©qy2021qyPearsonqyCanadaqy
All
RightsqyReserved
4-1
,1
Accounting Concepts and Procedure qy qy qy
s: An Introduction
qy qy
ANSWERS TO DISCUSSION QUESTIONS AND CRITICA qy qy qy qy qy
L THINKING/ETHICAL CASE qy qy
1. The functions of accounting are to analyze, record, classify, summarize, report and interp
qy qy qy qy qy qy qy qy qy qy qy qy
ret information.
qy
2. Sole proprietorship—one owner, unlimited liability; easy to form Partnership—
qy qy qy qy qy qy qy qy
two or more owners; unlimited liability, easy to form Corporation—
qy qy qy qy qy qy qy qy qy
one or more shareholders; limited liability; more difficult to form.
qy qy qy qy qy qy qy qy qy
3. Service, merchandising, or manufacturing.
qy qy qy
4. The objective of accounting is to provide relevant, timely information for user decision making.
qy qy qy qy qy qy qy qy qy qy qy qy qy qy
Accountants must behave in an ethical manner so that the information they provide will be trust
qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy
worthy and, therefore, useful for all decisions. Ethics are moral principles that guide the conduct
qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy
of individuals. Sometimes business managers and accountants behave in an unethical manner.
qy qy qy qy qy qy qy qy qy qy qy
5. The three elements of the basic accounting equation are assets, liabilities, owner’s equity.
qy qy qy qy qy qy qy qy qy qy qy qy
6. Capital is the owner’s current investment or equity in the assets of a business. It is one subdivision of
qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy
owner’s equity. qy
7. True. The sum of the left side of the equation must equal the sum of the right side of the equation.
qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy
8. False. It is the income statement that tells how well the company has performed.
qy qy qy qy qy qy qy qy qy qy qy qy qy
9. False. Revenue is a subdivision of owner’s equity.
qy qy qy qy qy qy qy
10. Owner’s equity is subdivided into Capital, Withdrawals, Revenue, and Expenses.
qy qy qy qy qy qy qy qy qy
11. False. It is a subdivision of owner’s equity.
qy qy qy qy qy qy qy
12. Reject. As expenses increase and revenue remains the same, owner’s equity decreases.
qy qy qy qy qy qy qy qy qy qy qy
13. Revenue less Expenses; an income statement shows performance—profit or loss for the period.
qy qy qy qy qy qy qy qy qy qy qy qy
14. False. It calculates ending capital.
qy qy qy qy
15. The question in this case is whether Paul should be allowed to ―pad‖ his expense account with a
qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy
n additional $100 of expenses. Paul should be allowed to charge only those items that are busines
qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy
s related. Paul’s argument that he is entitled to an additional $100 is not a valid assumption. Ho
qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy
wever, he should be allocated money for any business expenses during the weekend. Paul should
qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy
also ask his employer for additional compensation for working during his non scheduled time. The
qy qy qy qy qy qy qy qy qy qy qy qy qy qy q
yimportant point is that accountants need to be seen as being ethical and should not do unethical
qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy
activities.
©qy2021qyPearsonqyCanadaqy
All
RightsqyReserved
4-1
, SOLUTIONS TO CLASSROOM DEMONSTRATION EXERCISES
qy qy qy qy
CDE1. a. A CDE4. $24,000 ($12,000 + $12,000)
qy qy qy CDE8. a. IS
b. A b. BS
c. L CDE5. c. J. Penny, Capital
qy qy c. BS
d. A d. Advertising Expense qy d. BS
e. OE f. Taxi Fees Earned
qy qy e. IS
f. A g. J. Penny, Withdrawls
qy qy f. IS
g. OE
h. BS
CDE2. a. Liabilities and or qy qy CDE6. c. Accounts Payable qy
b. Assets d. Grooming Fees Earned qy qy CDE9 a. OE
c. Accounts Payable qy b. BS
c. BS
d. IS
CDE3. a. I CDE7. a.
b. S b.
d.
CDE10.
1. Balance Sheet qy
2. Assets
3. Liabilities
4. Accounting Equation qy
5. Accounts Payable qy
6. Service
7. Owner’s Equityqy
8. Accounts Receivableqy
9. Transaction
10. Creditor
SOLUTIONS TO EXERCISES—SET A qy qy qy
E1-1A.
a. $15,000
qy ($19,000 − $4,000) qy qy
b. $15,000
qy ($ 6,000 + $9,000)
qy qy qy
c. $ 6,000
qy qy ($10,000 − $4,000) qy qy
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 qy Solutions
1. q y B
2. q y B
3. q y B
4. q y A
5. q y D
6. q y D
©qy2021qyPearsonqyCanadaqy
All
RightsqyReserved
4-1
, 7. q y D
8. q y B
9. q y C
10.
q y A
©qy2021qyPearsonqyCanadaqy
All
RightsqyReserved
4-1
All
RightsqyReserved
4-1
,1
Accounting Concepts and Procedure qy qy qy
s: An Introduction
qy qy
ANSWERS TO DISCUSSION QUESTIONS AND CRITICA qy qy qy qy qy
L THINKING/ETHICAL CASE qy qy
1. The functions of accounting are to analyze, record, classify, summarize, report and interp
qy qy qy qy qy qy qy qy qy qy qy qy
ret information.
qy
2. Sole proprietorship—one owner, unlimited liability; easy to form Partnership—
qy qy qy qy qy qy qy qy
two or more owners; unlimited liability, easy to form Corporation—
qy qy qy qy qy qy qy qy qy
one or more shareholders; limited liability; more difficult to form.
qy qy qy qy qy qy qy qy qy
3. Service, merchandising, or manufacturing.
qy qy qy
4. The objective of accounting is to provide relevant, timely information for user decision making.
qy qy qy qy qy qy qy qy qy qy qy qy qy qy
Accountants must behave in an ethical manner so that the information they provide will be trust
qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy
worthy and, therefore, useful for all decisions. Ethics are moral principles that guide the conduct
qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy
of individuals. Sometimes business managers and accountants behave in an unethical manner.
qy qy qy qy qy qy qy qy qy qy qy
5. The three elements of the basic accounting equation are assets, liabilities, owner’s equity.
qy qy qy qy qy qy qy qy qy qy qy qy
6. Capital is the owner’s current investment or equity in the assets of a business. It is one subdivision of
qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy
owner’s equity. qy
7. True. The sum of the left side of the equation must equal the sum of the right side of the equation.
qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy
8. False. It is the income statement that tells how well the company has performed.
qy qy qy qy qy qy qy qy qy qy qy qy qy
9. False. Revenue is a subdivision of owner’s equity.
qy qy qy qy qy qy qy
10. Owner’s equity is subdivided into Capital, Withdrawals, Revenue, and Expenses.
qy qy qy qy qy qy qy qy qy
11. False. It is a subdivision of owner’s equity.
qy qy qy qy qy qy qy
12. Reject. As expenses increase and revenue remains the same, owner’s equity decreases.
qy qy qy qy qy qy qy qy qy qy qy
13. Revenue less Expenses; an income statement shows performance—profit or loss for the period.
qy qy qy qy qy qy qy qy qy qy qy qy
14. False. It calculates ending capital.
qy qy qy qy
15. The question in this case is whether Paul should be allowed to ―pad‖ his expense account with a
qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy
n additional $100 of expenses. Paul should be allowed to charge only those items that are busines
qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy
s related. Paul’s argument that he is entitled to an additional $100 is not a valid assumption. Ho
qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy
wever, he should be allocated money for any business expenses during the weekend. Paul should
qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy
also ask his employer for additional compensation for working during his non scheduled time. The
qy qy qy qy qy qy qy qy qy qy qy qy qy qy q
yimportant point is that accountants need to be seen as being ethical and should not do unethical
qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy
activities.
©qy2021qyPearsonqyCanadaqy
All
RightsqyReserved
4-1
, SOLUTIONS TO CLASSROOM DEMONSTRATION EXERCISES
qy qy qy qy
CDE1. a. A CDE4. $24,000 ($12,000 + $12,000)
qy qy qy CDE8. a. IS
b. A b. BS
c. L CDE5. c. J. Penny, Capital
qy qy c. BS
d. A d. Advertising Expense qy d. BS
e. OE f. Taxi Fees Earned
qy qy e. IS
f. A g. J. Penny, Withdrawls
qy qy f. IS
g. OE
h. BS
CDE2. a. Liabilities and or qy qy CDE6. c. Accounts Payable qy
b. Assets d. Grooming Fees Earned qy qy CDE9 a. OE
c. Accounts Payable qy b. BS
c. BS
d. IS
CDE3. a. I CDE7. a.
b. S b.
d.
CDE10.
1. Balance Sheet qy
2. Assets
3. Liabilities
4. Accounting Equation qy
5. Accounts Payable qy
6. Service
7. Owner’s Equityqy
8. Accounts Receivableqy
9. Transaction
10. Creditor
SOLUTIONS TO EXERCISES—SET A qy qy qy
E1-1A.
a. $15,000
qy ($19,000 − $4,000) qy qy
b. $15,000
qy ($ 6,000 + $9,000)
qy qy qy
c. $ 6,000
qy qy ($10,000 − $4,000) qy qy
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 qy Solutions
1. q y B
2. q y B
3. q y B
4. q y A
5. q y D
6. q y D
©qy2021qyPearsonqyCanadaqy
All
RightsqyReserved
4-1
, 7. q y D
8. q y B
9. q y C
10.
q y A
©qy2021qyPearsonqyCanadaqy
All
RightsqyReserved
4-1
