SOLUTIONS
MANUAL:Accounting
28th Edition, Carl S. Warren
, 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 concept 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 concept.
6. a. No. The offer of $2,000,000 and the increase in the assessed value should not be recognized
in the 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
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) Owner’s equity at the end of the period
(c) Cash at the end of the period
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.
, CHAPTER 1 Introduction to Accounting and Business
PRACTICE EXERCISES
PE 1-1A
$597,000. Under the cost concept, the land should be recorded at the cost to Boulder
Repair Service.
PE 1-1B
$369,500. Under the cost concept, the land should be recorded at the cost to
Clementine 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
–$63,000 = +$35,000 + OE –
OE = $98,000
OE on December 31, 20Y9 = $288,000 – $98,000
= $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.
1-2
© 2021 Cengage Learning, Inc. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTER 1 Introduction to Accounting and Business
PE 1-3B
(2) Owner’s aEquity a(Advertising aExpense, aincreases) adecreases aby
a$6,750; aAsset a(Cash) adecreases aby a$6,750.
(3) Asset a(Supplies) aincreases aby a$2,920;
Liability a(Accounts aPayable) aincreases aby a$2,920.
(4) Asset a(Accounts aReceivable) aincreases aby a$20,460;
Owner’s aEquity a(Delivery aService aFees) aincreases aby a$20,460.
(5) Asset a(Cash) aincreases aby a$11,410;
Asset a(Accounts aReceivable) adecreases aby a$11,410.
PE a1-4A
Up-in-the-Air aTravel aService
Income aStatement
For athe aYear aEnded aApril a30, a20Y7
Fees aearned $1,870,000
Expenses:
Wages aexpense $1,115,000
Office aexpense 343,000
Miscellaneous aexpense 21,000
Total aexpenses 1,479,000
Net aincome $ a a 391,000
PE a1-4B
Zenith aTravel aService
Income aStatement
For athe aYear aEnded aAugust a31, a20Y4
Fees aearned $899,600
Expenses:
Wages aexpense $539,800
Office aexpense 353,800
Miscellaneous aexpense 14,400
Total aexpenses 908,000
Net aloss $ a (8,400)
1-3
© 2021 Cengage Learning, Inc. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
MANUAL:Accounting
28th Edition, Carl S. Warren
, 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 concept 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 concept.
6. a. No. The offer of $2,000,000 and the increase in the assessed value should not be recognized
in the 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
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) Owner’s equity at the end of the period
(c) Cash at the end of the period
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.
, CHAPTER 1 Introduction to Accounting and Business
PRACTICE EXERCISES
PE 1-1A
$597,000. Under the cost concept, the land should be recorded at the cost to Boulder
Repair Service.
PE 1-1B
$369,500. Under the cost concept, the land should be recorded at the cost to
Clementine 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
–$63,000 = +$35,000 + OE –
OE = $98,000
OE on December 31, 20Y9 = $288,000 – $98,000
= $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.
1-2
© 2021 Cengage Learning, Inc. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTER 1 Introduction to Accounting and Business
PE 1-3B
(2) Owner’s aEquity a(Advertising aExpense, aincreases) adecreases aby
a$6,750; aAsset a(Cash) adecreases aby a$6,750.
(3) Asset a(Supplies) aincreases aby a$2,920;
Liability a(Accounts aPayable) aincreases aby a$2,920.
(4) Asset a(Accounts aReceivable) aincreases aby a$20,460;
Owner’s aEquity a(Delivery aService aFees) aincreases aby a$20,460.
(5) Asset a(Cash) aincreases aby a$11,410;
Asset a(Accounts aReceivable) adecreases aby a$11,410.
PE a1-4A
Up-in-the-Air aTravel aService
Income aStatement
For athe aYear aEnded aApril a30, a20Y7
Fees aearned $1,870,000
Expenses:
Wages aexpense $1,115,000
Office aexpense 343,000
Miscellaneous aexpense 21,000
Total aexpenses 1,479,000
Net aincome $ a a 391,000
PE a1-4B
Zenith aTravel aService
Income aStatement
For athe aYear aEnded aAugust a31, a20Y4
Fees aearned $899,600
Expenses:
Wages aexpense $539,800
Office aexpense 353,800
Miscellaneous aexpense 14,400
Total aexpenses 908,000
Net aloss $ a (8,400)
1-3
© 2021 Cengage Learning, Inc. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
