – $715,000).
c c c c c c c c c c c
10. (a) Net income or net loss
c c c c c
(b) Owner’s equity at the end of the period c c c c c c c
(c) Cashat the end of the period c c c c c c
1-1
© 2021 Cengage Learning, Inc. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
c c c c c c c c c c c c c c c c c c c c c c c
,
, CHAPTER 1 c Introduction to Accounting and Business c c c c
PRACTICE EXERCISES c
PE 1-1A
c
$597,000. Under the cost concept, the land should be recorded at thecost to Boulder Repair
c c c c c c c c c c c c c c c
Service.
c
PE 1-1B
c
$369,500. Under the cost concept, theland should be recorded at the cost to Clementine
c c c c c c c c c c c c c c
Repair Service.
c c
PE 1-2A
c
a. A = L + OE c c
$518,000 = $165,000 + OE c c
OE = $353,000
b. A = L + OE c c
+$86,200 = +$25,000 + OE c c
OE = +$61,200
OEon December 31, 20Y9
c c c c = $353,000+ $61,200 c c
= $414,200
PE 1-2B
c
a. A = L + OE c c
$382,000 = $94,000 + OE c c
OE = $288,000
b. A = L + OE c c
–$63,000 c = +$35,000+ OE – c c c
OE = $98,000
OEon December 31, 20Y9
c c c c = $288,000 – $98,000 c c
= $190,000
PE 1-3A
c
(2) Asset (Accounts Receivable) increases by $22,400;
c c c c c
Owner’sEquity(Delivery Service Fees) increases by $22,400.
c c c c c c c
(3) Liability(AccountsPayable)decreasesby $4,100;
c c c c c
Asset (Cash) decreases by $4,100.
c c c c c
(4) Asset (Cash) increases by $14,700;
c c c c
Asset(AccountsReceivable)decreasesby$14,700.
c c c c c
(5) Asset (Cash) decreases by $1,600;
c c c c
Owner’sEquity(TerryYoung, Drawing) decreases by $1,600.
c c c c c c c
1-2
© 2021 Cengage Learning, Inc. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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