solution chapter 1.doc

8/10/2019 solution chapter 1.doc

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1. The objective of most businesses is to earn a profit. Profit is the difference between theamounts received from customers for goods or services provided and the amounts paid for

the inputs used to provide those goods or services.

2. A manufacturing business changes basic inputs into products that are then sold to customers.A service business provides services rather than products to customers. A restaurant such asApplebees has characteristics of both a manufacturing and a service business in thatApplebees takes raw inputs such as cheese, fish, and beef and processes them into productsfor consumption by its customers. At the same time, Applebees provides services of waitingon its customers as they dine.

3. Some users of accounting information include owners, managers, employees, customers,creditors, and the government.

4. Simply put, the role of accounting is to provide information for managers to use in operatingthe business. n addition, accounting provides information to others to use in assessing theeconomic performance and condition of the business.

5. The corporate form allows the company to obtain large amounts of resources by issuing

stock. !or this reason, most companies that re"uire large investments in property, plant, and

e"uipment are organi#ed as corporations.

6. $o. The business entity concept limits the recording of economic data to transactionsdirectly affecting the activities of the business. The payment of the interest of %&,''' is a

personal transaction of (arry (ergan and should not be recorded by )lephant *eliveryService.

7. The land should be recorded at its cost of %++,''' to -remlin epair Service. This isconsistent with the cost concept.

8. a.$o. The offer of %/'',''' and the increase in the assessed value should not be recogni#edin the accounting records.

b. 0ash would increase by %/'',''', land would decrease by %12,''', and own3ers

4stockholders5 e"uity would increase by %16,'''.

9. An account receivable is a claim against a customer for goods or services sold. An accountpayable is an amount owed to a creditor for goods or services purchased. Therefore, anaccount receivable in the re3cords of the seller is an account payable in the records of thepurchaser.

10. 4a57 the business incurred a net loss of %++,''' 4%2+,''' 8 %9'','''5.


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11. 4b57 the business reali#ed net income of %+/,+'' 4%9:2,'' 8 %1/6,1''5.

12.$et income or net loss.

etained earnings at the end of the period.

0ash at the end of the period.

PE 1-1B

$100,000. Under the cost concept, the land should be recorded at the

cost to Terrier Repair Service.

PE 1-2B

PE 1-3A

(1) Asset (cash) increases by $7500 and Equity increases by $7500

(2) Asset (Cash) decreases by$815; Expense (Advertisin Expense) increases by $815!

(") Asset (#uppies) increases by $"%250; &iabiity (Acc'unts ayabe) increases by $"%250!

() Asset (Acc'unts *eceivabe) increases by$1%150; *evenue (+eivery #ervice ,ee)increases by $1%150!

(5) Asset (Cash) increases by $500; Asset (Acc'unts *eceivabe) decreases by $500!


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PE 1-4A

EX 1-5

EX 1-7

EX 1-9

a! -ncreases assets and increases st'c.h'ders/ equity (share capita'rdinary)!

b! -ncreases assets and increases st'c.h'ders/ equity (retained earnins)!

c! +ecreases assets and decreases st'c.h'ders/ equity (retained earnins)!

d! -ncreases assets and decreases assets!

e! -ncreases assets and increases iabiities!

EX 1-11

1! decrease

2! increase

"! increase


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! decrease

EX 1-13

a! (1) *enderin ' caterin services 'r cash% $5%000!

(2) urchase ' and 'r cash% $20%000!(") ayent ' expenses% $13%000!

() urchase ' suppies 'n acc'unt% $"%000!

(5) aid dividends% $5%000!

(3) ayent ' cash t' credit'rs% $12%000!

(7) *ec'niti'n ' c'st ' suppies used% $2%500!

b! $8%000 ($27%000 4 $1%000)

c! $21%500 (4$5%000 6 $5%000 4 $18%500)

d! $23%500 ($5%000 4 $18%500)

e! $21%500 ($23%500 4 $5%000)

EX 1-20

-n each case% s've 'r a sine un.n'n% usin the ''in equati'n#t'c.h'ders/ equity (beinnin) 6 Additi'na issuance ' share capita'rdinary 4+ividends 6 *evenues 4 Expenses 9 #t'c.h'ders/ equity (endin)


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PR 1-2A


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PR 1-3A


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PR 1-5A


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PR 1-6A

a! ,ees earned% $120%000 ($%300 6 $70%00)

b! #uppies expense% $12%000 ($70%00 4 $"%000 4 $12%800 4 $7%200 4 $%00)

c! *etained earnins% :uy 1% 2010% $0

d! et inc'e 'r :uy% $%300

e! -ncrease in retained earnins% $25%300 ($%300 4 $2%000)

! *etained earnins% :uy "1% 2010% $25%300

!


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PR 1-2B


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PR 1-3B


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PR 1-4B


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PR 1-5B


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Continuing Proble


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solution chapter 1.doc