Solution Manual for Corporate
Financial Accounting, 13th
Edition - Carl S. Warren,
James M. Reeve, J
CHAPTER 1
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.
b. Cash would increase by $2,125,000, land would decrease by $900,000, and stockholders’
equity would increase by $1,225,000.
,introduction to Accounting and Business
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. Retained earnings at the end of the period
c. Cash at the end of the period
PE 1–1A
$230,000. Under the cost concept, the land should be recorded at the cost to Kountry Repair
Service.
PE 1–1B
$437,500. Under the cost concept, the land should be recorded at the cost to Higgins Repair
Service.
PE 1–2A
a. A = L + SE
$780,000 = $150,000 + SE
SE = $630,000
b. A = L + SE
+$90,000 = +$25,000 + SE SE = +$65,000
SE on December 31, 2016 = $630,000 + $65,000
SE on December 31, 2016 = $695,000
PE 1–2B
a. A = L + SE
$395,000 = $97,000 + SE
SE = $298,000
b. A = L + SE
–$65,000 = +$36,000 + SE
SE = –$101,000
SE on December 31, 2016 = $298,000 – $101,000
SE on December 31, 2016 = $197,000
PE 1–3A
,(2) Asset (Cash) decreases by $3,750;
Liability (Accounts Payable) decreases by $3,750.
(3) Asset (Accounts Receivable) increases by $22,400;
Revenue (Delivery Service Fees) increases by $22,400.
(4) Asset (Cash) increases by $11,300;
Asset (Accounts Receivable) decreases by $11,300.
(5) Asset (Cash) decreases by $6,000; Dividends increases by $6,000.
PE 1–3B
(2) Expense (Advertising Expense) increases by $4,850; Asset (Cash) decreases by $4,850.
(3) Asset (Supplies) increases by $2,100;
Liability (Accounts Payable) increases by $2,100.
(4) Asset (Accounts Receivable) increases by $14,700;
Revenue (Delivery Service Fees) increases by $14,700.
(5) Asset (Cash) increases by $8,200;
Asset (Accounts Receivable) decreases by $8,200.
PE 1–4A
OUSEL TRAVEL SERVICE
Income Statement
For the Year Ended November 30, 2016
Fees earned $1,475,000
Expenses:
Wages expense $885,000
Office expense 320,000
Miscellaneous expense 28,000
Total expenses 1,233,000
Net income $ 242,000
PE 1–4B
SENTINEL TRAVEL SERVICE
Income Statement
For the Year Ended August 31, 2016
Fees earned $750,000
, introduction to Accounting and Business
Expenses:
Wages expense $450,000
Office expense 295,000
Miscellaneous expense 12,000
Total expenses 757,000
Net loss $ (7,000)
PE 1–5A
OUSEL TRAVEL SERVICE
Retained Earnings Statement
For the Year Ended November 30, 2016
Retained earnings, December 1, 2015 $566,000
Net income for the year $242,000
Less dividends 30,000
Increase in retained earnings 212,000
Retained earnings, November 30, 2016 $778,000
PE 1–5B
SENTINEL TRAVEL SERVICE
Retained Earnings Statement
For the Year Ended August 31, 2016
Retained earnings, September 1, 2015 $250,000
Net loss for the year $ 7,000
Plus dividends 18,000
Decrease in retained earnings 25,000
Retained earnings, August 31, 2016 $275,000
PE 1–6A
Financial Accounting, 13th
Edition - Carl S. Warren,
James M. Reeve, J
CHAPTER 1
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.
b. Cash would increase by $2,125,000, land would decrease by $900,000, and stockholders’
equity would increase by $1,225,000.
,introduction to Accounting and Business
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. Retained earnings at the end of the period
c. Cash at the end of the period
PE 1–1A
$230,000. Under the cost concept, the land should be recorded at the cost to Kountry Repair
Service.
PE 1–1B
$437,500. Under the cost concept, the land should be recorded at the cost to Higgins Repair
Service.
PE 1–2A
a. A = L + SE
$780,000 = $150,000 + SE
SE = $630,000
b. A = L + SE
+$90,000 = +$25,000 + SE SE = +$65,000
SE on December 31, 2016 = $630,000 + $65,000
SE on December 31, 2016 = $695,000
PE 1–2B
a. A = L + SE
$395,000 = $97,000 + SE
SE = $298,000
b. A = L + SE
–$65,000 = +$36,000 + SE
SE = –$101,000
SE on December 31, 2016 = $298,000 – $101,000
SE on December 31, 2016 = $197,000
PE 1–3A
,(2) Asset (Cash) decreases by $3,750;
Liability (Accounts Payable) decreases by $3,750.
(3) Asset (Accounts Receivable) increases by $22,400;
Revenue (Delivery Service Fees) increases by $22,400.
(4) Asset (Cash) increases by $11,300;
Asset (Accounts Receivable) decreases by $11,300.
(5) Asset (Cash) decreases by $6,000; Dividends increases by $6,000.
PE 1–3B
(2) Expense (Advertising Expense) increases by $4,850; Asset (Cash) decreases by $4,850.
(3) Asset (Supplies) increases by $2,100;
Liability (Accounts Payable) increases by $2,100.
(4) Asset (Accounts Receivable) increases by $14,700;
Revenue (Delivery Service Fees) increases by $14,700.
(5) Asset (Cash) increases by $8,200;
Asset (Accounts Receivable) decreases by $8,200.
PE 1–4A
OUSEL TRAVEL SERVICE
Income Statement
For the Year Ended November 30, 2016
Fees earned $1,475,000
Expenses:
Wages expense $885,000
Office expense 320,000
Miscellaneous expense 28,000
Total expenses 1,233,000
Net income $ 242,000
PE 1–4B
SENTINEL TRAVEL SERVICE
Income Statement
For the Year Ended August 31, 2016
Fees earned $750,000
, introduction to Accounting and Business
Expenses:
Wages expense $450,000
Office expense 295,000
Miscellaneous expense 12,000
Total expenses 757,000
Net loss $ (7,000)
PE 1–5A
OUSEL TRAVEL SERVICE
Retained Earnings Statement
For the Year Ended November 30, 2016
Retained earnings, December 1, 2015 $566,000
Net income for the year $242,000
Less dividends 30,000
Increase in retained earnings 212,000
Retained earnings, November 30, 2016 $778,000
PE 1–5B
SENTINEL TRAVEL SERVICE
Retained Earnings Statement
For the Year Ended August 31, 2016
Retained earnings, September 1, 2015 $250,000
Net loss for the year $ 7,000
Plus dividends 18,000
Decrease in retained earnings 25,000
Retained earnings, August 31, 2016 $275,000
PE 1–6A
