©nw2021nwPearsonnwCanadanw
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RightsnwReserve
d 4-1
,Accounting Concepts and Procedur nw nw nw
es: An Introduction
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ANSWERS TO DISCUSSION QUESTIONS AND CRITIC nw nw nw nw nw
AL THINKING/ETHICAL CASE nw nw
1. The functions of accounting are to analyze, record, classify, summarize, report and int
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erpret information.
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2. Sole proprietorship—one owner, unlimited liability; easy to form Partnership—
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two or more owners; unlimited liability, easy to form Corporation—
nw nw nw nw nw nw nw nw nw
one or more shareholders; limited liability; more difficult to form.
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3. Service, merchandising, or manufacturing.
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4. The objective of accounting is to provide relevant, timely information for user decision makin
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g. Accountants must behave in an ethical manner so that the information they provide will b
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e trustworthy and, therefore, useful for all decisions. Ethics are moral principles that guide th
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e conduct of individuals. Sometimes business managers and accountants behave in an unethic
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al manner.
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5. The three elements of the basic accounting equation are assets, liabilities, owner’s equity.
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6. Capital is the owner’s current investment or equity in the assets of a business. It is one subdivision of
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owner’s equity. nw
7. True. The sum of the left side of the equation must equal the sum of the right side of the equation.
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8. False. It is the income statement that tells how well the company has performed.
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9. False. Revenue is a subdivision of owner’s equity.
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10. Owner’s equity is subdivided into Capital, Withdrawals, Revenue, and Expenses.
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11. False. It is a subdivision of owner’s equity.
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12. Reject. As expenses increase and revenue remains the same, owner’s equity decreases.
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13. Revenue less Expenses; an income statement shows performance—profit or loss for the period.
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14. False. It calculates ending capital.
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15. The question in this case is whether Paul should be allowed to ―pad‖ his expense account wi
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th an additional $100 of expenses. Paul should be allowed to charge only those items that are
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business related. Paul’s argument that he is entitled to an additional $100 is not a valid assu
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mption. However, he should be allocated money for any business expenses during the weekend
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. Paul should also ask his employer for additional compensation for working during his non sc
nw nw nw nw nw nw nw nw nw nw nw nw nw nw nw
heduled time. The important point is that accountants need to be seen as being ethical and sh
nw nw nw nw nw nw nw nw nw nw nw nw nw nw nw nw
ould not do unethical activities.
nw nw nw nw
©nw2021nwPearsonnwCanadanw
All
RightsnwReserve
d 4-1
, SOLUTIONS TO CLASSROOM DEMONSTRATION EXERCISES
nw nw nw nw
CDE1. a. A CDE4. $24,000 ($12,000 + $12,000
nw nw nw CDE8. a. IS
b. A ) b. BS
c. L CDE5. c. J. Penny, Capital
nw nw c. BS
d. A d. Advertising Expense nw d. BS
e. OE f. Taxi Fees Earned
nw nw e. IS
f. A g. J. Penny, Withdrawls
nw nw f. IS
g. OE
h. BS
CDE2. a. Liabilities and or nw nw CDE6. c. Accounts Payable
nw
b. Assets d. Grooming Fees Earne
nw nw CDE9 a. OE
d b. BS
c. Accounts Payable nw
c. BS
d. IS
CDE3. a. I CDE7. a.
b. S b.
d.
CDE10.
1. Balance Sheet
nw
2. Assets
3. Liabilities
4. Accounting Equation nw
5. Accounts Payable
nw
6. Service
7. Owner’s Equitynw
8. Accounts Receivable
nw
9. Transaction
10. Creditor
SOLUTIONS TO EXERCISES—SET A
nw nw nw
E1-1A.
a. nw $15,000 ($19,000 − $4,000)nw nw
b. nw $15,000 ($ 6,000 + $9,000)
nw nw nw
c. $ 6,000
nw nw ($10,000 − $4,000)nw nw
E1-2A.
1. Service 6. Service
2. Merchandise 7. Service
3. Service 8. Manufacturer
4. Merchandise 9. Manufacturer
5. Merchandise 10. Merchandise
E1-3A.
1-3A nw Solutions
1. n w B
2. n w B
3. n w B
4. n w A
5. n w D
6. n w D
©nw2021nwPearsonnwCanadanw
All
RightsnwReserve
d 4-1
, 7. n w D
8. n w B
9. n w C
10.
n w A
©nw2021nwPearsonnwCanadanw
All
RightsnwReserve
d 4-1
All
RightsnwReserve
d 4-1
,Accounting Concepts and Procedur nw nw nw
es: An Introduction
nw nw
ANSWERS TO DISCUSSION QUESTIONS AND CRITIC nw nw nw nw nw
AL THINKING/ETHICAL CASE nw nw
1. The functions of accounting are to analyze, record, classify, summarize, report and int
nw nw nw nw nw nw nw nw nw nw nw nw
erpret information.
nw
2. Sole proprietorship—one owner, unlimited liability; easy to form Partnership—
nw nw nw nw nw nw nw nw
two or more owners; unlimited liability, easy to form Corporation—
nw nw nw nw nw nw nw nw nw
one or more shareholders; limited liability; more difficult to form.
nw nw nw nw nw nw nw nw nw
3. Service, merchandising, or manufacturing.
nw nw nw
4. The objective of accounting is to provide relevant, timely information for user decision makin
nw nw nw nw nw nw nw nw nw nw nw nw nw
g. Accountants must behave in an ethical manner so that the information they provide will b
nw nw nw nw nw nw nw nw nw nw nw nw nw nw nw
e trustworthy and, therefore, useful for all decisions. Ethics are moral principles that guide th
nw nw nw nw nw nw nw nw nw nw nw nw nw nw
e conduct of individuals. Sometimes business managers and accountants behave in an unethic
nw nw nw nw nw nw nw nw nw nw nw nw
al manner.
nw
5. The three elements of the basic accounting equation are assets, liabilities, owner’s equity.
nw nw nw nw nw nw nw nw nw nw nw nw
6. Capital is the owner’s current investment or equity in the assets of a business. It is one subdivision of
nw nw nw nw nw nw nw nw nw nw nw nw nw nw nw nw nw nw
owner’s equity. nw
7. True. The sum of the left side of the equation must equal the sum of the right side of the equation.
nw nw nw nw nw nw nw nw nw nw nw nw nw nw nw nw nw nw nw nw
8. False. It is the income statement that tells how well the company has performed.
nw nw nw nw nw nw nw nw nw nw nw nw nw
9. False. Revenue is a subdivision of owner’s equity.
nw nw nw nw nw nw nw
10. Owner’s equity is subdivided into Capital, Withdrawals, Revenue, and Expenses.
nw nw nw nw nw nw nw nw nw
11. False. It is a subdivision of owner’s equity.
nw nw nw nw nw nw nw
12. Reject. As expenses increase and revenue remains the same, owner’s equity decreases.
nw nw nw nw nw nw nw nw nw nw nw
13. Revenue less Expenses; an income statement shows performance—profit or loss for the period.
nw nw nw nw nw nw nw nw nw nw nw nw
14. False. It calculates ending capital.
nw nw nw nw
15. The question in this case is whether Paul should be allowed to ―pad‖ his expense account wi
nw nw nw nw nw nw nw nw nw nw nw nw nw nw nw nw
th an additional $100 of expenses. Paul should be allowed to charge only those items that are
nw nw nw nw nw nw nw nw nw nw nw nw nw nw nw nw
business related. Paul’s argument that he is entitled to an additional $100 is not a valid assu
nw nw nw nw nw nw nw nw nw nw nw nw nw nw nw nw nw
mption. However, he should be allocated money for any business expenses during the weekend
nw nw nw nw nw nw nw nw nw nw nw nw nw
. Paul should also ask his employer for additional compensation for working during his non sc
nw nw nw nw nw nw nw nw nw nw nw nw nw nw nw
heduled time. The important point is that accountants need to be seen as being ethical and sh
nw nw nw nw nw nw nw nw nw nw nw nw nw nw nw nw
ould not do unethical activities.
nw nw nw nw
©nw2021nwPearsonnwCanadanw
All
RightsnwReserve
d 4-1
, SOLUTIONS TO CLASSROOM DEMONSTRATION EXERCISES
nw nw nw nw
CDE1. a. A CDE4. $24,000 ($12,000 + $12,000
nw nw nw CDE8. a. IS
b. A ) b. BS
c. L CDE5. c. J. Penny, Capital
nw nw c. BS
d. A d. Advertising Expense nw d. BS
e. OE f. Taxi Fees Earned
nw nw e. IS
f. A g. J. Penny, Withdrawls
nw nw f. IS
g. OE
h. BS
CDE2. a. Liabilities and or nw nw CDE6. c. Accounts Payable
nw
b. Assets d. Grooming Fees Earne
nw nw CDE9 a. OE
d b. BS
c. Accounts Payable nw
c. BS
d. IS
CDE3. a. I CDE7. a.
b. S b.
d.
CDE10.
1. Balance Sheet
nw
2. Assets
3. Liabilities
4. Accounting Equation nw
5. Accounts Payable
nw
6. Service
7. Owner’s Equitynw
8. Accounts Receivable
nw
9. Transaction
10. Creditor
SOLUTIONS TO EXERCISES—SET A
nw nw nw
E1-1A.
a. nw $15,000 ($19,000 − $4,000)nw nw
b. nw $15,000 ($ 6,000 + $9,000)
nw nw nw
c. $ 6,000
nw nw ($10,000 − $4,000)nw nw
E1-2A.
1. Service 6. Service
2. Merchandise 7. Service
3. Service 8. Manufacturer
4. Merchandise 9. Manufacturer
5. Merchandise 10. Merchandise
E1-3A.
1-3A nw Solutions
1. n w B
2. n w B
3. n w B
4. n w A
5. n w D
6. n w D
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All
RightsnwReserve
d 4-1
, 7. n w D
8. n w B
9. n w C
10.
n w A
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All
RightsnwReserve
d 4-1
