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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
LearningObjectives + CoverageBy Question
Mini- Cases And
Exercises Problems
Exercises Projects
Lo1 + Identify The Users Of Accounting
Information And Discuss The Costs And 25 28, 34 49, 50
Benefits Of Disclosure.
Lo2 +Describe A Company‟S Business
Activities And Explain How These
19, 20, 21 27, 29, 32, 33 36, 37, 38, 43 47
Activities Are Represented By The
Accounting Equation.
Lo3 + Introduce The Four Key Financial
Statements Including The Balance Sheet, 37, 38, 39,
Income Statement, Statement Of 22, 23, 24 30, 31 40, 41, 42, 46, 47, 49
Stockholders‟ Equity And Statement Of 43, 44, 45
Cash Flows.
Lo4 + Describe The Institutions That
Regulate Financial Accounting And Their
26 34 50
Role In Establishing Generally Accepted
Accounting Principles.
Lo5 + Compute Two Key Ratios That Are
Commonly Used To Assess Profitability
32, 33 36, 43, 44, 45 46, 47, 48, 49
And Risk + Return On Equity And The
Debt-To-Equity Ratio.
Lo6 + Appendix 1a: Explain The
Conceptual Framework For Financial 35
Reporting.
©Cambridge Business Publishers, 2020
4-2 Financial Accounting, 6th Edition
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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 To All 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 A Given 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 The
Year-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 Little Information 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 TheFinancial 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 TheCompany‟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, 6th 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
LearningObjectives + CoverageBy Question
Mini- Cases And
Exercises Problems
Exercises Projects
Lo1 + Identify The Users Of Accounting
Information And Discuss The Costs And 25 28, 34 49, 50
Benefits Of Disclosure.
Lo2 +Describe A Company‟S Business
Activities And Explain How These
19, 20, 21 27, 29, 32, 33 36, 37, 38, 43 47
Activities Are Represented By The
Accounting Equation.
Lo3 + Introduce The Four Key Financial
Statements Including The Balance Sheet, 37, 38, 39,
Income Statement, Statement Of 22, 23, 24 30, 31 40, 41, 42, 46, 47, 49
Stockholders‟ Equity And Statement Of 43, 44, 45
Cash Flows.
Lo4 + Describe The Institutions That
Regulate Financial Accounting And Their
26 34 50
Role In Establishing Generally Accepted
Accounting Principles.
Lo5 + Compute Two Key Ratios That Are
Commonly Used To Assess Profitability
32, 33 36, 43, 44, 45 46, 47, 48, 49
And Risk + Return On Equity And The
Debt-To-Equity Ratio.
Lo6 + Appendix 1a: Explain The
Conceptual Framework For Financial 35
Reporting.
©Cambridge Business Publishers, 2020
4-2 Financial Accounting, 6th 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 To All 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 A Given 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 The
Year-To-Year Changes.
3
, Stuvia.com - The Marketplace to Buy and Sell your Study Material
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 Little Information 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 TheFinancial 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 TheCompany‟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, 6th Edition
