Chapter 2: Analyzing Business TransactionsChapter Opener: Thinking CriticallyAnswers will vary but students should recognize that happy employees are more productive and present apositive image to the company. Happy employees are also loyal which leads to lower employee turnover,and lower training and recruiting expenses. Happy employees are much less like to steal from the company,and of course, happy employees mean happy customers who become repeat customers.Fast Facts• Southwest Airlines opened in 1971 with three planes flying between Houston, Dallas, and San Antonio.By 2004 Southwest had become one of the largest domestic U.S. airlines, serving 59 cities in 29 states.• For the fiscal year 2004, the company’s net income was $313 million while its total operating revenue was$6.5 billion.• In 2004 Southwest served 49 million cans of soda, juices, and water; 8.1 million alcoholic beverages;3.3 million bags of pretzels; 95.3 million bags of peanuts; and 28 million other snacks.Accounting on the Job: Thinking CriticallyAnswers will vary. Strong financial management, communication, and interpersonal skills are those mostoften listed as requirements for the position of hotel general manager. Solid marketing and sales skills areadditional attributes desired. The general manager of a hotel or resort is required to oversee all operationsincluding distribution services, administration, food services, guest services, marketing, budgeting, andsales.Internet ApplicationThe TIA is a nonprofit association that represents the interests of the U.S. travel industry. Resources includetravel statistics and links to programs, events, and travel-related sites. The TIA Web site is located atwww.tia.org.Managerial Implications: Thinking CriticallyAnswers will vary. Students should mention total assets and the type of assets, the liabilities the businesswould be responsible for, and whether the business is making a profit.Discussion QuestionsThese questions are designed to check students’ understanding of the new terms, concepts, and procedurespresented in the chapter.1. a. assets incr., liabiiities incr.; b. assets decr., owner’s equity decr.; c. assets incr., owner’s equity incr.;d. assets decr., liabilities decr.; e. one asset incr. and another decr.; no change in total assets; f. assetsincr., owner’s equity incr.2. Revenue and expenses; net income or loss3. Subtract total expenses from revenue4. Firm name, title of statement, date of statement or the period of time covered5. Bal. sheet shows position at particular date; inc. statement shows results of operations for a period oftime6. Beginning-of-period capital balance, net income/loss for period, additional investments, ending capitalbalance7. Increases owner’s equity8. Assets: property owned. Liabilities: debts. Owner’s equity: owner’s financial interest.9. Assets, liabilities, and owner’s equity.10. Assets = Liabilities + Owner’s Equity11. Inflow of money/assets resulting from sales or use of property12. Outflow of money/assets for costs used to produce revenue4 䡲 Chapter 2 Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.Price_SM_ch02.qxd 10/26/05 2:38 PM Page 4ExercisesExercise 2.11. $38,7502. $30,5503. $ 5,0004. $17,6255. $ 4,175Exercise 2.2Assets $61,350Liabilities $11,375Owner’s Equity $49,975Exercise 2.3Exercise 2.4Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 2 䡲 5Transaction Assets = Liabilities + Owner’s Equity1. + +2. + +3. +/–4. +/–5. + +6. – –7. + +8. +/–9. – –10. – –Assets = Liabilities + Owners’ Equity1. Cash $ 3,250 = Accounts Payable $11,175 + Donna Wells, Capital $9,1952. Dental Supplies 1,470 = +3. Dental Equipment 12,900 = +4. Office Furniture 2,750 = +5. Total $20,370 = $11,175 + $9,195Price_SM_ch02.qxd 10/26/05 2:38 PM Page 5Exercise 2.5Exercise 2.61. Services were performed for cash.2. Equipment was purchased for cash.3. A payment was made on the amount owed to a creditor.4. An expense was paid in cash.5. Cash was received from charge customer.6. Services were performed on credit.7. An expense was paid in cash.Exercise 2.7Net income of $10,000RevenueRepair Fees 22,575ExpensesAdvertising Expense 2,650Salaries Expense 9,050Telephone Expense 325Utilities Expense 550Total Expenses 12,575Net Income 10,000Exercise 2.8Net loss of $475RevenueService Revenue 2,400ExpensesAdvertising Expense 1,300Telephone Expense 350Salaries Expense 1,050Cleaning Expense 175Total Expenses 2,875Net Loss ($475)Assets = Liabilities + Owner’s EquityCash +AccountsReceivable + Equipment =AccountsPayable +Inez OwensCapital + Revenue – Expenses1. +$25,000 +$25,0002. +$ 8,500 +$8,5003. +$ 1,050 +$1,0504. –$ 1,800 +$ 1,8005. +$2,275 +$2,2756. –$ 1,975 +$1,9757. +$ 1,100 –$1,1008. –$ 4,500 –$4,500Totals $18,875 + $1,175 + $10,300 = $4,000 + $25,000 + $3,325 – $1,9756 䡲 Chapter 2 Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.Price_SM_ch02.qxd 10/26/05 2:38 PM Page 6Exercise 2.9NEAL’S INVESTMENT SERVICESIncome StatementMonth Ended September 30, 2007RevenueFees Income . . . . . . . . . . . . . . . . . . . . . . . . . . 36,400ExpensesAdvertising Expense . . . . . . . . . . . . . . . . . . . . 2,750Salaries Expense . . . . . . . . . . . . . . . . . . . . . . . 7,500Telephone Expense . . . . . . . . . . . . . . . . . . . . . 350Total Expenses . . . . . . . . . . . . . . . . . . . . . . . 10,600Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,800Exercise 2.10NEAL’S INVESTMENT SERVICESStatement of Owner’s EquityMonth Ended September 30, 2007Stanley Neal, Capital, September 1, 2007 . . . . . 12,850Net Income for September . . . . . . . . . . . . . . . . . 25,800Less Withdrawals for September . . . . . . . . . . . . 4,000Increase in Capital . . . . . . . . . . . . . . . . . . . . . . . 21,800Stanley Neal, Capital, September 30, 2007 . . . . 34,650NEAL’S INVESTMENT SERVICESBalance SheetSeptember 30, 2007Assets LiabilitiesCash . . . . . . . . . . . . . . . . . . . . . . . . . . 16,050 Accounts Payable . . . . . . . . . . . . . . . . 2,350Accounts Receivable . . . . . . . . . . . . . 1,500Office Supplies . . . . . . . . . . . . . . . . . . 1,200 Owner’s EquityOffice Equipment . . . . . . . . . . . . . . . . 18,250 Stanley Neal, Capital . . . . . . . . . . . . . . 34,650Total Assets . . . . . . . . . . . . . . . . . . . . 37,000 Total Liabilities & Owner’s Equity .