Accounting and The Business Environment: Short Exercises S 1-1

Chapter 1
Accounting and the Business

Environment
Short Exercises
(5 min.) S 1-1
Revenues increase owner’s equity by delivering goods or
services to customers.
Expenses decrease owner’s equity by using up assets or

increasing liabilities in order to deliver goods or services to
customers.
(5 min.) S 1-2
1. The banker is an external user of financial information.
2. The financial statement that would provide the best

information to answer the banker’s questions is the balance
sheet.
1 Chapter 1 Accounting and the Business Environment

(5 – 10 min.) S 1-3
This organization is the Financial Accounting Standards Board.
(5 – 10 min.) S 1-4
Claire’s needs will best be met by organizing a corporation.
(5 – 10 min.) S 1-5
1. c 2. b 3. d 4. a
(5-10 min.) S 1-6

1. a. the entity concept
b. the cost principle
c. the stable-monetary unit concept
d. the reliability principle
2. Wendy Craven has $13,000 of equity in the business.
Assets = Liabilities + Owner’s Equity
Accounts Craven,
Cash + Furniture = Payable + Capital
$6,000 + $12,000 = $5,000 + $13,000
2 Accounting 8/e Solutions Manual

(5 min.) S 1-7
Cash Owner, Capital
(a) $420 = $420 Revenue

(b) − $135 = − $135 Expense
(5 min.) S 1-8
Monte Hall Gaming recorded no liability for the purchase of
land because the business paid for the land with cash. The
business has no debt—no liability—to make a future payment
for the land.
(5 min.) S 1-9
Cash: $ -0-
Total assets (accounts receivable): $2,400

(5 min.) S 1-10
1. The business recorded no revenue when it collected cash on
account because it recorded the revenue one month earlier,
when it was earned.
2.
Cash + Accts. Owner, Capital

Rec.
(a) $300 = $300 Revenue

(b) $300 $-300 = 0 No effect
(10 min.) S 1-11

Smart Touch Learning
Balance Sheet
April 21, 2010
ASSETS LIABILITIES
Cash $11,900 Accounts payable $ 200
Accounts receivable 3,000
Office supplies 500 OWNER’S EQUITY
Land 20,000 Sheena Bright, 35,200
capital
Total liabilities and
Total assets $35,400 owner's equity $35,400

(10 min.) S 1-12
Party Planner Extraordinaire
Income Statement
Year Ended December 31, 2011
Revenue:
Service revenue $109,000
Expenses:
Insurance expense $3,000
Supplies expense 900
Rent expense 14,000
Salary expense 44,000
Total expenses 61,900
Net income $47,100
(10 min.) S 1-13

The operations of Party Planners Extraordinaire in 2011
resulted in a net income for the year. Net income means the
year was good.

Exercises
(10 – 15 min.) E 1-14

1. E
2. A
3. I
4. F
5. J
6. B
7. D
8. C
9. G
10. H
11. K
(15-20 min.) E 1-15

1. The balance sheet is prepared by summarizing the assets,
liabilities, and owner’s equity of the entity at a particular
date. The assets are the resources the business has to work
with. Liabilities are debts owed to creditors. Owner’s equity
is the portion of the business assets owned outright by the
owner.
The income statement is prepared by summarizing the

revenues and the expenses of a particular entity for a period
such as a month or a year. Total revenues minus total
expenses equals net income (or net loss).

2. The Financial Accounting Standards Board is the self-
regulating body of accountants that defines pronouncements
that guide how the financial statements will be prepared.
3. Before lending money, the lender evaluates Maness’s ability

to make the loan payments. Lenders will use the reported
net income and other information in the financial statements
to predict future income of the Maness travel magazine.
Therefore the bank requires the financial statements of the
Maness travel magazine to make a decision about lending
money to Maness.
4. Terry Maness is organized as a sole proprietor.

(5-10 min.) E 1-16
Req. 1
Nice Cuts $ 68,000 $25,000 $43,000
Love Dry Cleaners 85,000 31,000 54,000
Hudson Gift & Cards 102,000 49,000 53,000
Nice Cuts 25,000 + 43,000 = 68,000

Love Dry Cleaners 85,000 – 54,000 = 31,000
Hudson Gift & Cards 102,000 – 49,000 = 53,000
Req. 2
The five main characteristics of a proprietorship are:
1. Business taxation
2. Government regulation
3. Separate entity with no continuous life
4. Unification of ownership and management
5. Unlimited liability of owner
Req. 3
The distinguishing characteristic of a proprietorship that tells
us that the above three companies will cease to exist if the
owners die is the characteristic of being a separate entity
with no continuous life.

(5-10 min.) E 1-17
a. b. c.
Owner’s equity, May 31, 2010
($174,000 – $104,000) $70,000 $70,000 $70,000
Add: Investments by owner 5,000 -0- 15,000
Net income for the month 6,000 25,000 24,000
81,000 95,000 109,000
Less: Withdrawals by owner (-0-) (14,000) (28,000)
Owner’s equity, June 30, 2010
($208,000 – $127,000) $81,000 $81,000 $81,000
a. 81,000 – 70,000 – 5,000 = 6,000

b. 81,000 + 14,000 – 70,000 = 25,000
c. 81,000 + 28,000 – 70,000 – 15,000 = 24,000
(5-10 min.) E 1-18

a. Purchase of asset for cash
Sale of asset for cash
Collection of account receivable
b. Pay an expense
Withdrawal by owner
c. Pay a liability
d. Investment by owner
Revenue transaction
e. Purchase of asset on account
Borrow money
Wording may vary.

(10 – 20 min.) E 1-19
a. Increase asset (Cash)
Increase owner’s equity (Capital)
b. Increase asset (Accounts Receivable)

Increase owner’s equity (Rent Revenue)
c. Increase asset (Office Furniture)

Increase liability (Accounts Payable)
d. Increase asset (Cash)

Decrease asset (Accounts Receivable)
e. Decrease asset (Cash)

Decrease liability (Accounts Payable)
f. Increase asset (Cash)

Decrease asset (Land)
g. Increase asset (Cash)

Increase owner’s equity (Rent Revenue)
h. Decrease asset (Cash)

Decrease owner’s equity (Rent Expense)
i. Increase asset (Supplies)

Decrease asset (Cash)

10-20 min.) E 1-20
Analysis of Transactions
OWNER’S
ASSETS = LIABILITIES + EQUITY
TYPE OF
MEDICAL ACCOUNTS C. S(URRETTE, OWNER’S EQUITY
DATE CASH + SUPPLIES + LAND = PAYABLE + CAPITAL TRANSACTION
July 6 53,000 53,000Owner investment
Bal. 53,000 53,000
9 (35,000 35,000
Bal. 18,000 35,000 53,000
12 1,900 1,900
Bal. 18,000 1,900 35,000 1,900 53,000
15 Not a transaction of the business
15-31 7,000 7,000Service revenue
Bal. 25,000 1,900 35,000 1,900 60,000
29 (2,190) (2,190)Salary expense
(1,000) (1,000)Rent expense
(300) (300) Utilities expense
Bal. 21,510 1,900 35,000 1,900 56,510
30 600 (600)
Bal. 22,110 1,300 35,000 1,900 56,510
31 (1,500 (1,500)
Bal. 20,610 1,300 35,000 400 56,510
Chapter 1 Accounting and the Business Environment

(10-15 min.) E 1-21
Req. 1
1. Investment by owner
2. Earned revenue on account
3. Purchased equipment on account
4. Collected cash on account
5. Cash purchase of equipment
6. Paid on account
7. Earned revenue and received cash
8. Paid cash for expenses
Req. 2
Printman Copy & Print Service net income is $2,200.
3,400 + 900 – 2,100 = 2,200
(10-20 min.) E 1-22
Req. 1
The owner’s equity increased during the year by $4,000.

Beg. owner’s equity 24,000 – 11,000 = 13,000
End. owner’s equity 34,000 – 17,000 = 17,000
Change in equity 17,000 – 13,000 = 4,000
Req. 2
Owner’s equity can increase through owner investment and net
income.

(10-15 min.) E 1-23
Req. 1
Net income for Priority Parcel Service is $7 billion.

28 – 21 = 7
Req. 2
The owner’s equity increased during the year by $7 billion.
Beg. owner’s equity 30 – 17 = 13
End. owner’s equity 37 – 17 = 20
Change in equity 20 – 13 = 7
Req. 3
The PPS performance for 2011 is good, because 2011 was a
profitable year.

(30-40 min.) E 1-24
Req. 1 Computed amounts are shown in boxes.
Jones
Beginning:
Assets $ 48,000
– Liabilities (22,000)
= Owner’s equity $ 26,000
Ending:
Assets $ 60,000
– Liabilities (27,000)
= Owner’s equity $ 33,000
Statement of Owner’s Equity:
Beginning owner’s equity $ 26,000
+ Investments by owner 0
+ Net income Y1 = $21,000
– Withdrawals by owner (14,000)
= Ending owner’s equity $ 33,000
Income Statement
Revenues $ 231,000
– Expenses ( 210,000 )2
= Net income $ 21,000
__________
1
Net income (Y) = $21,000
2
Revenues – expenses
= net income
$231,000 – expenses
= $21,000
Expenses = $210,000
Jones earned net income of $21,000 for the year.
Req. 2
Jones’s performance for the year was good because the
business earned net income.

(10-15 min.) E 1-25
a. Increased assets (cash)
b. No effect on total assets. Increase in land offsets the
decrease in cash.
c. Decreased assets (cash)
d. Increased assets (equipment)
e. Increased assets (accounts receivable)
f. Decreased assets (cash)
g. No effect on total assets. Increase in cash offsets the
decrease in accounts receivable.
h. Increased assets (cash)
(10-20 min.) E 1-26

Req. 1
Tompkins Towing Service

Balance Sheet
June 30, 2012
ASSETS LIABILITIES
Cash $ 1,600 Accounts payable $ 3,300
Accounts receivable 5,400 Note payable 6,300
Supplies 400 Total liabilities 9,600
Equipment 13,900 OWNER’S EQUITY
T. Tomkins, Capital 11,700*
Total assets $21,300 owner’s equity $21,300
__________
* Total assets – Total liabilities = Capital
$21,300 – $9,600 = $11,700

Req. 2
The balance sheet reports financial position.
Req. 3
The income statement reports operating results.
(10-15 min.) E 1-27

Req. 1
Carter Design Studio

Income Statement
Revenue:
Expenses:
Salary expense $64,000
Rent expense 20,000
Utilities expense 6,800
Supplies expense 4,500
Property tax expense 1,400
Net income $ 61,800
Results of operations for 2010: Net income of $61,800

(continued) E 1-27
Req. 2
First we prepare the statement of owner’s equity for the year

ended December 31, 2010, as follows:
Carter Design Studio

Statement of Owner’s Equity
Capital, January 1, 2010 $ -0-
Add: Investment by owner 17,000
Net income for the year (Req. 1) 61,800
78,800
Less: Withdrawals by owner (61,500
Capital, December 31, 2010 $ 17,300
To solve for proprietor withdrawal (X), we can put the data in

equation form:
$0 + $17,000 + $61,800 – X = $17,300

X = $61,800 + $17,000 – $17,300
X = $61,500

Problems
Group A
(15-20 min.) P 1-28A
1. D
2. E
3. G
4. H
5. A
6. I
7. B
8. C
9. F
(20-25 min.) P 1-29A

Req. 1
There is no proprietorship feature that limits Natalie’s personal
liability.
Req. 2
Natalie Williams, Realtor

Balance Sheet
August 31, 2010
ASSETS LIABILITIES
Office supplies 1,100 Note payable 57,000
Franchise 27,000 Total liabilities 65,000
Furniture 17,000 OWNER’S EQUITY
Land 80,000 N. Williams, capital 73,100

$138,100 – $65,000 = $73,100
Req. 3
Personal items not reported on the balance sheet of the

business:
c. Personal residence ($130,000) and mortgage payable

($40,000)
d. Personal cash ($6,000)
e. Personal account payable ($3,000)

(20-30 min.) P 1-30A
Req. 1
Robert Ryan, Accountant
ASSETS = LIABILITIES + OWNER’S EQUITY
ACCOUNTS OFFICE ACCOUNTS ROBERT RYAN, TYPE OF OWNER’S
DATE CASH + RECEIVABE + SUPPLIES + FURNITURE = PAYABLE + CAPITAL EQUITY TRANSACTION
Feb 4*
5 40,000 40,000 Owner investment
Bal. 40,000 40,000
6 (500) 500
Bal. 39,500 500 40,000
7 9,000 9,000
Bal. 39,500 500 9,000 9,000 40,000
10*
11*
12*
18 13,000 13,000 Service revenue
Bal. 39,50013,000 500 9,000 9,000 53,000
25 (1,800 (1,800 Rent expense
Bal. 37,70013,000 500 9,000 9,000 51,200
28 (10,000 ___ (10,000 Withdrawal
Bal. 27,700 13,000 500 9,000 9,000 41,200
50,200 50,200
*Not a transaction of the business.
Accounting 8/e Solutions Manual

(continued) P 1-30A
Req. 2
a. Total assets = $50,200
b. Total liabilities = $ 9,000
c. Total owner’s equity = $ 41,200
d. Net income for = $ 11,200 ($13,000 – $1,800)

February
a. 27,700 + 13,000 + 500 + 9,000 = 50,200

(20-30 min.) P 1-31A
Arlene Lavoie, Attorney
ACCOUNTS ACCOUNTS ARLENE. LAVOIE, TYPE OF OWNER’S
DATE CASH + RECEIVABLE + SUPPLIES + COMPUTER = PAYABLE + CAPITAL EQUITY TRANSACTION
May 1*
2*
3*
Bal. 105,000 105,000
7 (600) 600
Bal. 104,400 600 105,000
9 ___ 9,700 9,700
Bal. 104,400 600 9,700 9,700 105,000
Bal. 104,400 14,500 600 9,700 9,700 119,500
30 (1,100
(1,100 Utilities expense
Bal. 103,300 14,500 600 9,700 9,700 118,400
31 (8,000
___ (8,000 Withdrawal
Bal. 95,30014,500 600 9,700 9,700 110,400
120,100 120,100

Req. 2
d. Net income for May = $ 13,400 ($14,500 – $1,100)
a. 95,300 + 14,500 + 600 + 9,700 = 120,100
Req. 3
Arlene Lavoie’s first month of operations was good because the business earned net
income of $13,400.

(20-25 min.) P 1-32A
Carter Roofing
Date Type of Transaction
Dec. 4 Investment of $5,000 by owner

Increase Cash, $5,000
Increase Owner’s Equity (Capital), $5,000
9 Cash purchase of land, $3,000
Decrease Cash, $3,000
Increase Land, $3,000
13 Purchase of supplies on account, $300
Increase Supplies, $300
Increase Accounts Payable, $300
16 Payment of $2,000 cash on account payable
Decrease Accounts Payable, $2,000
19 Collection of $1,400 cash from customer on account
receivable
Decrease Accounts Receivable, $1,400
22 Investment of $8,000 cash by owner
25 Payment of $500 cash on account payable
Decrease Accounts Payable, $500
Decrease Cash, $500
27 Cash purchase of supplies, $600
Decrease Cash, $600
30 Withdrawal of $5,100 cash by owner
Decrease Owner’s Equity (Capital), $5,100

(60-75 min.) P 1-33A
Req. 1
Analysis of Transactions Goth
OWNER’S
MARILYN TYPE OF
ACCOUNTS ACCOUNTS MANSION, OWNER’S EQUITY
DATE CASH + RECEIVABLE + SUPPLIES + LAND = PAYABLE + CAPITAL TRANSACTION
Bal. 2,500 1,500 13,000 4,000 13,000
a) 10,000 10,000 Owner investment
Bal. 12,500 1,500 13,000 4,000 23,000
b) 1,100 1,100 Service revenue
Bal. 13,600 1,500 13,000 4,000 24,100
c) (4,000) (4000)
Bal. 9,600 1,500 13,000 -0- 24,100
d) 700 700
Bal. 9,600 1,500 700 13,000 700 24,100
e) 600 (600)
Bal. 10,200 900 700 13,000 700 24,100
f) 1,700 1,700 Owner investment
Bal. 11,900 900 700 13,000 700 25,800
g) 4,300 4,300 Service revenue
Bal. 11,900 5,200 700 13,000 700 30,100
h) (1,000) (1,000) Rent expense
(300) (300) Advertising expense
Bal. 10,600 5,200 700 13,000 700 28,800
i) 100 (100)
Bal. 10,700 5,200 600 13,000 700 28,800
j) (2,200) (2,200) Owner withdrawal
Bal. 8,500 5,200 600 13,000 700 26,600

(continued) P 1-33A
Req. 2
Goth
Income Statement
Month Ended September 30, 2011
Revenues:
Service revenue ($1,100 + $4,300) $5,400
Expenses:
Rent expense $1,000
Advertising expense 300
Net income $4,100
Req. 3
Goth
Marilyn Mansion, capital, September 1, 2011 $13,000
Add: Investments by owner ($10,000 + $1,700) 11,700
Net income for the month 4,100
28,800

(continued) P 1-33A
Req. 4
Goth
Balance Sheet
September 30, 2011
ASSETS LIABILITIES
Cash $ 8,500 Accounts payable $ 700
Supplies 600 OWNER’S EQUITY
Land 13,000 M. Mansion, capital 26,600

(20-30 min.) P 1-34A
Req. 1
Town & Country Realty

Income Statement
Revenue:
Expenses:
Rent expense 18,000
Advertising expense 14,000
Interest expense 9,000
Insurance expense 2,300
Net income $ 81,300
Req. 2

Statement of Equity
Heidi Gentry, capital, January 1, 2011 $83,000
Add: Net income for the year 81,300
164,300
Heidi Gentry, capital, December 31, 2011 $138,300

(continued) P 1-34A
Req. 3

Balance Sheet
December 31, 2011
ASSETS LIABILITIES
Cash $ 8,000 Accounts payable $13,000
Accounts receivable 4,800 Salary payable 1,400
Supplies 6,000 Note payable 26,000
Equipment 20,000 Total liabilities 40,400
Building 133,900 OWNER’S EQUITY
Land 6,000 Heidi Gentry, capital 138,300
Req. 4
a. Result of operations: Net income of $81,300
b. The total economic resources were $178,700
c. The total amount owed was $40,400
d. The amount of owner’s equity at the end of the year was

$138,300

(20 – 30 min.) P1-35A
a.
Picture Gallery
Income Statement

Net income $39,000
b.
Picture Gallery
Maura Murphy, capital, January 1, 2011 $18,000
Net income 39,000
88,000
Less: Withdrawals (16,000
Maura Murphy, capital, December 31, 2011 $72,000
c.
Picture Gallery
Balance Sheet
December 31, 2011
ASSETS LIABILITIES
Cash $15,000 Accounts payable $ 9,000
OWNER’S EQUITY
M. Murphy, capital 72,000
(20-30 min.) P 1-36A
Req. 1
Beautiful World Landscaping
Balance Sheet
August 31, 2007
ASSETS LIABILITIES
Office supplies 700 Total liabilities 25,300
Office furniture 5,900 OWNER’S EQUITY
Land 36,100 Lori Lindros, capital 24,900*
*50,200 – 25,300 = 24,900
Req. 2
Total assets as presented in the corrected balance sheet
decreased from the original balance sheet because expenses
and liabilities were incorrectly classified as assets.

Problems
Group B
(15-20 min.) P 1-37B
1. D
2. E
3. G
4. H
5. A
6. I
7. B
8. C
9. F (20-25 min.) P 1-38B
Req. 1
There is no proprietorship feature that limits Beth’s personal
liability.
Req. 2
Beth Plum, Realtor

Balance Sheet
November 30, 2010
ASSETS LIABILITIES
Office supplies 500 Note payable 61,000
Franchise 30,000 Total liabilities 62,000
Furniture 15,000 OWNER’S EQUITY
Land 85,000 Beth Plum, capital 78,500
__________
$140,500 – $62,000 = $78,500
Req. 3
Personal items not reported on the balance sheet of the

business:
c. Personal residence ($170,000) and mortgage payable

($50,000)
d. Personal cash ($5,000)
e. Personal account payable ($1,000)

(20-30 min.) P 1-39B
Req. 1
Arthur Shore, Accountant
ACCOUNTS OFFICE ACCOUNTS ARTHUR SHORE, TYPE OF OWNER’S
DATE CASH + RECEIVABE + SUPPLIES + FURNITURE = PAYABLE + CAPITAL EQUITY TRANSACTION
Feb 4*
Bal. 70,000 70,000
6 (700) 700
Bal. 69,300 700 70,000
7 9,900 9,900
Bal. 69,300 700 9,900 9,900 70,000
10*
11*
12*
Bal. 69,30016,000 700 9,900 9,900 86,000
25 (1,000 (1,000 Rent expense
Bal. 68,30016,000 700 9,900 9,900 85,000
28 (1,000 ___ (1,000 Withdrawal
Bal. 67,300 16,000 700 9,900 9,900 84,000
93,900 93,900

(continued) P 1-30A
Req. 2
d. Net income for = $ 15,000 ($16,000 – $1,000)

February
a. 67,300 + 16,000 + 700 + 9,900 = 93,900

(20-30 min.) P 1-40B
Anna Judge, Attorney
ACCOUNTS ACCOUNTS ANNA JUDGE, TYPE OF OWNER’S
DATE CASH + RECEIVABLE + SUPPLIES + COMPUTER = PAYABLE + CAPITAL EQUITY TRANSACTION
July 1*
2*
3*
Bal. 83,000 83,000
7 (800) 800
Bal. 82,200 800 83,000
9 9,000 9,000
Bal. 82,200 800 9,000 9,000 83,000
Bal. 82,20013,000 800 9,000 9,000 96,000
30 (1,700 (1,700 Utilities expense
Bal. 80,50013,000 800 9,000 9,000 94,300
31 (9,000 (9,000 Withdrawal
Bal. 71,50013,000 800 9,000 9,000 85,300
94,300 94,300

Req. 2
d. Net income for July = $ 11,300 ($13,000 – $1,700)
a. 71,500 + 13,000 + 800 + 9,000 = 94,300
Req. 3
Anna Judge’s first month of operations was good because the business earned net
income of $11,300.

(20-25 min.) P 1-41B
Pellegrini Electronics
Date Type of Transaction
Nov. 4 Investment of $4,000 by owner

9 Cash purchase of land, $3,000
Increase Land, $3,000
13 Purchase of supplies on account, $100
Increase Accounts Payable, $100
16 Payment of $1,600 cash on account payable
Decrease Accounts Payable, $1,600
19 Collection of $1,100 cash from customer on account
receivable
Decrease Accounts Receivable, $1,100
22 Investment of $8,000 cash by owner
25 Payment of $500 cash on account payable
Decrease Accounts Payable, $500
Decrease Cash, $500
27 Cash purchase of supplies, $700
Decrease Cash, $700
30 Withdrawal of $5,900 cash by owner
Decrease Owner’s Equity (Capital), $5,900

Req.1 (60-75 min.) P 1-42B
Analysis of Transactions Dance Fever
OWNER’S
MARIAN TYPE OF
ACCOUNTS ACCOUNTS CRONE, OWNER’S EQUITY
DATE CASH + RECEIVABLE + SUPPLIES + LAND = PAYABLE + CAPITAL TRANSACTION
Bal. 2,400 1,800 14,000 3,000 15,200
a) 15,000 15,000 Owner investment
Bal. 17,400 1,800 14,000 3,000 30,200
b) 1,200 1,200 Service revenue
Bal. 18,600 1,800 14,000 3,000 31,400
c) (3,000) (3,000)
Bal. 15,600 1,800 14,000 -0- 31,400
d) 500 500
Bal. 15,600 1,800 500 14,000 500 31,400
e) 600 (600)
Bal. 16,200 1,200 500 14,000 500 31,400
f) 2,000 2,000 Owner investment
Bal. 18,200 1,200 500 14,000 500 33,400
g) 5,300 5,300 Service revenue
Bal. 18,200 6,500 500 14,000 500 38,700
h) (1,100) (1,100) Rent expense
(500) (500) Advertising expense
Bal. 16,600 6,500 500 14,000 500 37,100
i) 90 (90)
Bal. 16,690 6,500 410 14,000 500 37,100
j) (2,000) (2,000) Owner withdrawal
Bal. 14,690 6,500 410 14,000 500 35,100

(continued) P 1-42B
Req. 2
Dance Fever
Income Statement
Revenues:
Service revenue ($1,200 + $5,300) $6,500
Expenses:
Rent expense $1,100
Advertising expense 500
Net income $4,900
Req. 3
Dance Fever
Marian Crone, capital, September 1, 2011 $15,200
Add: Investments by owner ($15,000 + $2,000) 17,000
37,100

(continued) P 1-42B
Req. 4
Dance Fever
Balance Sheet
September 30, 2011
ASSETS LIABILITIES
Cash $ 14,690 Accounts payable $ 500
Supplies 410 OWNER’S EQUITY
Land 14,000 M. Crone, capital 35,100

(20-30 min.) P 1-43B
Req. 1
Plantscapes Décor Services

Income Statement
Revenue:
Expenses:
Rent expense 11,000
Interest expense 6,000
Net income $ 82,300
Req. 2

Tom English, capital, January 1, 2011 $76,000
Add: Net income for the year 82,300
158,300
Tom English, capital, December 31, 2011 $130,300

(continued) P 1-43B
Req. 3

Balance Sheet
December 31, 2011
ASSETS LIABILITIES
Cash $ 9,000 Accounts payable $11,000
Accounts receivable 4,000 Salary payable 800
Supplies 6,000 Note payable 32,000
Building 128,100 OWNER’S EQUITY
Land 9,000 Tom English, capital 130,300
Req. 4
b. Result of operations: Net income of $82,300
b. The total economic resources were $174,100
c. The total amount owed was $43,800
d. The amount of owner’s equity at the end of the year was

$130,300

(20 – 30 min.) P1-44B
a.
Accent Photography
Income Statement
Revenue:
Expenses:
Net income $45,000
b.
Accent Photography
Martha Milford, capital, January 1, 2011 $20,000
Net income 45,000
98,000
Less: Withdrawals (15,000
Maura Murphy, capital, December 31, 2011 $83,000
c.
Accent Photography
Balance Sheet
December 31, 2011
ASSETS LIABILITIES
Cash $31,000 Accounts payable $ 6,000
OWNER’S EQUITY
M. Milford, capital 83,000
(20-30 min.) P 1-45B
Req. 1
Lone Star Landscaping
Balance Sheet
May 31, 2007
ASSETS LIABILITIES
Office supplies 900 Total liabilities 25,100
Office furniture 6,200 OWNER’S EQUITY
Land 35,300 Walt Temple, capital 25,300*
*50,400 – 25,100 = 25,300
Req. 2
Total assets as presented in the corrected balance sheet
decreased from the original balance sheet because expenses
and liabilities were incorrectly classified as assets.

Continuing Exercise
(60 min.) E 1-46

Req. 1
Sherman Lawn Services
HANNAH
ACCOUNTS + LAWN EQUIP- ACCOUNTS SHERMAN, TYPE OF OWNER’S
DATE CASH + RECEIVABLE SUPPLIES + MENT + = PAYABLE + CAPITAL EQUITY TRANSACTION
Aug. 1 1,000 1,000
Owner investment
Bal. 1,000 1,000
3 1,400 1,400
Bal. 1,000 1,400 1,400 1,000
5 (20) (20) Fuel expense
Bal. 980 1,400 1,400 980
6 200 200 Service revenue
Bal. 980 200 1,400 1,400 1,180
8 (50) 50
Bal. 930 200 50 1,400 1,400 1,180
17 500 500 Service revenue
Bal. 1,430 200 50 1,400 1,400 1,680
31 50 (50)
Bal. 1,480 150 50 1,400 1,400 1,680

Continuing Problem
(60-75 min.) P 1-47
Req. 1
Haupt Consulting
HANNAH
ACCOUNTS ACCOUNTS SHERMAN, TYPE OF OWNER’S
DATE CASH + RECEIVABLE + SUPP + EQUIP + FURN= PAYABLE + CAPITAL EQUITY TRANSACTION
Dec. 210,000 10,000
Owner investment
Bal. 10,000 10,000
2 (500) (500) Rent Expense
Bal. 9,500 9,500
3 (2000) 2,000
Bal. 7,500 2,000 9,500
4 3,600
Bal. 7,500 2,000 3,600 9,500
5 300 300
Bal. 7,500 300 2,000 3,900 9,500
9 1,700 1,700
Service Revenue
Bal. 7,500 1,700 300 2,000 3,900 11,200
12 (200) (200) Utilities Expense
Bal. 7,300 1,700 300 2,000 3,900 11,000
18 800 800 Service Revenue
Bal. 8,100 1,700 300 2,000 3,900 11,800

(continued) P1-47
Req. 2
Haupt Consulting
Income Statement
Month Ended December 31, 2010
Revenues:
Service revenue ($1,700 + $800) $2,500
Expenses:
Rent expense $500
Utilities expense 200
Total expenses 700
Net income $1,800
Req. 3
Haupt Consulting
Month Ended December 31, 2010
Carl Haupt, capital, December 1, 2010 $ -0-
11,800
Less: Withdrawals by owner (-0-)
Carl Haupt, capital, December 31, 2010 $11,800

(continued) P1-47
Req. 4
Haupt Consulting
Balance Sheet
December 31, 2010
ASSETS LIABILITIES
Supplies 300 Total liabilities $ 3,900
Equipment 2,000 OWNER’S EQUITY
Furniture 3,600 Carl Redmon, capital 11,800

PRACTICE SET: Chapter 1
(45 min.)
Req. 1
Cash
Accounts receivable
Supplies
Prepaid rent
Prepaid insurance
Truck
Equipment
Accounts payable
Note payable
Unearned service revenue
C J Oliver, Capital
Owner withdrawals
Service revenue
Contract labor expense
Utilities expense
Advertising expense

Req. 2 Crystal Clear Cleaning
ASSETS =LIABILITIES +OWNER’S EQUITY
PRE PRE
DATE CASH + AR + SUPP + RENT + INS + TRUCK + EQUIP= N/P+
C.J. OLIVER, CAPITAL
Apr. 1 20,000 25,000
Bal. 20,000 25,000
2 (1,600) 1,600
Bal. 18,400 1,600 25,000
3 (1,200) 1
Bal. 17,200 1,600 1 25,000
4 220
Bal. 17,200 220 1,600 1 25,000
5
Bal. 17,200 220 1,600 1 25,000
7 (1,500)
Bal. 15,700 220 1,600 1 25,000
9 3,200
Bal. 15,700 220 1,600 1 28,200
10 200 (200
Bal. 15,900 220 1,600 1 28,200
15 (300) (300)
Bal. 15,600 220 1,600 1 27,900
16 1,200
Bal. 16,800 220 1,600 1 27,900
17 700 700
Bal. 17,500 220 1,600 1 28,600
18 (200)
Bal. 17,500 220 1,600 1 28,400
20 10,000
Bal. 27,500 220 1,600 1 28,400
21 1,000
Bal. 28,500 220 1,600 1 28,400
25 (1,500)
Bal. 27,000 220 1,600 1 28,400
29 (200) (200)
Bal. 26,800 220 1,600 1 28,200
30 (500) (500)
Bal. 26,300 220 1,600 1 27,700

(continued) Practice Set
Total assets = $39,820 Total liabilities = $39,820

Accounting and The Business Environment: Short Exercises S 1-1

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Chapter 1

Accounting and the Business

Expenses decrease owner’s equity by using up assets or

2. The financial statement that would provide the best

1 Chapter 1 Accounting and the Business Environment

(5-10 min.) S 1-6

2. Wendy Craven has $13,000 of equity in the business.

Assets = Liabilities + Owner’s Equity

$6,000 + $12,000 = $5,000 + $13,000

2 Accounting 8/e Solutions Manual

Cash Owner, Capital

(a) $420 = $420 Revenue

Total assets (accounts receivable): $2,400

3 Chapter 1 Accounting and the Business Environment

Cash + Accts. Owner, Capital

(a) $300 = $300 Revenue

(10 min.) S 1-11

4 Accounting 8/e Solutions Manual

(10 min.) S 1-13

5 Chapter 1 Accounting and the Business Environment

(10 – 15 min.) E 1-14

(15-20 min.) E 1-15

The income statement is prepared by summarizing the

6 Accounting 8/e Solutions Manual

3. Before lending money, the lender evaluates Maness’s ability

4. Terry Maness is organized as a sole proprietor.

7 Chapter 1 Accounting and the Business Environment

Nice Cuts $ 68,000 $25,000 $43,000

Love Dry Cleaners 85,000 31,000 54,000

Hudson Gift & Cards 102,000 49,000 53,000

Nice Cuts 25,000 + 43,000 = 68,000

8 Accounting 8/e Solutions Manual

a. 81,000 – 70,000 – 5,000 = 6,000

(5-10 min.) E 1-18

Wording may vary.

9 Chapter 1 Accounting and the Business Environment

b. Increase asset (Accounts Receivable)

c. Increase asset (Office Furniture)

d. Increase asset (Cash)

e. Decrease asset (Cash)

f. Increase asset (Cash)

g. Increase asset (Cash)

h. Decrease asset (Cash)

i. Increase asset (Supplies)

10 Accounting 8/e Solutions Manual

Chapter 1 Accounting and the Business Environment

The owner’s equity increased during the year by $4,000.

12 Accounting 8/e Solutions Manual

Net income for Priority Parcel Service is $7 billion.

13 Chapter 1 Accounting and the Business Environment

14 Accounting 8/e Solutions Manual

(10-20 min.) E 1-26

Tompkins Towing Service

15 Chapter 1 Accounting and the Business Environment

The balance sheet reports financial position.

The income statement reports operating results.

(10-15 min.) E 1-27

Carter Design Studio

Results of operations for 2010: Net income of $61,800