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Solution Manual For Financial Accounting 7th Edition
By Michelle Hanlon, Robert Magee, Glenn Pfeiffer
Latest Update 2025/2026 A+
, Stuvia.com - The Marketplace to Buy and Sell your Study Material
Chapter 1
introducing financial accounting
learning objectives + coverage by question
mini- casesand
exercises problems
exercises projects
lo1 + identify the users of accounting
information and discuss the costs and benefits 25 28, 34 49, 50
of disclosure.
lo2 + describe a company‟s business activities
and explain how these activities are 19, 20, 21 27, 29, 32, 33 36, 37, 38, 43 47
represented by the accounting equation.
lo3 + introduce the four key financial
statements including the balance sheet, income 37, 38, 39,
statement, statement of stockholders‟ equity 22, 23, 24 30, 31 40, 41, 42, 46, 47, 49
and statement of cash flows. 43, 44, 45
lo4 + describe the institutions that regulate
financial accounting and their role in
26 34 50
establishing generally accepted accounting
principles.
lo5 + compute two key ratios that are
commonly used to assess profitability and
32, 33 36, 43, 44, 45 46, 47, 48, 49
risk + return on equity and the debt-to-
equity ratio.
lo6 + appendix 1a: explain the conceptual
framework for financial reporting. 35
©cambridge business publishers, 2020
4-2 financial accounting, 6 th edition
, Stuvia.com - The Marketplace to Buy and Sell your Study Material
QUESTIONS
question 1-1. organizations undertake planning activities that subsequently shape three major activities:
financing, investing, and operating. financing is the means used to pay for resources. investing refers
to the buying and selling of resources necessary to carry out the organization‟s plans. operating
activities are the actual carrying out of these plans. (planning is the glue that connects these
activities, including the organization‟s ideas, goals and strategies.)
question 1-2. an organization‟s financing activities (liabilities and equity = sources of funds) pay for investing
activities (assets = uses of funds). an organization cannot have more or less assets than its liabilities
and equity combined and, similarly, it cannot have more or less liabilities and equity than its total
assets. this means: assets = liabilities + equity. this relation is called the accounting equation
(sometimes called the balance sheet equation, or bse), and it applies toall organizations at all times.
question 1-3. the four main financial statements are: income statement, balance sheet, statement of
stockholders‟ equity, and statement of cash flows. the income statement provides information
relating to the company‟s revenues, expenses and profitability over a period of time. the balance
sheet lists the company‟s assets (what it owns), liabilities (what it owes), and stockholders‟ equity (the
residual claims of its owners) as of a point in time. the statement of stockholders‟ equity reports on the
changes to each stockholders‟ equity account during the year. some changes to stockholders‟ equity,
such as those resulting from the payment of dividends and unrealized gains (losses) on marketable
securities, can only be found in this statement as they are not included in the computation of net
income. the statement of cash flows identifies the sources (inflows) and uses (outflows) of cash, that
is, from what sources the company has derived its cash and how that cash has been used. all four
statements are necessary in order to provide a complete picture of the financial condition of thecompany.
question 1-4. the balance sheet provides information that helps users understand a company‟s resources (assets) and
claims to those resources (liabilities and stockholders‟ equity) as of agiven point in time.
an income statement reports whether the business has earned a net income (also called profit or
earnings) or a net loss. importantly, the income statement lists the types and amounts of revenues
and expenses making up net income or net loss. the income statement covers a period of time.
question 1-5. your authors would agree with mr. buffett. a recent study of top financial officers suggests
they find earnings and the year-to-year changes in earnings as the most important items to report. we
would add cash flows particularly from operations, and theyear-to-year changes.
3
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question 1-6. the statement of cash flows reports on the cash inflows and outflows relating to a company‟s
operating, investing, and financing activities over a period of time. the sum of these three activities
yields the net change in cash for the period. this statement is a useful complement to the income
statement which reports on revenues and expenses, but conveys relatively littleinformation about cash
flows.
question 1-7. articulation refers to the updating of the balance sheet by information contained in the income
statement or the statement of cash flows. for example, retained earnings is increased each period by any
profit earned during the period (as reported in the income statement) and decreased each period by
the payment of dividends (as reported in the statement of cash flows and the statement of stockholders‟
equity). it is by the process of articulation that the financial statements are linked.
question 1-8. return refers to income, and risk is the uncertainty about the return we expect to earn. the lower the
risk, the lower the expected return. for example, savings accounts pay a low return because of
the low risk of a bank not returning the principal with interest. higher returns are to be expected for
common stocks as there is a greater uncertainty about the realized return compared with the expected
return. higher expected return offsets this higher risk.
question 1-9. companies often report more information than is required by gaap because the benefits of doing so
outweigh the costs. these benefits often include lower interest rates and better terms from lenders,
higher stock prices and greater access to equity investors, improved relationships with suppliers and
customers, and increased ability to attract the best employees. all of these benefits arise because the
increased disclosure reduces uncertainty about the company‟s futureprospects.
question 1-10. external users and their uses of accounting information include: (a) lenders for measuring the risk
and return of loans; (b) shareholders for assessing the return and risk in acquiring shares; and (c)
analysts for assessing investment potential. other users are auditors, consultants, officers,
directors for overseeing management, employees for judging employment opportunities,
regulators, unions, suppliers, and appraisers.
question 1-11. managers deal with a variety of information about their employers and customers that is not
generally available to the public. ethical issues arise concerning the possibility that managers
might personally benefit by using confidential information. there is also the possibility that their
employers and/or customers might be harmed if certain information is not kept confidential.
©cambridge business publishers, 2020
4-4 financial accounting, 6 th edition
Solution Manual For Financial Accounting 7th Edition
By Michelle Hanlon, Robert Magee, Glenn Pfeiffer
Latest Update 2025/2026 A+
, Stuvia.com - The Marketplace to Buy and Sell your Study Material
Chapter 1
introducing financial accounting
learning objectives + coverage by question
mini- casesand
exercises problems
exercises projects
lo1 + identify the users of accounting
information and discuss the costs and benefits 25 28, 34 49, 50
of disclosure.
lo2 + describe a company‟s business activities
and explain how these activities are 19, 20, 21 27, 29, 32, 33 36, 37, 38, 43 47
represented by the accounting equation.
lo3 + introduce the four key financial
statements including the balance sheet, income 37, 38, 39,
statement, statement of stockholders‟ equity 22, 23, 24 30, 31 40, 41, 42, 46, 47, 49
and statement of cash flows. 43, 44, 45
lo4 + describe the institutions that regulate
financial accounting and their role in
26 34 50
establishing generally accepted accounting
principles.
lo5 + compute two key ratios that are
commonly used to assess profitability and
32, 33 36, 43, 44, 45 46, 47, 48, 49
risk + return on equity and the debt-to-
equity ratio.
lo6 + appendix 1a: explain the conceptual
framework for financial reporting. 35
©cambridge business publishers, 2020
4-2 financial accounting, 6 th edition
, Stuvia.com - The Marketplace to Buy and Sell your Study Material
QUESTIONS
question 1-1. organizations undertake planning activities that subsequently shape three major activities:
financing, investing, and operating. financing is the means used to pay for resources. investing refers
to the buying and selling of resources necessary to carry out the organization‟s plans. operating
activities are the actual carrying out of these plans. (planning is the glue that connects these
activities, including the organization‟s ideas, goals and strategies.)
question 1-2. an organization‟s financing activities (liabilities and equity = sources of funds) pay for investing
activities (assets = uses of funds). an organization cannot have more or less assets than its liabilities
and equity combined and, similarly, it cannot have more or less liabilities and equity than its total
assets. this means: assets = liabilities + equity. this relation is called the accounting equation
(sometimes called the balance sheet equation, or bse), and it applies toall organizations at all times.
question 1-3. the four main financial statements are: income statement, balance sheet, statement of
stockholders‟ equity, and statement of cash flows. the income statement provides information
relating to the company‟s revenues, expenses and profitability over a period of time. the balance
sheet lists the company‟s assets (what it owns), liabilities (what it owes), and stockholders‟ equity (the
residual claims of its owners) as of a point in time. the statement of stockholders‟ equity reports on the
changes to each stockholders‟ equity account during the year. some changes to stockholders‟ equity,
such as those resulting from the payment of dividends and unrealized gains (losses) on marketable
securities, can only be found in this statement as they are not included in the computation of net
income. the statement of cash flows identifies the sources (inflows) and uses (outflows) of cash, that
is, from what sources the company has derived its cash and how that cash has been used. all four
statements are necessary in order to provide a complete picture of the financial condition of thecompany.
question 1-4. the balance sheet provides information that helps users understand a company‟s resources (assets) and
claims to those resources (liabilities and stockholders‟ equity) as of agiven point in time.
an income statement reports whether the business has earned a net income (also called profit or
earnings) or a net loss. importantly, the income statement lists the types and amounts of revenues
and expenses making up net income or net loss. the income statement covers a period of time.
question 1-5. your authors would agree with mr. buffett. a recent study of top financial officers suggests
they find earnings and the year-to-year changes in earnings as the most important items to report. we
would add cash flows particularly from operations, and theyear-to-year changes.
3
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question 1-6. the statement of cash flows reports on the cash inflows and outflows relating to a company‟s
operating, investing, and financing activities over a period of time. the sum of these three activities
yields the net change in cash for the period. this statement is a useful complement to the income
statement which reports on revenues and expenses, but conveys relatively littleinformation about cash
flows.
question 1-7. articulation refers to the updating of the balance sheet by information contained in the income
statement or the statement of cash flows. for example, retained earnings is increased each period by any
profit earned during the period (as reported in the income statement) and decreased each period by
the payment of dividends (as reported in the statement of cash flows and the statement of stockholders‟
equity). it is by the process of articulation that the financial statements are linked.
question 1-8. return refers to income, and risk is the uncertainty about the return we expect to earn. the lower the
risk, the lower the expected return. for example, savings accounts pay a low return because of
the low risk of a bank not returning the principal with interest. higher returns are to be expected for
common stocks as there is a greater uncertainty about the realized return compared with the expected
return. higher expected return offsets this higher risk.
question 1-9. companies often report more information than is required by gaap because the benefits of doing so
outweigh the costs. these benefits often include lower interest rates and better terms from lenders,
higher stock prices and greater access to equity investors, improved relationships with suppliers and
customers, and increased ability to attract the best employees. all of these benefits arise because the
increased disclosure reduces uncertainty about the company‟s futureprospects.
question 1-10. external users and their uses of accounting information include: (a) lenders for measuring the risk
and return of loans; (b) shareholders for assessing the return and risk in acquiring shares; and (c)
analysts for assessing investment potential. other users are auditors, consultants, officers,
directors for overseeing management, employees for judging employment opportunities,
regulators, unions, suppliers, and appraisers.
question 1-11. managers deal with a variety of information about their employers and customers that is not
generally available to the public. ethical issues arise concerning the possibility that managers
might personally benefit by using confidential information. there is also the possibility that their
employers and/or customers might be harmed if certain information is not kept confidential.
©cambridge business publishers, 2020
4-4 financial accounting, 6 th edition
