SOLUTION MANUAL FOR hf hf
Financial Accounting 11th Edition
hf hf hf hf
Robert Libby, Patricia Libby, Frank Hodge
h f hf h f h f h f
,SOLUTION MANUAL FOR h f hf
Financial Accounting 11th Edition Robert Libby,
hf hf hf hf hf
Patricia Libby, Frank Hodge
hf hf hf hf
Chapter 1 hf
Financial Statements and Business Decisions
hf hf hf hf
ANSWERS TO QUESTIONS
hf hf
1. Accounting hfis hfa hfsystem hfthat hfcollects hfand hfprocesses hf(analyzes, hfmeasures, hfand
hfrecords) hffinancial hfinformation hfabout hfan hforganization hfand hfreports hfthat
hfinformation hfto hfdecision hfmakers.
2. Financial hfaccounting hfinvolves hfpreparation hfof hfthe hffour hfbasic hffinancial hfstatements
hfand hfrelated hfdisclosures hffor hfexternal hfdecision hfmakers. hfManagerial hfaccounting
hfinvolves hfthe hfpreparation hfof hfdetailed hfplans, hfbudgets, hfforecasts, hfand
hfperformance hfreports hffor hfinternal hfdecision hfmakers.
3. Financial hfreports hfare hfused hfby hfboth hfinternal hfand hfexternal hfgroups hfand hfindividuals.
hfThe hfinternal hfgroups hfare hfcomprised hfof hfthe hfvarious hfmanagers hfof hfthe hfentity. hfThe
hfexternal hfgroups hfinclude hfthe hfowners, hfinvestors, hfcreditors, hfgovernmental
hfagencies, hfother hfinterested hfparties, hfand hfthe hfpublic hfat hflarge.
4. Investors hfpurchase hfall hfor hfpart hfof hfa hfbusiness hfand hfhope hfto hfgain hfby hfreceiving
hfpart hfof hfwhat hfthe hfcompany hfearns hfand/or hfselling hftheir hfownership hfinterest hfin
hfthe hfcompany hfin hfthe hffuture hfat hfa hfhigher hfprice hfthan hfthey hfpaid. hfCreditors hflend
hfmoney hfto hfa hfcompany hffor hfa hfspecific hflength hfof hftime hfand hfhope hfto hfgain hfby
hfcharging hfinterest hfon hfthe hfloan.
,5. In hfa hfsociety, hfeach hforganization hfcan hfbe hfdefined hfas hfa hfseparate hfaccounting
hfentity. hfAn hfaccounting hfentity hfis hfthe hforganization hffor hfwhich hffinancial hfdata hfare hfto
hfbe hfcollected. hfTypical hfaccounting hfentities hfare hfa hfbusiness, hfa hfchurch, hfa
hfgovernmental hfunit, hfa hfuniversity hfand hfother hfnonprofit hforganizations hfsuch hfas hfa
hfhospital hfand hfa hfwelfare hforganization. hfA hfbusiness hftypically hfis hfdefined hfand
hftreated hfas hfa hfseparate hfentity hfbecause hfthe hfowners, hfcreditors, hfinvestors, hfand
hfother hfinterested hfparties hfneed hfto hfevaluate hfits hfperformance hfand hfits hfpotential
hfseparately hffrom hfother hfentities hfand hffrom hfits hfowners.
6. Name hfof hfStatement Alternative hfTitle
(a) Income hfStatement (a) hfStatement hfof hfEarnings; hfStatement hfof
Income; hfStatement hfof hfOperations
(b) Balance hfSheet (b) hfStatement hfof hfFinancial hfPosition
(c) Cash hfFlow hfStatement (c) h f Statement hfof hfCash hfFlows
7. The hfheading hfof hfeach hfof hfthe hffour hfrequired hffinancial hfstatements hfshould hfinclude
hfthe hffollowing:
(a) Name hfof hfthe hfentity
(b) Name hfof hfthe hfstatement
(c) Date hfof hfthe hfstatement, hfor hfthe hfperiod hfof hftime
(d) Unit hfof hfmeasure
8. (a) The hfpurpose hfof hfthe hfincome hfstatement hfis hfto hfpresent hfinformation hfabout
hfthe hfrevenues, hfexpenses, hfand hfthe hfnet hfincome hfof hfan hfentity hffor hfa hfspecified
hfperiod hfof hftime.
(b) The hfpurpose hfof hfthe hfbalance hfsheet hfis hfto hfreport hfthe hffinancial hfposition hfof hfan
hfentity hfat hfa hfgiven hfdate, hfthat hfis, hfto hfreport hfinformation hfabout hfthe hfassets,
hfliabilities hfand hfstockholders’ hfequity hfof hfthe hfentity hfas hfof hfa hfspecific hfdate.
(c) The hfpurpose hfof hfthe hfstatement hfof hfcash hfflows hfis hfto hfpresent hfinformation
hfabout hfthe hfflow hfof hfcash hfinto hfthe hfentity hf(sources), hfthe hfflow hfof hfcash hfout hfof
hfthe hfentity hf(uses), hfand hfthe hfnet hfincrease hfor hfdecrease hfin hfcash hfduring hfthe
hfperiod.
(d) The hfstatement hfof hfstockholders’ hfequity hfreports hfthe hfchanges hfin hfeach hfof hfthe
hfcompany’s hfstockholders’ hfequity hfaccounts hfduring hfthe hfaccounting hfperiod,
hfincluding hfissue hfand hfrepurchase hfof hfstock hfand hfthe hfway hfthat hfnet hfincome
hfand hfdistribution hfof hfdividends hfaffected hfthe hfretained hfearnings hfof hfthe
hfcompany hfduring hfthat hfperiod.
9. The hfincome hfstatement hfand hfthe hfstatement hfof hfcash hfflows hfare hfdated hf―For hfthe
hfYear hfEnded hfDecember hf31‖ hfbecause hfthey hfreport hfthe hfinflows hfand hfoutflows hfof
hfresources hfduring hfa hfperiod hfof hftime. hfIn hfcontrast, hfthe hfbalance hfsheet hfis hfdated
hf―At hfDecember hf31‖ hfbecause hfit hfrepresents hfthe hfresources, hfobligations, hfand
hfstockholders’ hfequity hfat hfa hfspecific hfdate.
, 10. Assets hfare hfimportant hfto hfcreditors hfand hfinvestors hfbecause hfassets hfprovide hfa
hfbasis hffor hfjudging hfwhether hfsufficient hfresources hfare hfavailable hfto hfoperate hfthe
hfcompany. hfAssets hfare hfalso hfimportant hfbecause hfthey hfcould hfbe hfsold hffor hfcash hfin
hfthe hfevent hfthe hfcompany hfgoes hfout hfof hfbusiness. hfLiabilities hfare hfimportant hfto
hfcreditors hfand hfinvestors hfbecause hfthe hfcompany hfmust hfbe hfable hfto hfgenerate
hfsufficient hfcash hffrom hfoperations hfor hffurther hfborrowing hfto hfmeet hfthe hfpayments
hfrequired hfby hfdebt hfagreements. hfIf hfa hfbusiness hfdoes hfnot hfpay hfits hfcreditors, hfthe
hflaw hfmay hfgive hfthe hfcreditors hfthe hfright hfto hfforce hfthe hfsale hfof hfassets hfsufficient hfto
hfmeet hftheir hfclaims.
11. Net hfincome hfis hfthe hfexcess hfof hftotal hfrevenues hfover hftotal hfexpenses. hfNet hfloss
hfis hfthe hfexcess hfof hftotal hfexpenses hfover hftotal hfrevenues.
12. The hfequation hffor hfthe hfincome hfstatement hfis hfRevenues hf- hfExpenses hf= hfNet
hfIncome hf(or hfNet hfLoss hfif hfthe hfamount hfis hfnegative). hfThus, hfthe hfthree hfmajor
hfitems hfreported hfon hfthe hfincome hfstatement hfare hf(1) hfrevenues, hf(2) hfexpenses,
hfand hf(3) hfnet hfincome.
13. The hfequation hffor hfthe hfbalance hfsheet hf(also hfknown hfas hfthe hfbasic hfaccounting
hfequation) hfis: hfAssets hf= hfLiabilities hf+ hfStockholders’ hfEquity. hfAssets hfare hfthe
hfprobable hf(expected) hffuture hfeconomic hfbenefits hfowned hfby hfthe hfentity hfas hfa hfresult
hfof hfpast hftransactions. h f They hfare hfthe hfresources hfowned hfby hfthe hfbusiness hfat hfa
hfgiven hfpoint hfin hftime hfsuch hfas hfcash, hfreceivables, hfinventory, hfmachinery, hfbuildings,
hfland, hfand hfpatents. hfLiabilities hfare hfprobable hf(expected) hfdebts hfor hfobligations hfof
hfthe hfentity hfas hfa hfresult hfof hfpast hftransactions hfthat hfwill hfbe hfpaid hfwith hfassets hfor
hfservices hfin hfthe hffuture. hfThey hfare hfthe hfobligations hfof hfthe hfentity hfsuch hfas
hfaccounts hfpayable, hfnotes hfpayable, hfand hfbonds hfpayable. hfStockholders’ hfequity hfis
hffinancing hfprovided hfby hfowners hfof hfthe hfbusiness hfand hfoperations. hfIt hfis hfthe hfclaim
hfof hfthe hfowners hfto hfthe hfassets hfof hfthe hfbusiness hfafter hfthe hfcreditors’ hfclaims hfhave
hfbeen hfsatisfied. hfIt hfmay hfbe hfthought hfof hfas hfthe hfresidual hfinterest hfbecause hfit
hfrepresents hfassets hfminus hfliabilities.
14. The hfequation hffor hfthe hfstatement hfof hfcash hfflows hfis: hfCash hfflows hffrom hfoperating hfactivities
+ hfCash hfflows hffrom hfinvesting hfactivities hf+ hfCash hfflows hffrom hffinancing hfactivities hf=
hfChange hfin hfcash hffor hfthe hfperiod. hfThe hfnet hfcash hfflows hffor hfthe hfperiod hfrepresent
hfthe hfincrease hfor hfdecrease hfin hfcash hfthat hfoccurred hfduring hfthe hfperiod. hfCash hfflows
hffrom hfoperating hfactivities hfare hfcash hfflows hfdirectly hfrelated hfto hfearning hfincome
hf(normal hfbusiness hfactivity hfincluding hfinterest hfpaid hfand hfincome hftaxes hfpaid). hfCash
hfflows hffrom hfinvesting hfactivities hfinclude hfcash hfflows hfthat hfare hfrelated hfto hfthe
hfacquisition hfor hfsale hfof hfproductive hfassets hfused hfby hfthe hfcompany. hfCash hfflows
hffrom hffinancing hfactivities hfare hfdirectly hfrelated hfto hfthe hffinancing hfof hfthe hfenterprise
hfitself.
15. The hfretained hfearnings hfequation hfis: hfBeginning hfRetained hfEarnings hf+ hfNet
hfIncome hf- hfDividends hf= hfEnding hfRetained hfEarnings. hfIt hfbegins hfwith hfbeginning-
of-the-year hfRetained hfEarnings hfwhich hfis hfthe hfprior hfyear’s hfending hfretained
hfearnings hfreported hfon hfthe hfbalance hfsheet. h f The hfcurrent hfyear's hfNet hfIncome
hfreported hfon hfthe hfincome hfstatement hfis hfadded hfand hfthe hfcurrent hfyear's
hfDividends hfare hfsubtracted hffrom hfthis hfamount. hfThe hfending hfRetained hfEarnings
hfamount hfis hfreported hfon hfthe hfend-of-period hfbalance hfsheet.
Financial Accounting 11th Edition
hf hf hf hf
Robert Libby, Patricia Libby, Frank Hodge
h f hf h f h f h f
,SOLUTION MANUAL FOR h f hf
Financial Accounting 11th Edition Robert Libby,
hf hf hf hf hf
Patricia Libby, Frank Hodge
hf hf hf hf
Chapter 1 hf
Financial Statements and Business Decisions
hf hf hf hf
ANSWERS TO QUESTIONS
hf hf
1. Accounting hfis hfa hfsystem hfthat hfcollects hfand hfprocesses hf(analyzes, hfmeasures, hfand
hfrecords) hffinancial hfinformation hfabout hfan hforganization hfand hfreports hfthat
hfinformation hfto hfdecision hfmakers.
2. Financial hfaccounting hfinvolves hfpreparation hfof hfthe hffour hfbasic hffinancial hfstatements
hfand hfrelated hfdisclosures hffor hfexternal hfdecision hfmakers. hfManagerial hfaccounting
hfinvolves hfthe hfpreparation hfof hfdetailed hfplans, hfbudgets, hfforecasts, hfand
hfperformance hfreports hffor hfinternal hfdecision hfmakers.
3. Financial hfreports hfare hfused hfby hfboth hfinternal hfand hfexternal hfgroups hfand hfindividuals.
hfThe hfinternal hfgroups hfare hfcomprised hfof hfthe hfvarious hfmanagers hfof hfthe hfentity. hfThe
hfexternal hfgroups hfinclude hfthe hfowners, hfinvestors, hfcreditors, hfgovernmental
hfagencies, hfother hfinterested hfparties, hfand hfthe hfpublic hfat hflarge.
4. Investors hfpurchase hfall hfor hfpart hfof hfa hfbusiness hfand hfhope hfto hfgain hfby hfreceiving
hfpart hfof hfwhat hfthe hfcompany hfearns hfand/or hfselling hftheir hfownership hfinterest hfin
hfthe hfcompany hfin hfthe hffuture hfat hfa hfhigher hfprice hfthan hfthey hfpaid. hfCreditors hflend
hfmoney hfto hfa hfcompany hffor hfa hfspecific hflength hfof hftime hfand hfhope hfto hfgain hfby
hfcharging hfinterest hfon hfthe hfloan.
,5. In hfa hfsociety, hfeach hforganization hfcan hfbe hfdefined hfas hfa hfseparate hfaccounting
hfentity. hfAn hfaccounting hfentity hfis hfthe hforganization hffor hfwhich hffinancial hfdata hfare hfto
hfbe hfcollected. hfTypical hfaccounting hfentities hfare hfa hfbusiness, hfa hfchurch, hfa
hfgovernmental hfunit, hfa hfuniversity hfand hfother hfnonprofit hforganizations hfsuch hfas hfa
hfhospital hfand hfa hfwelfare hforganization. hfA hfbusiness hftypically hfis hfdefined hfand
hftreated hfas hfa hfseparate hfentity hfbecause hfthe hfowners, hfcreditors, hfinvestors, hfand
hfother hfinterested hfparties hfneed hfto hfevaluate hfits hfperformance hfand hfits hfpotential
hfseparately hffrom hfother hfentities hfand hffrom hfits hfowners.
6. Name hfof hfStatement Alternative hfTitle
(a) Income hfStatement (a) hfStatement hfof hfEarnings; hfStatement hfof
Income; hfStatement hfof hfOperations
(b) Balance hfSheet (b) hfStatement hfof hfFinancial hfPosition
(c) Cash hfFlow hfStatement (c) h f Statement hfof hfCash hfFlows
7. The hfheading hfof hfeach hfof hfthe hffour hfrequired hffinancial hfstatements hfshould hfinclude
hfthe hffollowing:
(a) Name hfof hfthe hfentity
(b) Name hfof hfthe hfstatement
(c) Date hfof hfthe hfstatement, hfor hfthe hfperiod hfof hftime
(d) Unit hfof hfmeasure
8. (a) The hfpurpose hfof hfthe hfincome hfstatement hfis hfto hfpresent hfinformation hfabout
hfthe hfrevenues, hfexpenses, hfand hfthe hfnet hfincome hfof hfan hfentity hffor hfa hfspecified
hfperiod hfof hftime.
(b) The hfpurpose hfof hfthe hfbalance hfsheet hfis hfto hfreport hfthe hffinancial hfposition hfof hfan
hfentity hfat hfa hfgiven hfdate, hfthat hfis, hfto hfreport hfinformation hfabout hfthe hfassets,
hfliabilities hfand hfstockholders’ hfequity hfof hfthe hfentity hfas hfof hfa hfspecific hfdate.
(c) The hfpurpose hfof hfthe hfstatement hfof hfcash hfflows hfis hfto hfpresent hfinformation
hfabout hfthe hfflow hfof hfcash hfinto hfthe hfentity hf(sources), hfthe hfflow hfof hfcash hfout hfof
hfthe hfentity hf(uses), hfand hfthe hfnet hfincrease hfor hfdecrease hfin hfcash hfduring hfthe
hfperiod.
(d) The hfstatement hfof hfstockholders’ hfequity hfreports hfthe hfchanges hfin hfeach hfof hfthe
hfcompany’s hfstockholders’ hfequity hfaccounts hfduring hfthe hfaccounting hfperiod,
hfincluding hfissue hfand hfrepurchase hfof hfstock hfand hfthe hfway hfthat hfnet hfincome
hfand hfdistribution hfof hfdividends hfaffected hfthe hfretained hfearnings hfof hfthe
hfcompany hfduring hfthat hfperiod.
9. The hfincome hfstatement hfand hfthe hfstatement hfof hfcash hfflows hfare hfdated hf―For hfthe
hfYear hfEnded hfDecember hf31‖ hfbecause hfthey hfreport hfthe hfinflows hfand hfoutflows hfof
hfresources hfduring hfa hfperiod hfof hftime. hfIn hfcontrast, hfthe hfbalance hfsheet hfis hfdated
hf―At hfDecember hf31‖ hfbecause hfit hfrepresents hfthe hfresources, hfobligations, hfand
hfstockholders’ hfequity hfat hfa hfspecific hfdate.
, 10. Assets hfare hfimportant hfto hfcreditors hfand hfinvestors hfbecause hfassets hfprovide hfa
hfbasis hffor hfjudging hfwhether hfsufficient hfresources hfare hfavailable hfto hfoperate hfthe
hfcompany. hfAssets hfare hfalso hfimportant hfbecause hfthey hfcould hfbe hfsold hffor hfcash hfin
hfthe hfevent hfthe hfcompany hfgoes hfout hfof hfbusiness. hfLiabilities hfare hfimportant hfto
hfcreditors hfand hfinvestors hfbecause hfthe hfcompany hfmust hfbe hfable hfto hfgenerate
hfsufficient hfcash hffrom hfoperations hfor hffurther hfborrowing hfto hfmeet hfthe hfpayments
hfrequired hfby hfdebt hfagreements. hfIf hfa hfbusiness hfdoes hfnot hfpay hfits hfcreditors, hfthe
hflaw hfmay hfgive hfthe hfcreditors hfthe hfright hfto hfforce hfthe hfsale hfof hfassets hfsufficient hfto
hfmeet hftheir hfclaims.
11. Net hfincome hfis hfthe hfexcess hfof hftotal hfrevenues hfover hftotal hfexpenses. hfNet hfloss
hfis hfthe hfexcess hfof hftotal hfexpenses hfover hftotal hfrevenues.
12. The hfequation hffor hfthe hfincome hfstatement hfis hfRevenues hf- hfExpenses hf= hfNet
hfIncome hf(or hfNet hfLoss hfif hfthe hfamount hfis hfnegative). hfThus, hfthe hfthree hfmajor
hfitems hfreported hfon hfthe hfincome hfstatement hfare hf(1) hfrevenues, hf(2) hfexpenses,
hfand hf(3) hfnet hfincome.
13. The hfequation hffor hfthe hfbalance hfsheet hf(also hfknown hfas hfthe hfbasic hfaccounting
hfequation) hfis: hfAssets hf= hfLiabilities hf+ hfStockholders’ hfEquity. hfAssets hfare hfthe
hfprobable hf(expected) hffuture hfeconomic hfbenefits hfowned hfby hfthe hfentity hfas hfa hfresult
hfof hfpast hftransactions. h f They hfare hfthe hfresources hfowned hfby hfthe hfbusiness hfat hfa
hfgiven hfpoint hfin hftime hfsuch hfas hfcash, hfreceivables, hfinventory, hfmachinery, hfbuildings,
hfland, hfand hfpatents. hfLiabilities hfare hfprobable hf(expected) hfdebts hfor hfobligations hfof
hfthe hfentity hfas hfa hfresult hfof hfpast hftransactions hfthat hfwill hfbe hfpaid hfwith hfassets hfor
hfservices hfin hfthe hffuture. hfThey hfare hfthe hfobligations hfof hfthe hfentity hfsuch hfas
hfaccounts hfpayable, hfnotes hfpayable, hfand hfbonds hfpayable. hfStockholders’ hfequity hfis
hffinancing hfprovided hfby hfowners hfof hfthe hfbusiness hfand hfoperations. hfIt hfis hfthe hfclaim
hfof hfthe hfowners hfto hfthe hfassets hfof hfthe hfbusiness hfafter hfthe hfcreditors’ hfclaims hfhave
hfbeen hfsatisfied. hfIt hfmay hfbe hfthought hfof hfas hfthe hfresidual hfinterest hfbecause hfit
hfrepresents hfassets hfminus hfliabilities.
14. The hfequation hffor hfthe hfstatement hfof hfcash hfflows hfis: hfCash hfflows hffrom hfoperating hfactivities
+ hfCash hfflows hffrom hfinvesting hfactivities hf+ hfCash hfflows hffrom hffinancing hfactivities hf=
hfChange hfin hfcash hffor hfthe hfperiod. hfThe hfnet hfcash hfflows hffor hfthe hfperiod hfrepresent
hfthe hfincrease hfor hfdecrease hfin hfcash hfthat hfoccurred hfduring hfthe hfperiod. hfCash hfflows
hffrom hfoperating hfactivities hfare hfcash hfflows hfdirectly hfrelated hfto hfearning hfincome
hf(normal hfbusiness hfactivity hfincluding hfinterest hfpaid hfand hfincome hftaxes hfpaid). hfCash
hfflows hffrom hfinvesting hfactivities hfinclude hfcash hfflows hfthat hfare hfrelated hfto hfthe
hfacquisition hfor hfsale hfof hfproductive hfassets hfused hfby hfthe hfcompany. hfCash hfflows
hffrom hffinancing hfactivities hfare hfdirectly hfrelated hfto hfthe hffinancing hfof hfthe hfenterprise
hfitself.
15. The hfretained hfearnings hfequation hfis: hfBeginning hfRetained hfEarnings hf+ hfNet
hfIncome hf- hfDividends hf= hfEnding hfRetained hfEarnings. hfIt hfbegins hfwith hfbeginning-
of-the-year hfRetained hfEarnings hfwhich hfis hfthe hfprior hfyear’s hfending hfretained
hfearnings hfreported hfon hfthe hfbalance hfsheet. h f The hfcurrent hfyear's hfNet hfIncome
hfreported hfon hfthe hfincome hfstatement hfis hfadded hfand hfthe hfcurrent hfyear's
hfDividends hfare hfsubtracted hffrom hfthis hfamount. hfThe hfending hfRetained hfEarnings
hfamount hfis hfreported hfon hfthe hfend-of-period hfbalance hfsheet.
