CH 1 Exercise

FUNDAMENTAL OF
ACCOUNTING
LARSON 17 /18 E
CHAPTER 1
EXERCISE FULL SOLUTION
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Exercise 1-1
a. Corporation
b. Sole proprietorship
c. Corporation
d. Partnership
e. Sole proprietorship
f. Sole proprietorship
g. Corporation
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Exercise 1-2
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Exercise 1-3
1. A
2. B
3. B
4. B
5. C
6. A
7. A
8. C
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Exercise 1-4
External users and some questions they seek to answer with accounting information include:
1. Shareholders (investors), who seek answers to questions such as: a. Are resources owned by a
business adequate to carry out plans? b. Are the debts owed excessive in amount? c. What is the
current level of income (and its components)?
2. 2. Creditors, who seek answers for questions such as: a. Does the business have the ability to
repay its debts? b. Can the business take on additional debt? c. Are resources sufficient to cover
current amounts owed?
3. 3. Employees, who seek answers to questions such as: a. Is the business financially stable? b. Can
the business afford to pay higher salaries? c. What are growth prospects for the organization?
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Exercise 1-5
a. Situations involving ethical decision making in coursework include performing independent work on examinations
and individually completing assignments/projects. It can also extend to promptly returning reference materials so
others can enjoy them, and to properly preparing for class to efficiently use the time and question period to not
detract from others’ instructional benefits.
b. b. Managers face several situations demanding ethical decision making in their dealings with employees.
Examples include fairness in performance evaluations, salary adjustments, and promotion recommendations.
They can also include avoiding any perceived or real harassment of employees by the manager or any other
employees. It can also include issues of confidentiality regarding personal information known to managers.
c. c. Accounting professionals who prepare tax returns can face situations where clients wish to claim deductions
they cannot substantiate. Also, clients sometimes exert pressure to use methods not allowed or questionable
under the law. Issues of confidentiality also arise when these professionals have access to clients’ personal
records.
d. d. Auditing professionals with competing audit clients are likely to learn valuable information about each client
that the other clients would benefit from knowing. In this situation the auditor must take care to maintain the
confidential nature of information about each client.
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Exercise 1-6
1. G
2. A
3. C
4. F
5. D
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Exercise 1-7
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Exercise 1- 8
a.$95,000
b.b. $67,000
c. c. $112,000
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Exercise 1-9
Examples of transactions that fit each case include:
a. Cash withdrawal (or some other asset) by the owner from the business; OR, the business
incurs an expense paid in cash.
b. b. Business purchases equipment (or some other asset) on credit.
c. c. Business replaces one form of liability with another (for example, it can sign a note
payable to extend the due date on an account payable)
d. d. Business pays an account payable (or some other liability) with cash (or some other asset).
e. e. Business purchases office supplies (or some other asset) for cash (or some other asset).
f. f. Business incurs an expense that is not yet paid (for example, when employees earn wages
that are not yet paid).
g. g. Owner invests cash (or some other asset) in the business; OR, the business earns revenue
and accepts cash (or another asset).
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Exercise 1-10
a. Started the business with the owner investing
$20,000 cash.
b. b. Purchased office supplies for $1,500 by paying
$1,000 cash and putting the remaining $500
balance on credit.
c. c. Purchased office furniture by paying $8,000
cash.
d. d. Billed a customer $3,000 for services earned. e.
Provided services for $500 cash.
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Exercise 1-11 (
a. Purchased land for $2,000 cash
b. . b. Purchased $500 of office supplies on credit.
c. c. Billed a client $950 for services provided.
d. d. Paid the $500 account payable created by the
credit purchase of office supplies in transaction b.
e. e. Collected $950 cash for the billing in transaction c.
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Exercise 1-12
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Exercise 1-13
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Exercise 1-14
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Exercise 1-15
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Exercise 1-16
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Exercise 1-16 REMAINING
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Exercise 1-17
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Exercise 1-18 (
) Return on assets = Net income / Average total assets
= $20,000 / [($100,000 + $150,000)/2]
= 16% Interpretation:
Its return on assets of 16% is markedly above the 10% return of its competitors. Accordingly, its
performance is assessed as superior to its competitors.
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Exercise 1-19B
a. Financing
b. b. Investing
c. c. Operating
d. d. Financing
e. e. Investing
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