Solution Manual for Fundamentals of Financial Accounting, 6th Canadian Edition by Phillips & Libby

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Solution Manual for Fundamentals of Financial Accounting
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6CE Fred Phillips, Robert Libby, Patricia Libby, Brandy
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Mackintosh Chapter 1-13
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Chapter 1 Business Decisions and Financial Accounting
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ANSWERSATOAQUESTIONS

1. AccountingAisAaAsystemAofAanalyzing,Arecording,AandAsummarizingAtheAresultsAofAaAbusiness‘s
activitiesAandAthenAreportingAthemAtoAdecisionAmakers.

2. AnAadvantageAofAoperatingAasAaAsoleAproprietorship,AratherAthanAaAcorporation,AisAthatAitAisAeasyAtoA esta
blish.AAnotherAadvantageAisAthatAincomeAfromAaAsoleAproprietorshipAisAtaxedAonlyAonceAinAtheAhandsA ofA
theAindividualAproprietorA(incomeAfromAaAcorporationAisAtaxedAinAtheAcorporationAandAthenAagainAinA the
AhandsAofAtheAindividualAproprietor).AAAdisadvantageAofAoperatingAasAaAsoleAproprietorship,A ratherA than

AaAcorporation,AisAthatAtheAindividualAproprietorAcanAbeAheldAresponsibleAforAtheAdebtsAofAtheA business.



3. FinancialAaccountingAfocusesAonApreparingAandAusingAtheAfinancialAstatementsAthatAareAmadeAavailableA
toAownersAandAexternalAusersAsuchAasAcustomers,Acreditors,AandApotentialAinvestorsAwhoAareAinterested
A inAreadingAthem.AManagerialAaccountingAfocusesAonAotherAaccountingAreportsAthatAareAnotAreleasedAto

A theAgeneralApublic,AbutAinsteadAareApreparedAandAusedAbyAemployees,Asupervisors,AandAmanagersA who

A runAtheAcompany.



4. FinancialAreportsAareAusedAbyAbothAinternalAandAexternalAgroupsAandAindividuals.ATheAinternalAgroups
A areAcomprisedAofAtheAvariousAmanagersAofAtheAbusiness.ATheAexternalAgroupsAincludeAinvestors,A cre

ditors,AgovernmentalAagencies,AotherAinterestedAparties,AandAtheApublicAatAlarge.

5. TheAbusinessAitself,AnotAtheAindividualAshareholdersAwhoAownAtheAbusiness,AisAviewedAasAowningAtheA
assetsAandAowingAtheAliabilitiesAonAitsAbalanceAsheet.AAAbusiness‘sAbalanceAsheetAincludesAtheAassets,A l
iabilities,AandAshareholders‘AequityAofAonlyAthatAbusinessAandAnotAtheApersonalAassets,Aliabilities,AandA
equityAofAtheAshareholders.A TheAfinancialAstatementsAofAaAcompanyAshowAtheAresultsAofAtheAbusiness



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activitiesAofAonlyAthatAcompany.

6. (a)A OperatingA–
ATheseAactivitiesAareAdirectlyArelatedAtoAearningAprofits.ATheyAincludeAbuyingAsupplies,A makingAproducts


,AservingAcustomers,AcleaningAtheApremises,Aadvertising,ArentingAaAbuilding,ArepairingA equipment,AandA
obtainingAinsuranceAcoverage.

(b) InvestingA–
ATheseAactivitiesAinvolveAbuyingAandAsellingAproductiveAresourcesAwithAlongAlivesA(suchAasA buildings,Aland,


Aequipment,AandAtools),ApurchasingAinvestments,AandAlendingAtoAothers.

(c) FinancingA–
AAnyAborrowingAfromAbanks,ArepayingAbankAloans,AreceivingAcontributionsAfromA shareholders,Aor

ApayingAdividendsAtoAshareholdersAareAconsideredAfinancingAactivities.




7. TheAheadingAofAeachAofAtheAfourAprimaryAfinancialAstatementsAshouldAincludeAtheAfollowing:
(a) NameAofAtheAbusiness
(b) NameAofAtheAstatement
(c) DateAofAtheAstatement,AorAtheAperiodAofAtime

8. (a)A TheApurposeAofAtheAbalanceAsheetAisAtoAreportAtheAfinancialApositionA(assets,A liabilitiesAand
shareholders‘Aequity)AofAaAbusinessAatAaApointAinAtime.
(b) TheApurposeAofAtheAincomeAstatementAisAtoApresentAinformationAaboutAtheArevenues,Aexpenses,
A andAnetAincomeAofAaAbusinessAforAaAspecifiedAperiodAofAtime.


(c) TheAstatementAofAretainedAearningsAreportsAtheAwayAthatAnetAincomeAandAtheAdistributionAof
A dividendsAaffectedAtheAfinancialApositionAofAtheAcompanyAduringAtheAperiod.

(d) TheApurposeAofAtheAstatementAofAcashAflowsAisAtoAsummarizeAhowAaAbusiness‘sAoperating,
investing,AandAfinancingAactivitiesAcausedAitsAcashAbalanceAtoAchangeAoverAaAparticularAperiodAofAtime.

9. TheAincomeAstatement,AstatementAofAretainedAearnings,AandAstatementAofAcashAflowsAwouldAbeAdated
―ForAtheAYearAEndedADecemberA31,A2020,‖AbecauseAtheyAreportAtheAinflowsAandAoutflowsAofAresourcesA d
uringAaAperiodAofAtime.AInAcontrast,AtheAbalanceAsheetAwouldAbeAdatedA―AtADecemberA31,A2020,‖AbecauseA
itArepresentsAtheAassets,AliabilitiesAandAshareholders‘AequityAatAaAspecificAdate.

10. NetAincomeAisAtheAexcessAofAtotalArevenuesAoverAtotalAexpenses.AAAnetAlossAoccursAifAtotalAexpenses
A exceedAtotalArevenues.




11. TheAaccountingAequationAforAtheAbalanceAsheetAis:AAssetsA¶ALiabilitiesA±AShareholders‘A Equity.A Assets
A areAtheAeconomicAresourcesAcontrolledAbyAtheAcompany.

LiabilitiesAareA
amountsAowedAbyAtheAbusiness.A Shareholders‘AequityAisAtheAowners‘AclaimsAtoAtheAbusiness.AItA includ
esAamountsAcontributedAtoAtheAbusinessA(byAinvestorsAthroughApurchasingAtheAcompany‘sA shares)Aan
dAtheAamountsAearnedAandAaccumulatedAthroughAprofitableAbusinessAoperations.

12. TheAequationAforAtheAincomeAstatementAisARevenuesA–
AExpensesA=ANetAIncome.ARevenuesAareA increasesAinAaAcompany‘sAresources,AarisingAprimarilyAfro


A

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mAitsAoperatingAactivities.A ExpensesAareA decreasesAinAaAcompany‘sAresources,AarisingAprimarilyAfr
omAitsAoperatingAactivities.ANetAIncomeAis




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equalAtoArevenuesAminusAexpenses.A (IfAexpensesAareAgreaterAthanArevenues,AtheAcompanyAhasAaANetA Los
s.)

13. TheAequationAforAtheAstatementAofAretainedAearningsAis:ABeginningA RetainedAEarningsA+ANetAIncomeA-
A DividendsA=AEndingARetainedAEarnings.AItAbeginsAwithAbeginning-of-the-

yearAretainedAearningsAwhichAisA theApriorAyear‘sAendingAretainedAearningsAreportedAonAtheApriorAyear‘sAb
alanceAsheet.A TheAcurrentAyear'sA netAincomeAreportedAonAtheAincomeAstatementAisAaddedAandAtheAcurrent
Ayear'sAdividendsAareAsubtractedA fromAthisAamount.ATheAendingAretainedAearningsAamountAisAreportedAon

AtheAend-of-yearAbalanceAsheet.



14. TheAequationAforAtheAstatementAofAcashAflowsAis:ACashAflowsAfromAoperatingAactivitiesA+ACashAflowsAfrom
A investingAactivitiesA+ACashAflowsAfromAfinancingAactivitiesA=AChangeAinAcashAforAtheAperiod.AChangeAinA

cashAforAtheAperiodA+ABeginningAcashAbalanceA=AEndingAcashAbalance.A TheAnetAcashAflowsAforAtheAperiod
A representAtheAincreaseAorAdecreaseAinAcashAthatAoccurredAduringAtheAperiod.A CashAflowsAfromAoperating

A activitiesAareAcashAflowsAdirectlyArelatedAtoAearningAincomeA(normalAbusinessAactivity).ACashAflowsAfrom

A investingAactivitiesAincludeAcashAflowsAthatA areArelatedAtoAtheAacquisitionAorAsaleAofAtheAcompany‘sAlong

-A termAassets.ACashAflowsAfromAfinancingAactivitiesAareAdirectlyArelatedAtoAtheAfinancingAofAtheAcompany.

15. Currently,AtheACharteredAProfessionalAAccountantsAofACanadaA(CPA)AisAgivenAtheAprimaryAresponsibilityA
forAsettingAtheAdetailedArulesAthatAbecomeAGenerallyAAcceptedAAccountingAPrinciplesA(GAAP)AinACanada.A
(Internationally,AtheAInternationalAAccountingAStandardsABoardA(IASB)AhasAtheAresponsibilityAforAsetting
A accountingArulesAknownAasAInternationalAFinancialAReportingAStandardsA(IFRS).)



16. TheAmainAgoalAofAaccountingArulesAisAtoAensureAthatAcompaniesAproduceAusefulAfinancialAinformationA f
orApresentAandApotentialAinvestors,Alenders,AandAotherAcreditorsAinAmakingAdecisionsAinAtheirAcapacityA
asAcapitalAproviders.A FinancialAinformationAmustAshowArelevanceAandAfaithfulArepresentation,AasAwellA
asAbeAcomparable,Averifiable,Atimely,AandAunderstandable.

17. AnAethicalAdilemmaAisAaAsituationAwhereAfollowingAoneAmoralAprincipleAwouldAresultAinAviolating
A another.AThreeAstepsAthatAshouldAbeAconsideredAwhenAevaluatingAethicalAdilemmasAare:

(a) IdentifyAwhoAwillAbenefitAfromAtheAsituationA(often,AtheAmanagerAorAemployee)AandAhowAothersAwill
A beAharmedA(otherAemployees,AtheAcompany‘sAreputation,Aowners,Acreditors,AandAtheApublicAinAgeneral).

(b) IdentifyAtheAalternativeAcoursesAofAaction.
(c) ChooseAtheAalternativeAthatAisAtheAmostAethicalA–
AthatAwhichAyouAwouldAbeAproudAtoAhaveAreportedA inAtheAnewsAmedia.A Often,AthereAisAnoAoneArightAans

werAandAhardAchoicesAwillAneedAtoAbeAmade.A FollowingAstrongAethicalApracticesAisAaAkeyApartAofAensuring
AgoodAfinancialAreportingAbyAbusinessesAofA allAsizes.




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