1|Page
Chapter No. 01: Accounting Concepts and
Procedures: An Introduction
DISCUSSION QUESTIONS ANSWERS AND CRITICAL THINKING/ETHICAL CASE
1. The functions of accounting are to analyze, record, classify, summarize, report, and inter
information.
2. Sole proprietorship—one owner, unlimited liability; easy to form Partnership—two or m
owners; unlimited liability, easy to form Corporation—one or more shareholders; limited liabili
more difficult to form.
3. Service, merchandising, or manufacturing.
4. The objective of accounting is to provide relevant, timely information for user decision
making. Accountants must behave ethically so that the information they provide will be trustwo
and, therefore, useful for all decisions. Ethics are moral principles that guide the conduct of
individuals. Sometimes business managers and accountants behave in an unethical manner.
5. The three elements of the basic accounting equation are assets, liabilities, owner’s equity
6. Capital is the owner’s current investment or equity in the assets of a business. It is one
subdivision of owner’s equity.
7. True. The sum of the left side of the equation must equal the sum of the right side of the
equation.
8. False. It is the income statement that tells how well the company has performed.
9. False. Revenue is a subdivision of owner’s equity.
10. Owner’s equity is subdivided into Capital, Withdrawals, Revenue, and Expenses.
11. False. It is a subdivision of owner’s equity.
12. Reject. As expenses increase and revenue remains the same, owner’s equity decreases.
,13. Revenue less Expenses; an income statement shows performance—profit or loss for the
period.
14. False. It calculates ending capital.
15. The question, in this case, is whether Paul should be allowed to “pad” his expense accoun
with an additional $100 of expenses. Paul should be allowed to charge only those items that are
business related. Paul’s argument that he is entitled to an additional $100 is not a valid assump
However, he should be allocated money for any business expenses during the weekend. Paul sh
also ask his employer for additional compensation for working during his non-scheduled time.
important point is that accountants need to be seen as ethical and should not do unethical activ
,3|Page
SOLUTIONS TO CLASSROOM DEMONSTRATION EXERCISES
CDE1. a. A CDE4. $24,000 ($12,000 + $12,000) CDE8. a. IS
b. A b. BS
c. L CDE5. c. J. Takibi, Capital c. BS
d. A d. Advertising Expense d. BS
e. OE f. Service Fees Earned e. IS
f. A g. J. Takibi, Withdrawals f. IS
g. OE
h. BS
CDE2. a. Liabilities CDE6. c. Accounts Payable
b. Assets d. Delivery Fees Earned CDE9 a. OE
c. Accounts Payable b. BS
c. BS
d. IS
CDE3. a. I CDE7. a.
b. S b.
d.
CDE10.
1. balance sheet
2. Assets
3. liabilities
4. accounting equation
5. accounts aayable
6. service
7. owner’s equity
8. Accounts receivable
9. transaction
10. creditor
SOLUTIONS TO EXERCISES—SET A
E1-1A.
a. $15,000 ($19,000 − $4,000)
b. $15,000 ($ 6,000 + $9,000)
c. $ 6,000 ($10,000 − $4,000)
E1-2A.
1. Service 6. Service
2. Merchandise 7. Service
3. Service 8.
Manufacture
r
4. Merchandise 9.
Manufacture
r
5. Merchandise 10. Merchandise
E1-3A.
1. b
2. b
3. b
4. a
, 5. d
6. d
7. d
8. b
9. c
10. a
Chapter No. 01: Accounting Concepts and
Procedures: An Introduction
DISCUSSION QUESTIONS ANSWERS AND CRITICAL THINKING/ETHICAL CASE
1. The functions of accounting are to analyze, record, classify, summarize, report, and inter
information.
2. Sole proprietorship—one owner, unlimited liability; easy to form Partnership—two or m
owners; unlimited liability, easy to form Corporation—one or more shareholders; limited liabili
more difficult to form.
3. Service, merchandising, or manufacturing.
4. The objective of accounting is to provide relevant, timely information for user decision
making. Accountants must behave ethically so that the information they provide will be trustwo
and, therefore, useful for all decisions. Ethics are moral principles that guide the conduct of
individuals. Sometimes business managers and accountants behave in an unethical manner.
5. The three elements of the basic accounting equation are assets, liabilities, owner’s equity
6. Capital is the owner’s current investment or equity in the assets of a business. It is one
subdivision of owner’s equity.
7. True. The sum of the left side of the equation must equal the sum of the right side of the
equation.
8. False. It is the income statement that tells how well the company has performed.
9. False. Revenue is a subdivision of owner’s equity.
10. Owner’s equity is subdivided into Capital, Withdrawals, Revenue, and Expenses.
11. False. It is a subdivision of owner’s equity.
12. Reject. As expenses increase and revenue remains the same, owner’s equity decreases.
,13. Revenue less Expenses; an income statement shows performance—profit or loss for the
period.
14. False. It calculates ending capital.
15. The question, in this case, is whether Paul should be allowed to “pad” his expense accoun
with an additional $100 of expenses. Paul should be allowed to charge only those items that are
business related. Paul’s argument that he is entitled to an additional $100 is not a valid assump
However, he should be allocated money for any business expenses during the weekend. Paul sh
also ask his employer for additional compensation for working during his non-scheduled time.
important point is that accountants need to be seen as ethical and should not do unethical activ
,3|Page
SOLUTIONS TO CLASSROOM DEMONSTRATION EXERCISES
CDE1. a. A CDE4. $24,000 ($12,000 + $12,000) CDE8. a. IS
b. A b. BS
c. L CDE5. c. J. Takibi, Capital c. BS
d. A d. Advertising Expense d. BS
e. OE f. Service Fees Earned e. IS
f. A g. J. Takibi, Withdrawals f. IS
g. OE
h. BS
CDE2. a. Liabilities CDE6. c. Accounts Payable
b. Assets d. Delivery Fees Earned CDE9 a. OE
c. Accounts Payable b. BS
c. BS
d. IS
CDE3. a. I CDE7. a.
b. S b.
d.
CDE10.
1. balance sheet
2. Assets
3. liabilities
4. accounting equation
5. accounts aayable
6. service
7. owner’s equity
8. Accounts receivable
9. transaction
10. creditor
SOLUTIONS TO EXERCISES—SET A
E1-1A.
a. $15,000 ($19,000 − $4,000)
b. $15,000 ($ 6,000 + $9,000)
c. $ 6,000 ($10,000 − $4,000)
E1-2A.
1. Service 6. Service
2. Merchandise 7. Service
3. Service 8.
Manufacture
r
4. Merchandise 9.
Manufacture
r
5. Merchandise 10. Merchandise
E1-3A.
1. b
2. b
3. b
4. a
, 5. d
6. d
7. d
8. b
9. c
10. a
