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 dEquity d(Advertising dExpense, dincreases) ddecreases dby
d$6,750; dAsset d(Cash) ddecreases dby d$6,750.
(3) Asset d(Supplies) dincreases dby d$2,920;
Liability d(Accounts dPayable) dincreases dby d$2,920.
(4) Asset d(Accounts dReceivable) dincreases dby d$20,460;
Owner’s dEquity d(Delivery dService dFees) dincreases dby d$20,460.
(5) Asset d(Cash) dincreases dby d$11,410;
Asset d(Accounts dReceivable) ddecreases dby d$11,410.
PE d1-4A
Up-in-the-Air dTravel dService
Income dStatement
For dthe dYear dEnded dApril d30, d20Y7
Fees dearned $1,870,000
Expenses:
Wages dexpense $1,115,000
Office dexpense 343,000
Miscellaneous dexpense 21,000
Total dexpenses 1,479,000
Net dincome $ d d 391,000
PE d1-4B
Zenith dTravel dService
Income dStatement
For dthe dYear dEnded dAugust d31, d20Y4
Fees dearned $899,600
Expenses:
Wages dexpense $539,800
Office dexpense 353,800
Miscellaneous dexpense 14,400
Total dexpenses 908,000
Net dloss $ d (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 dEquity d(Advertising dExpense, dincreases) ddecreases dby
d$6,750; dAsset d(Cash) ddecreases dby d$6,750.
(3) Asset d(Supplies) dincreases dby d$2,920;
Liability d(Accounts dPayable) dincreases dby d$2,920.
(4) Asset d(Accounts dReceivable) dincreases dby d$20,460;
Owner’s dEquity d(Delivery dService dFees) dincreases dby d$20,460.
(5) Asset d(Cash) dincreases dby d$11,410;
Asset d(Accounts dReceivable) ddecreases dby d$11,410.
PE d1-4A
Up-in-the-Air dTravel dService
Income dStatement
For dthe dYear dEnded dApril d30, d20Y7
Fees dearned $1,870,000
Expenses:
Wages dexpense $1,115,000
Office dexpense 343,000
Miscellaneous dexpense 21,000
Total dexpenses 1,479,000
Net dincome $ d d 391,000
PE d1-4B
Zenith dTravel dService
Income dStatement
For dthe dYear dEnded dAugust d31, d20Y4
Fees dearned $899,600
Expenses:
Wages dexpense $539,800
Office dexpense 353,800
Miscellaneous dexpense 14,400
Total dexpenses 908,000
Net dloss $ d (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.
