Solution Manual For Financial Accounting, 13th Edition by C William Thomas
and Wendy M. Tietz,| All 1 - 12 Chapters With Questions And Verified
Solutions With Rationales And Case Studies.
, TABLE OF CONTENT
1. The Financial Statements
2. Transaction Analysis
3. Accrual Accounting and Income
4. Internal Control and Cash
5. Receivables and Revenue
6. Inventory and Cost of Goods Sold
7. Plant Assets, Natural Resources, and
Intangibles
8. Current and Contingent Liabilities
9. Long-Term Liabilities
10. Stockholders' Equity
11. The Statement of Cash Flows
12. Financial Statement Analysis
,CHAPTER 1: THE FINANCIAL STATEMENTS – PRACTICE SET
Question 1
Which of the following best describes the primary objective of financial accounting?
A) To calculate the company's tax liability for the government
B) To provide useful financial information to external decision-makers
C) To track the daily cash transactions of a business
D) To ensure the company never reports a net loss
Correct Answer: B
Rationale for Correct Answer:
The primary objective of financial accounting is to provide useful financial information to external
decision-makers such as investors, creditors, and regulators. This information helps them make
informed decisions about investing, lending, and assessing the company's financial health.
Why the other answers are incorrect:
• A is incorrect: Calculating tax liability is the function of tax accounting, not the primary goal
of financial accounting. While financial accounting data may be used for tax purposes, it is
not the main objective.
• C is incorrect: Tracking daily cash transactions is more related to treasury management or
bookkeeping. Financial accounting focuses on summarizing and reporting financial
information over a period.
• D is incorrect: Financial accounting does not aim to ensure a company avoids losses. Its
purpose is to report financial performance accurately and transparently, whether the result
is a profit or a loss.
Question 2
Which financial statement reports the company's revenues and expenses over a specific period of
time?
A) Balance Sheet
B) Statement of Retained Earnings
C) Income Statement
D) Statement of Cash Flows
Correct Answer: C
, Rationale for Correct Answer:
The Income Statement (also called the Statement of Operations or Profit and Loss Statement) reports
revenues, expenses, gains, and losses over a specific period. It calculates net income or net loss for
that period.
Why the other answers are incorrect:
• A is incorrect: The Balance Sheet reports assets, liabilities, and equity at a single point in
time (a specific date), not over a period.
• B is incorrect: The Statement of Retained Earnings shows changes in retained earnings over a
period, including net income and dividends, but it does not report revenues and expenses
directly.
• D is incorrect: The Statement of Cash Flows reports cash receipts and cash payments over a
period, categorized into operating, investing, and financing activities — not revenues and
expenses.
Question 3
The accounting equation is expressed as:
A) Assets + Liabilities = Equity
B) Assets = Liabilities + Equity
C) Assets + Equity = Liabilities
D) Liabilities – Assets = Equity
Correct Answer: B
Rationale for Correct Answer:
The fundamental accounting equation is Assets = Liabilities + Equity. This equation must always
balance and forms the foundation of double-entry bookkeeping. It shows that everything the
company owns (assets) is financed by either debt (liabilities) or owners' investments (equity).
Why the other answers are incorrect:
• A is incorrect: Adding liabilities to assets does not equal equity. This equation is
mathematically incorrect and would not balance.
• C is incorrect: Assets plus equity does not equal liabilities. This reverses the relationship.
• D is incorrect: Liabilities minus assets does not equal equity. This would result in a negative
number and does not reflect the correct accounting relationship.
Question 4
Which of the following is considered a liability?
A) Cash
B) Inventory
and Wendy M. Tietz,| All 1 - 12 Chapters With Questions And Verified
Solutions With Rationales And Case Studies.
, TABLE OF CONTENT
1. The Financial Statements
2. Transaction Analysis
3. Accrual Accounting and Income
4. Internal Control and Cash
5. Receivables and Revenue
6. Inventory and Cost of Goods Sold
7. Plant Assets, Natural Resources, and
Intangibles
8. Current and Contingent Liabilities
9. Long-Term Liabilities
10. Stockholders' Equity
11. The Statement of Cash Flows
12. Financial Statement Analysis
,CHAPTER 1: THE FINANCIAL STATEMENTS – PRACTICE SET
Question 1
Which of the following best describes the primary objective of financial accounting?
A) To calculate the company's tax liability for the government
B) To provide useful financial information to external decision-makers
C) To track the daily cash transactions of a business
D) To ensure the company never reports a net loss
Correct Answer: B
Rationale for Correct Answer:
The primary objective of financial accounting is to provide useful financial information to external
decision-makers such as investors, creditors, and regulators. This information helps them make
informed decisions about investing, lending, and assessing the company's financial health.
Why the other answers are incorrect:
• A is incorrect: Calculating tax liability is the function of tax accounting, not the primary goal
of financial accounting. While financial accounting data may be used for tax purposes, it is
not the main objective.
• C is incorrect: Tracking daily cash transactions is more related to treasury management or
bookkeeping. Financial accounting focuses on summarizing and reporting financial
information over a period.
• D is incorrect: Financial accounting does not aim to ensure a company avoids losses. Its
purpose is to report financial performance accurately and transparently, whether the result
is a profit or a loss.
Question 2
Which financial statement reports the company's revenues and expenses over a specific period of
time?
A) Balance Sheet
B) Statement of Retained Earnings
C) Income Statement
D) Statement of Cash Flows
Correct Answer: C
, Rationale for Correct Answer:
The Income Statement (also called the Statement of Operations or Profit and Loss Statement) reports
revenues, expenses, gains, and losses over a specific period. It calculates net income or net loss for
that period.
Why the other answers are incorrect:
• A is incorrect: The Balance Sheet reports assets, liabilities, and equity at a single point in
time (a specific date), not over a period.
• B is incorrect: The Statement of Retained Earnings shows changes in retained earnings over a
period, including net income and dividends, but it does not report revenues and expenses
directly.
• D is incorrect: The Statement of Cash Flows reports cash receipts and cash payments over a
period, categorized into operating, investing, and financing activities — not revenues and
expenses.
Question 3
The accounting equation is expressed as:
A) Assets + Liabilities = Equity
B) Assets = Liabilities + Equity
C) Assets + Equity = Liabilities
D) Liabilities – Assets = Equity
Correct Answer: B
Rationale for Correct Answer:
The fundamental accounting equation is Assets = Liabilities + Equity. This equation must always
balance and forms the foundation of double-entry bookkeeping. It shows that everything the
company owns (assets) is financed by either debt (liabilities) or owners' investments (equity).
Why the other answers are incorrect:
• A is incorrect: Adding liabilities to assets does not equal equity. This equation is
mathematically incorrect and would not balance.
• C is incorrect: Assets plus equity does not equal liabilities. This reverses the relationship.
• D is incorrect: Liabilities minus assets does not equal equity. This would result in a negative
number and does not reflect the correct accounting relationship.
Question 4
Which of the following is considered a liability?
A) Cash
B) Inventory
