©5i20215iPearson5iCanada5iAl
l
Rights5iReserved
4-1
,1
Accounting Concepts and Procedure 5i 5i 5i
s: An Introduction
5i 5i
ANSWERS TO DISCUSSION QUESTIONS AND CRITICA 5i 5i 5i 5i 5i
L THINKING/ETHICAL CASE 5i 5i
1. The functions of accounting are to analyze, record, classify, summarize, report and interpr
5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i
et information.
5i
2. Sole proprietorship—one owner, unlimited liability; easy to form Partnership—
5i 5i 5i 5i 5i 5i 5i 5i
two or more owners; unlimited liability, easy to form Corporation—
5i 5i 5i 5i 5i 5i 5i 5i 5i
one or more shareholders; limited liability; more difficult to form.
5i 5i 5i 5i 5i 5i 5i 5i 5i
3. Service, merchandising, or manufacturing.
5i 5i 5i
4. The objective of accounting is to provide relevant, timely information for user decision making. Ac
5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i
countants must behave in an ethical manner so that the information they provide will be trustwort
5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i
hy and, therefore, useful for all decisions. Ethics are moral principles that guide the conduct of indi
5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i
viduals. Sometimes business managers and accountants behave in an unethical manner.
5i 5i 5i 5i 5i 5i 5i 5i 5i 5i
5. The three elements of the basic accounting equation are assets, liabilities, owner’s equity.
5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i
6. Capital is the owner’s current investment or equity in the assets of a business. It is one subdivision of
5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i
owner’s equity. 5i
7. True. The sum of the left side of the equation must equal the sum of the right side of the equation.
5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i
8. False. It is the income statement that tells how well the company has performed.
5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i
9. False. Revenue is a subdivision of owner’s equity.
5i 5i 5i 5i 5i 5i 5i
10. Owner’s equity is subdivided into Capital, Withdrawals, Revenue, and Expenses.
5i 5i 5i 5i 5i 5i 5i 5i 5i
11. False. It is a subdivision of owner’s equity.
5i 5i 5i 5i 5i 5i 5i
12. Reject. As expenses increase and revenue remains the same, owner’s equity decreases.
5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i
13. Revenue less Expenses; an income statement shows performance—profit or loss for the period.
5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i
14. False. It calculates ending capital.
5i 5i 5i 5i
15. The question in this case is whether Paul should be allowed to ―pad‖ his expense account with an
5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i
additional $100 of expenses. Paul should be allowed to charge only those items that are business rel
5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i
ated. Paul’s argument that he is entitled to an additional $100 is not a valid assumption. However, h
5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i
e should be allocated money for any business expenses during the weekend. Paul should also ask hi
5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i
s employer for additional compensation for working during his non scheduled time. The important po
5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i
int is that accountants need to be seen as being ethical and should not do unethical activities.
5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i
©5i20215iPearson5iCanada5iAl
l
Rights5iReserved
4-1
, SOLUTIONS TO CLASSROOM DEMONSTRATION EXERCISES
5i 5i 5i 5i
CDE1. a. A CDE4. $24,000 ($12,000 + $12,000)
5i 5i 5i CDE8. a. IS
b. A b. BS
c. L CDE5. c. J. Penny, Capital
5i 5i c. BS
d. A d. Advertising Expense 5i d. BS
e. OE f. Taxi Fees Earned
5i 5i e. IS
f. A g. J. Penny, Withdrawls
5i 5i f. IS
g. OE
h. BS
CDE2. a. Liabilities and or 5i 5i CDE6. c. Accounts Payable 5i
b. Assets d. Grooming Fees Earned 5i 5i CDE9 a. OE
c. Accounts Payable 5i b. BS
c. BS
d. IS
CDE3. a. I CDE7. a.
b. S b.
d.
CDE10.
1. Balance Sheet 5i
2. Assets
3. Liabilities
4. Accounting Equation 5i
5. Accounts Payable 5i
6. Service
7. Owner’s Equity5i
8. Accounts Receivable5i
9. Transaction
10. Creditor
SOLUTIONS TO EXERCISES—SET A 5i 5i 5i
E1-1A.
a. $15,000
i
5 ($19,000 − $4,000) 5i 5i
b. $15,000
i
5 ($ 6,000 + $9,000)
5i 5i 5i
c. $ 6,000
5i 5i ($10,000 − $4,000) 5i 5i
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 Solutions
5i
1. B5 i
2. B5 i
3. B5 i
4. A5 i
5. D5 i
6. D5 i
©5i20215iPearson5iCanada5iAl
l
Rights5iReserved
4-1
, 7. 5 i D
8. 5 i B
9. 5 i C
10.
5 i A
©5i20215iPearson5iCanada5iAl
l
Rights5iReserved
4-1
l
Rights5iReserved
4-1
,1
Accounting Concepts and Procedure 5i 5i 5i
s: An Introduction
5i 5i
ANSWERS TO DISCUSSION QUESTIONS AND CRITICA 5i 5i 5i 5i 5i
L THINKING/ETHICAL CASE 5i 5i
1. The functions of accounting are to analyze, record, classify, summarize, report and interpr
5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i
et information.
5i
2. Sole proprietorship—one owner, unlimited liability; easy to form Partnership—
5i 5i 5i 5i 5i 5i 5i 5i
two or more owners; unlimited liability, easy to form Corporation—
5i 5i 5i 5i 5i 5i 5i 5i 5i
one or more shareholders; limited liability; more difficult to form.
5i 5i 5i 5i 5i 5i 5i 5i 5i
3. Service, merchandising, or manufacturing.
5i 5i 5i
4. The objective of accounting is to provide relevant, timely information for user decision making. Ac
5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i
countants must behave in an ethical manner so that the information they provide will be trustwort
5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i
hy and, therefore, useful for all decisions. Ethics are moral principles that guide the conduct of indi
5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i
viduals. Sometimes business managers and accountants behave in an unethical manner.
5i 5i 5i 5i 5i 5i 5i 5i 5i 5i
5. The three elements of the basic accounting equation are assets, liabilities, owner’s equity.
5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i
6. Capital is the owner’s current investment or equity in the assets of a business. It is one subdivision of
5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i
owner’s equity. 5i
7. True. The sum of the left side of the equation must equal the sum of the right side of the equation.
5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i
8. False. It is the income statement that tells how well the company has performed.
5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i
9. False. Revenue is a subdivision of owner’s equity.
5i 5i 5i 5i 5i 5i 5i
10. Owner’s equity is subdivided into Capital, Withdrawals, Revenue, and Expenses.
5i 5i 5i 5i 5i 5i 5i 5i 5i
11. False. It is a subdivision of owner’s equity.
5i 5i 5i 5i 5i 5i 5i
12. Reject. As expenses increase and revenue remains the same, owner’s equity decreases.
5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i
13. Revenue less Expenses; an income statement shows performance—profit or loss for the period.
5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i
14. False. It calculates ending capital.
5i 5i 5i 5i
15. The question in this case is whether Paul should be allowed to ―pad‖ his expense account with an
5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i
additional $100 of expenses. Paul should be allowed to charge only those items that are business rel
5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i
ated. Paul’s argument that he is entitled to an additional $100 is not a valid assumption. However, h
5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i
e should be allocated money for any business expenses during the weekend. Paul should also ask hi
5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i
s employer for additional compensation for working during his non scheduled time. The important po
5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i
int is that accountants need to be seen as being ethical and should not do unethical activities.
5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i 5i
©5i20215iPearson5iCanada5iAl
l
Rights5iReserved
4-1
, SOLUTIONS TO CLASSROOM DEMONSTRATION EXERCISES
5i 5i 5i 5i
CDE1. a. A CDE4. $24,000 ($12,000 + $12,000)
5i 5i 5i CDE8. a. IS
b. A b. BS
c. L CDE5. c. J. Penny, Capital
5i 5i c. BS
d. A d. Advertising Expense 5i d. BS
e. OE f. Taxi Fees Earned
5i 5i e. IS
f. A g. J. Penny, Withdrawls
5i 5i f. IS
g. OE
h. BS
CDE2. a. Liabilities and or 5i 5i CDE6. c. Accounts Payable 5i
b. Assets d. Grooming Fees Earned 5i 5i CDE9 a. OE
c. Accounts Payable 5i b. BS
c. BS
d. IS
CDE3. a. I CDE7. a.
b. S b.
d.
CDE10.
1. Balance Sheet 5i
2. Assets
3. Liabilities
4. Accounting Equation 5i
5. Accounts Payable 5i
6. Service
7. Owner’s Equity5i
8. Accounts Receivable5i
9. Transaction
10. Creditor
SOLUTIONS TO EXERCISES—SET A 5i 5i 5i
E1-1A.
a. $15,000
i
5 ($19,000 − $4,000) 5i 5i
b. $15,000
i
5 ($ 6,000 + $9,000)
5i 5i 5i
c. $ 6,000
5i 5i ($10,000 − $4,000) 5i 5i
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 Solutions
5i
1. B5 i
2. B5 i
3. B5 i
4. A5 i
5. D5 i
6. D5 i
©5i20215iPearson5iCanada5iAl
l
Rights5iReserved
4-1
, 7. 5 i D
8. 5 i B
9. 5 i C
10.
5 i A
©5i20215iPearson5iCanada5iAl
l
Rights5iReserved
4-1
