Ch. 1 INTRODUCTION TO ACCOUNTING - INTRODUCTION TO...

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INTRODUCTION TO ACCOUNTING AND BUSINESS DISCUSSION QUESTIONS 1 . Some users of accounting information include managers, employees, creditors, customers, investors, 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 $3,200 is a personal transaction of Murray Stoltz and should not be recorded by Ontime Delivery Service. 5. The land should be recorded at its cost of $82,000 to A2Z Repair Service. This is consistent with the cost concept. 6. a. No. The offer of $1,000,000 and the increase in the assessed value should not be recognized in the accounting records. b. Cash would increase by $1,000,000, land would decrease by $525,000, and owner’s equity would increase by $475,000. 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. (a) The business incurred a net loss of $185,000 ($615,000 – $430,000). 9. (b) The business realized net income of $117,000 ($825,000 – $708,000). 10. Net income or net loss Retained earnings at the end of the period Cash at the end of the period
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PRACTICE EXERCISES PE 1–1A $105,000. Under the cost concept, the land should be recorded at the cost to Easy Repair Service. PE 1–1B $57,500. Under the cost concept, the land should be recorded at the cost to AAA Repair Service. PE 1–2A a. A = L + OE b. A = L + OE $800,000 = $450,000 + OE + $175,000 = – $60,000 + OE OE = $350,000 OE = + $235,000 OE on December 31, 2012 = $585,000 = $350,000 + $235,000 PE 1–2B a. A = L + OE b. A = L + OE $575,000 = $125,000 + OE + $85,000 = + $30,000 + OE OE = $450,000 OE = + $55,000 OE on December 31, 2012 = $505,000 = $450,000 + $55,000 PE 1–3A (2) Asset (Cash) decreases by $1,800; Liability (Accounts Payable) decreases by $1,800. (3) Asset (Accounts Receivable) increases by $12,500; Revenue (Delivery Service Fees) increases by $12,500. (4) Asset (Cash) increases by $6,900; Asset (Accounts Receivable) decreases by $6,900. (5) Asset (Cash) decreases by $4,000; Dividends increases by $4,000.
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PE 1–3B (2) Expense (Advertising Expense) increases by $1,200; Asset (Cash) decreases by $1,200. (3) Asset (Supplies) increases by $450; Liability (Accounts Payable) increases by $450. (4) Asset (Accounts Receivable) increases by $7,500; Revenue (Delivery Service Fees) increases by $7,500. (5) Asset (Cash) increases by $4,900; Asset (Accounts Receivable) decreases by $4,900. PE 1–4A DYNASTY TRAVEL SERVICE Income Statement For the Year Ended June 30, 2012 Fees earned ..................................................................... $950,000 Expenses: Wages expense .......................................................... $478,000 Office expense ........................................................... 222,000 Miscellaneous expense ............................................. 16,000 Total expenses ....................................................... 716,000 Net income ...................................................................... $234,000 PE 1–4B ESCAPE TRAVEL SERVICE Income Statement For the Year Ended November 30, 2012 Fees earned ..................................................................... $942,500 Expenses: Wages expense .......................................................... $562,500 Office expense ........................................................... 391,625 Miscellaneous expense .............................................
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