Solution Manual For Accounting 28th Edition by Carl S.
Warren, Christine Jonick
1-1
, CHAPTER`1
INTRODUCTION`TO`ACCOUNTING`AND`BUSINESS
DISCUSSION`QUESTIONS
1. Some`users`of`accounting`information`include`managers,`employees,`investors,`creditors,`c
ustomers,`and`the`government.
2. The`role`of`accounting`is`to`provide`information`for`managers`to`use`in`operating`the`business.` I
n`addition,`accounting`provides`information`to`others`to`use`in`assessing`the`economic`performa
nce`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`ar
e`organized`as`corporations.
4. No.`The`business`entity`concept`limits`the`recording`of`economic`data`to`transactions`directly`af
fecting`the`activities`of`the`business.`The`payment`of`the`interest`of`$4,500`is`a`personal`transac
tion`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`t
he`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`w
ould`increase`by`$1,225,000.
7. An`account`receivable`is`a`claim`against`a`customer`for`goods`or`services`sold.`An`account`payab
le`is`an`amount`owed`to`a`creditor`for`goods`or`services`purchased.`Therefore,`an`account`receiva
ble`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
1-2
, CHAPTER`1 Introduction`to`Accounting`and`Business
PE`1-3B PRACTICE` EXERCISES
PE`1-1A
$597,000.`Under`the`cost`concept,`the`land`should`be`recorded`at`the`cost`to`Boulder`Repa
ir`Service.
PE`1-1B
$369,500.`Under`the`cost`concept,`the`land`should`be`recorded`at`the`cost`to`Clem
entine`Repair`Service.
PE`1-2A
a. A = L` +` OE
$518,000 = $165,000`+`OE
OE = $353,000
b. A = L` +` OE
+$86,200 = +$25,000`+`OE
OE = +$61,200
OE`on`December`31,`20Y9 = $353,000`+`$61,200
= $414,200
PE`1-2B
a. A = L` +` OE
$382,000 = $94,000`+`OE
OE = $288,000
b. A = L` +` OE
`– = +$35,000`+`OE`–
$63,000 = $98,000
OE = $288,000`–`$98,000
OE`on`December`31,`20Y9 = $190,000
PE`1-3A
(2) Asset`(Accounts`Receivable)`increases`by`$22,400;
Owner’s`Equity`(Delivery`Service`Fees)`increases`by`$22,400.
(3) Liability`(Accounts`Payable)`decreases`by`$4,100;`
Asset`(Cash)`decreases`by`$4,100.
(4) Asset`(Cash)`increases`by`$14,700;
Asset`(Accounts`Receivable)`decreases`by`$14,700.
(5) Asset`(Cash)`decreases`by`$1,600;
Owner’s`Equity`(Terry`Young,`Drawing)`decreases`by`$1,600.
1-1
,
Warren, Christine Jonick
1-1
, CHAPTER`1
INTRODUCTION`TO`ACCOUNTING`AND`BUSINESS
DISCUSSION`QUESTIONS
1. Some`users`of`accounting`information`include`managers,`employees,`investors,`creditors,`c
ustomers,`and`the`government.
2. The`role`of`accounting`is`to`provide`information`for`managers`to`use`in`operating`the`business.` I
n`addition,`accounting`provides`information`to`others`to`use`in`assessing`the`economic`performa
nce`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`ar
e`organized`as`corporations.
4. No.`The`business`entity`concept`limits`the`recording`of`economic`data`to`transactions`directly`af
fecting`the`activities`of`the`business.`The`payment`of`the`interest`of`$4,500`is`a`personal`transac
tion`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`t
he`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`w
ould`increase`by`$1,225,000.
7. An`account`receivable`is`a`claim`against`a`customer`for`goods`or`services`sold.`An`account`payab
le`is`an`amount`owed`to`a`creditor`for`goods`or`services`purchased.`Therefore,`an`account`receiva
ble`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
1-2
, CHAPTER`1 Introduction`to`Accounting`and`Business
PE`1-3B PRACTICE` EXERCISES
PE`1-1A
$597,000.`Under`the`cost`concept,`the`land`should`be`recorded`at`the`cost`to`Boulder`Repa
ir`Service.
PE`1-1B
$369,500.`Under`the`cost`concept,`the`land`should`be`recorded`at`the`cost`to`Clem
entine`Repair`Service.
PE`1-2A
a. A = L` +` OE
$518,000 = $165,000`+`OE
OE = $353,000
b. A = L` +` OE
+$86,200 = +$25,000`+`OE
OE = +$61,200
OE`on`December`31,`20Y9 = $353,000`+`$61,200
= $414,200
PE`1-2B
a. A = L` +` OE
$382,000 = $94,000`+`OE
OE = $288,000
b. A = L` +` OE
`– = +$35,000`+`OE`–
$63,000 = $98,000
OE = $288,000`–`$98,000
OE`on`December`31,`20Y9 = $190,000
PE`1-3A
(2) Asset`(Accounts`Receivable)`increases`by`$22,400;
Owner’s`Equity`(Delivery`Service`Fees)`increases`by`$22,400.
(3) Liability`(Accounts`Payable)`decreases`by`$4,100;`
Asset`(Cash)`decreases`by`$4,100.
(4) Asset`(Cash)`increases`by`$14,700;
Asset`(Accounts`Receivable)`decreases`by`$14,700.
(5) Asset`(Cash)`decreases`by`$1,600;
Owner’s`Equity`(Terry`Young,`Drawing)`decreases`by`$1,600.
1-1
,
