Accounting Fundamentals: Introduction, Transactions & Adjustments

CHAPTERV1
INTRODUCTIONVTOVACCOUNTINGVANDVBUSINESS

DISCUSSIONVQUESTIONS

1. SomeVusersVofVaccountingVinformationVincludeVmanagers,Vemployees,Vinvestors,Vcredi
tors,Vcustomers,VandVtheVgovernment.
2. TheVroleVofVaccountingVisVtoVprovideVinformationVforVmanagersVtoVuseVinVoperatingVtheV
business.V InVaddition,VaccountingVprovidesVinformationVtoVothersVtoVuseVinVassessingVthe
VeconomicVperformanceVandVconditionVofVtheVbusiness.

3. TheV corporateV formV allowsV theV companyV toV obtainV largeV amountsV ofV resourcesV byV issui
ngV stock.VForVthisVreason,VmostVcompaniesVthatVrequireVlargeVinvestmentsVinVproperty,Vpla
nt,VandVequipmentVareVorganizedVasVcorporations.
4. No.VTheVbusinessVentityVconceptVlimitsVtheVrecordingVofVeconomicVdataVtoVtransactionsV
directlyVaffectingVtheVactivitiesVofVtheVbusiness.VTheVpaymentVofVtheVinterestVofV$4,500V
isVaVpersonalVtransactionVofVJoshVReillyVandVshouldVnotVbeVrecordedVbyVDispatchVDeliv
eryVService.
5. TheVlandVshouldVbeVrecordedVatVitsVcostVofV$167,500VtoVReliableVRepairVService.VThisVisV
consistentV withVtheVcostVconcept.
6. a.
No.VTheVofferVofV$2,000,000VandVtheVincreaseVinVtheVassessedVvalueVshouldVnotVb
eVrecognizedV inVtheVaccountingVrecordsVbecauseVlandVisVrecordedVonVtheVcostVbasis.
b.
CashVwouldVincreaseVbyV$2,125,000,VlandVwouldVdecreaseVbyV$900,000,VandVow
ner’sVequityVwouldVincreaseVbyV$1,225,000.
7. AnVaccountVreceivableVisVaVclaimVagainstVaVcustomerVforVgoodsVorVservicesVsold.VAnVacc
ountVpayableVisVanVamountVowedVtoVaVcreditorVforVgoodsVorVservicesVpurchased.VTherefor
e,VanVaccountVreceivableVinVtheVrecordsVofVtheVsellerVisVanVaccountVpayableVinVtheVrecord
sVofVtheVpurchaser.
8. (b)V TheVbusinessV realizedVnetV incomeVofV $91,000V($679,000V –V$588,000).
9. (a)V V TheVbusinessVincurredVaVnetVlossVofV $75,000V($640,000V–V$715,000).
10. (a)V V NetVincomeVorVnetVloss
(b) Owner’sVequityVatVtheVendVofVtheVperiod
(c) CashVatVtheVendVofVtheVperiod




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©V 2018V CengageV Learning.V AllV RightsV Reserved.V MayV notV beV scanned,V copiedV orV duplicated,V orV postedV toV aV publiclyV accessibleV
website,V inV wholeV orV inV part.

, CHAPTERV IntroductionVtoVAccountingVandVBusine
1 ss
PRACTICEV EXERCISES
PEV1-1A
$380,000.VUnderVtheVcostVconcept,VtheVlandVshouldVbeVrecordedVatVtheVcostVtoVClaire
montVRepairVService.


PEV1-1B
$437,500.VUnderVtheVcostVconcept,VtheVlandVshouldVbeVrecordedVatVtheVcostVtoVHiggin
sVRepairVService.


PEV1-2A
a. A = LV +V OE
$675,000 = $215,000V+VOE
OE = $460,000

b. A = LV +V OE
+$112,300 = +$32,000V+VOE
OE = +$80,300
OEVonVDecemberV31,V201 = $460,000V+V$80,300
9
= $540,300


PEV1-2B
a. A = LV +V OE
$395,000 = $97,000V+VOE
OE = $298,000

b. A = LV +V OE
=V– +$36,000V+VOEV–
$65,000 = $101,000
OE = $298,000V–
OEVonVDecemberV31,V201 = V$101,000
9 $197,000

PEV1-3A
(2) AssetV(AccountsVReceivable)VincreasesVbyV$13,750;
VRevenueV(DeliveryVServiceVFees)VincreasesVbyV$13,
750.
(3) LiabilityV(AccountsVPayable)VdecreasesVbyV$2,50
0;VAssetV(Cash)VdecreasesVbyV$2,500.
(4) AssetV(Cash)VincreasesVbyV$9,000;
AssetV(AccountsVReceivable)VdecreasesVbyV$9,000.
(5) AssetV(Cash)VdecreasesVbyV$1,000;
Owner'sVEquityV(JeromeVFoley,VDrawing)VdecreasesVbyV$1,000.

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©V2018VCengageVLearning.VAllVRights VReserved.VMayVnotVbeVscanned,VcopiedVorVduplicated,VorVpostedVtoVaVpubliclyVaccessibleV
website,VinVwholeVorVinVpart.

, CHAPTERV IntroductionVtoVAccountingVandVBusine
1 ss
PEV1-
3B
(2) ExpenseV(AdvertisingVExpense)VincreasesVbyV$4,85
0;VAssetV(Cash)VdecreasesVbyV$4,850.
(3) AssetV(Supplies)VincreasesVbyV$2,100;
LiabilityV(AccountsVPayable)VincreasesVbyV$2,100.
(4) AssetV(AccountsVReceivable)VincreasesVbyV$14,700;
VRevenueV(DeliveryVServiceVFees)VincreasesVbyV$14,
700.
(5) AssetV(Cash)VincreasesVbyV$8,200;
AssetV(AccountsVReceivable)VdecreasesVbyV$8,200.


PEV1-4A
ADVENTUREVTRAVELVSERVICE
IncomeVStatement
ForVtheVYearVEndedVAprilV30,V2019
FeesVearned $2,180,000
Expenses:
WagesVexpense $1,300,000
OfficeVexpense 400,000
MiscellaneousVexpense 25,000
TotalVexpenses 1,725,000
NetVincome $V V 455,000



PEV1-4B
SENTINELVTRAVELVSERVICE
IncomeVStatement
ForVtheVYearVEndedVAugustV31,V2019
FeesVearned $750,000
Expenses:
WagesVexpense $450,000
OfficeVexpense 295,000
MiscellaneousVexpense 12,000
TotalVexpenses 757,000
NetVloss $V V (7,000)




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©V2018VCengageVLearning.VAllVRightsVReserved.VMayVnotVbeVscanned,VcopiedVorVduplicated,VorVpostedVtoVaVpubliclyVaccessible
Vwebsite,VinVwholeVorVinVpart.

, CHAPTERV IntroductionVtoVAccountingVandVBusine
1 ss
PEV1-5A
ADVENTUREVTRAVELVSERVICE
StatementVofVOwner’sVEquityV
ForVtheVYearVEndedVAprilV30,V20
19
JeromeVFoley,Vcapital,VMayV1,V2018 $1,020,000
AdditionalVinvestmentVbyVownerVduringVyear $V 60,000
NetVincomeVforVtheVyear 455,000
Withdrawals (40,000)
IncreaseVinVowner’sVequity 475,000
JeromeVFoley,Vcapital,VAprilV30,V2019 $1,495,000



PEV1-5B
SENTINELVTRAVELVSERVICE
StatementVofVOwner’sVEquityV
ForVtheVYearVEndedVAugustV31,V20
19
BarbVSchroeder,Vcapital,VSeptemberV1,V2018 $380,000
AdditionalVinvestmentVbyVownerVduringVyear $V 36,000
NetVlossVforVtheVyear (7,000)
Withdrawals (18,000)
IncreaseVinVowner’sVequity 11,000
BarbVSchroeder,Vcapital,VAugustV31,V2019 $391,000



PEV1-6A
ADVENTUREVTRAVELVSERVICE
BalanceVSheetVAp
rilV30,V2019
Assets
Cash $V V 197,000
AccountsVreceivable 485,000
Supplies 18,000
Land 900,000
TotalVassets $1,600,000
Liabilities
AccountsVpayable $V V 105,000
Owner’sVEquity
JeromeVFoley,Vcapital 1,495,000
TotalVliabilitiesVandVowner’sVequity $1,600,000




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©V2018VCengageVLearning.VAllVRights VReserved.VMayVnotVbeVscanned,VcopiedVorVduplicated,VorVpostedVtoVaVpubliclyVaccessible
Vwebsite,VinVwholeVorVinVpart.