, SOLUTION MANUAL FOR Financial Accounting Reporting, Analysis and
Decision Making, 8th Edition Carlon
Important Notes
The file organized chapter by chapter.
A sample of selected pages has been provided for preview.
All available appendices and Excel files (if included in the original resources) are
provided.
We continuously update our files to ensure you receive the latest and most accurate
editions.
New editions are added regularly – stay connected for updates!
⚠️Note on Answer Keys: If the answer key is not included within the chapter
questions, you will find the complete answers and solutions at the end of each
chapter.
✅ Why Buy From Us?
📚 Complete & organized chapter-by-chapter – no missing content, no guessing.
⚡ Instant digital delivery – get your file the moment you pay, no waiting.
📅 Always up to date – we track new editions so you always get the latest version.
💬 Friendly support – real humans ready to help, anytime you need us.
🔒 Safe & secure – thousands of satisfied students trust us every semester.
🛡️Our Guarantees
💰 Money-Back Guarantee: Not satisfied? We offer a full refund – no questions asked.
🔄 Wrong File? No Problem: Contact us and we will replace it immediately with the
correct version, free of charge.
⏰ 24/7 Support: We are always here – reach out anytime and expect a fast response.
, Solutions manual
to accompany
Financial Accounting:
Reporting, analysis and
decision making
8th edition
by
Carlon et al.
© John Wiley & Sons Australia Ltd, 2026
, Chapter 1: An introduction to accounting
Copyright Notice & Terms of Use
Wiley permits the following uses of these Wiley-provided instructors’ materials (the
“Material”):
PowerPoints may be used and adapted by the instructor as presentation material in
classroom lectures
Selected Test Bank materials may be included in instructor-created
quizzes/tests/exams, hand-outs and/or assignments
Selected solutions may be made available to students for end of chapter questions that
are set as homework
These materials should only be made available to students that are enrolled in the unit
where the Wiley text is prescribed
They should be distributed through a secure, password-protected course website and
be available for no longer than the duration of the course.
The limited permission set out above does not extend in any other circumstance to the
reproduction, transmission or display of Material in any other format or medium and for
clarity, does not extend to inclusion in course packs or any saleable products, without written
consent of Wiley. Neither the Solutions Manual or the Test Banks should ever be distributed
in full or significant part.
Please note that, in order to protect the integrity of problem material, permission to reproduce
solutions in any format is not included in this grant of permission and will be reviewed by
Wiley on a case-by-case basis.
© John Wiley and Sons Australia, Ltd 2026 1.1
,Solutions manual to accompany Financial Accounting: Reporting, analysis and decision making 8e. Not for
distribution in full.
Chapter 1: An introduction to accounting
Assignment classification table
Brief
Learning objectives exercises Exercises Problems
1. Explain the business context and the need for 1
decision making.
2. Define accounting, describe the accounting 1
process and define the diverse roles of
accountants.
3. Explain the characteristics of the main forms 1 1A,1B
of business organisation.
4. Understand the Conceptual Framework and
the purpose of financial reporting.
5. Identify the users of financial reports and 3 1 2A; 2B
describe users’ information needs.
6. Identify the elements of each of the four 4,5,6 1,2,3,4,5, 3A,4A,5A,6A
main financial statements. 7, 8,9,10 7A,8A,3B,4B
5B,6B,7B,8B
7. Describe the financial reporting environment. 2
8. Explain the accounting assumptions, 6 3A, 3B
concepts, principles, qualitative
characteristics and constraints
underlying financial statements
9. Calculate and interpret ratios for analysing an 7 11,12,13 9A,10A
entity’s 9B,10B
profitability, liquidity and solvency.
© John Wiley and Sons Australia Ltd, 2026 1.2
, Chapter 1: An introduction to accounting
Solutions to questions
1.1. Describe the decision-making process.
The first step in the process of decision making is to identify the issue or the decision
to be made. The next step is to gather the relevant information required for the
analysis. Once gathered, you then identify the tool or technique that can provide the
analysis of the issue so a decision may be made. The final step is to evaluate the
results of the analysis and make the decision. The primary function of accounting is to
relevant information to aid in making a business decision.
1.2. What are some of the financial decisions owners need to make when running a
new business?
When running a business most of your actions require decisions. Beginning with
deciding which is the most suitable business structure and where are you going to
locate your business and are you going to have an online presence as well, how are
you going to fund your activities (borrow or have equity investors), how many
employees do you need and what level of inventory is required to name a few
decisions. When starting a new business deciding on the suitable accounting system
and information system is important. Are you intending to have EFTPOS? Are you
going to have online sales? Etc.
1.3. What are the advantages to a business of being formed as a company? What are
the disadvantages?
Advantages of company structure are limited liability (shareholders not being
personally liable for corporate debts), indefinite life, easy transferability of ownership
(through selling shares), and greater ability to raise funds. Disadvantages of a
company are the establishment costs and ongoing fees and increased government
regulations.
1.4. Who are the external users of accounting data? Give examples.
External users are those outside the business who have an interest in knowing about
the activities of the entity as resource providers, recipients of goods or services or
parties performing a review of oversight function. Examples include investors,
creditors such as banks and suppliers, taxing authorities, regulatory agencies, trade
unions and customers.
1.5. Listed here are some items found in the financial statements of Ruth Weber Ltd.
Indicate in which financial statement(s) each item would appear.
(a) Sales revenue.
(b) Office equipment.
(c) Accounts receivable.
(d) Interest expense.
(e) Share capital.
(f) Loan payable
(a) Statement of profit or loss.
(b) Statement of financial position.
(c) Statement of financial position.
(d) Statement of profit or loss.
© John Wiley and Sons Australia, Ltd 2026 1.3
,Solutions manual to accompany Financial Accounting: Reporting, analysis and decision making 8e. Not for
distribution in full.
(e) Statement of financial position.
(f) Statement of financial position.
1.6. What is a conceptual framework and what purpose does it serve?
The Conceptual Framework consists of a set of concepts to be followed by preparers
of financial statements and standard setters. The Conceptual Framework provides
guidance to preparers of financial information by defining who is required to report
and who the users are likely to be.
1.7. Why is it important to determine if a business entity is a reporting entity?
Outline the three main indicators that determine if an entity is a reporting entity.
It is important to determine if a business is a reporting entity as it is only reporting
entities that are required to prepare general purpose financial reports in accordance
with the accounting standards.
Three main indicators determine which of the forms of business organisation fall into
the category of a reporting entity. That is, an entity is more likely to be classified as a
reporting entity if it is (1) managed by individuals who are not owners of the entity,
(2) politically or economically important, and (3) sizable in any of the following ways
— sales, assets, borrowings, customers or employees.
1.8. What are the three main categories of the statement of cash flows? Why do you
think these categories were chosen?
The three categories in the statement of cash flows are operating activities, investing
activities and financing activities. The categories were chosen because they represent
the three principal types of business activity.
1.9. What is retained earnings? What items increase the balance in retained
earnings? What items decrease the balance in retained earnings?
Retained earnings is the profit retained in a company. Retained earnings is increased
by profit and is decreased by dividends and by losses.
1.10. What purpose does the going concern assumption serve?
The going concern assumption lends credibility to the historical cost principle;
otherwise items would be reported at liquidation value. By assuming the entity will
continue to operate, assets can continue to be reported at cost because they are
expected to bring benefits to the business through use even though they may have
little or no resale value.
1.11. Shirl Lee, the managing director of Whitegoods Pty Ltd, is pleased. Whitegoods
substantially increased its profit in 2025 while keeping its unit inventory
relatively the same. Rose Ena, chief accountant, cautions Shirl Lee, explaining
that since Whitegoods changed its method of inventory valuation, there is a
comparability problem and it is difficult to determine whether Whitegoods is
better off. Is Rose correct? Why or why not?
Rose Ena is correct. Comparability means that financial statements can be compared
between companies and over time. Using the same accounting principles and
accounting methods from period to period with a company, facilitates comparability.
When accounting methods are inconsistent, it is difficult to determine whether a
company is better off, worse off or the same from period to period.
© John Wiley and Sons Australia Ltd, 2026 1.4
, Chapter 1: An introduction to accounting
1.12. What is meant by the term operating cycle?
A company’s operating cycle is the average time taken to acquire goods and services
and convert them to cash in producing revenues.
1.13. (a) Tia Kim believes that the analysis of financial statements is directed at two
characteristics of an entity: liquidity and profitability. Is Tia correct? Explain.
(b) Are short-term creditors, long-term creditors, and shareholders mainly
interested in the same characteristics of an entity? Explain.
(a) Tia is not correct. There are three characteristics:
liquidity
profitability
solvency.
(b) The three parties are not primarily interested in the same characteristics of a
company. Short-term creditors are primarily interested in the liquidity of the
business. In contrast, long-term creditors and shareholders are primarily
interested in the profitability and solvency of the company. However, they
may use the same financial statements as a source of information.
1.14. Holding all other factors constant, indicate whether each of the following
signals generally good or bad news about an entity.
(a) Increase in the profit margin.
(b) Increase in the current ratio.
(c) Decrease in the debt to total assets ratio.
(d) Increase in the current cash debt coverage.
(a) The increase in profit margin is good news because it means that a larger
percentage of profit is generated for each dollar of net sales.
(b) An increase in the current ratio generally signals good news because the
company improved its liquidity.
(c) The decrease in the debt to total assets ratio is good news because it means
that the company has decreased the proportion of assets funded by creditors,
thus reducing risk of being unable to repay debt.
(d) An increase in current cash debt coverage ratio is good news because it means
that the company has increased its ability to meet short-term obligations. The
higher the current cash debt coverage the more favourable is the liquidity of
the business.
© John Wiley and Sons Australia, Ltd 2026 1.5
,Solutions manual to accompany Financial Accounting: Reporting, analysis and decision making 8e. Not for
distribution in full.
Solutions to brief exercises
BE1.1 Explain the characteristics of the main forms of business organisation. (LO3)
Match each of the following forms of business organisation with a set of characteristics:
sole proprietorship (SP), partnership (P), company (C).
(a) P Shared control, increased skills and resources.
(b) SP Simple to set up and maintain control with founder.
(c) C Easier to transfer ownership and raise funds, no personal
liability.
BE1.2 Describe the financial reporting environment. (LO7)
Indicate whether each statement is true or false.
(a) Accounting standards are set by the Financial Reporting Council.
(b) The ASX Listing Rules are only applicable to entities listed on the ASX.
(c) The Corporations Act is administered by the ATO.
(a) False
(b) True
(c) False
BE1.3 Identify users of accounting financial reports and describe their information
needs. (LO5)
Match each of the following types of evaluation with one of the listed users of
accounting information.
1. Trying to determine whether the company complied with the Corporations Act.
2. Trying to determine whether the entity can pay its obligations.
3. Trying to determine whether a major investment proposal will be cost effective.
4. Trying to determine whether the company’s profit will result in a share price
increase.
5. Trying to determine whether the entity should use debt or equity financing.
(a) 3 Executive directors
(b) 2 Bank managers
(c) 4 Shareholders
(d) 5 Chief Financial Officer
(e) 1 ASIC
© John Wiley and Sons Australia Ltd, 2026 1.6
, Chapter 1: An introduction to accounting
BE1.4 Prepared a statement of financial position. (LO6)
In alphabetical order below are items for ABC Pty Ltd at 31 December. Prepare a
statement of financial position following the format of figure 1.7.
ABC Pty Ltd
Statement of financial position
as at 31 December
Assets
Cash $30 000
Accounts receivable 10 000
Inventory 7 500
Total assets 47 500
Liabilities
Accounts payable 32 500
Net assets $15 000
Equity
Share capital 15 000
Total equity $15 000
BE1.5 Determine the proper financial statement. (LO6)
Indicate which statement you would examine to find each of the following items:
statement of financial position (SFP), statement of profit or loss (P/L) or statement of
cash flows (SCF).
P/L (a) Revenues during the period.
SFP (b) Accounts receivable at the end of the year.
SCF (c) Cash received from borrowing during the period.
SCF (d) Cash payments for the purchase of property, plant and equipment.
BE1.6 Prepare the assets section of a classified statement of financial position. (LO6)
A list of financial statement items for Swift Ltd includes the following: accounts
receivable $15 000; prepaid rent $1000; cash $4500; supplies $2000; short-term
investments $12 000; property, plant and equipment $40 000. Prepare the asset section
of the statement of financial position, showing appropriate classifications.
© John Wiley and Sons Australia, Ltd 2026 1.7
Decision Making, 8th Edition Carlon
Important Notes
The file organized chapter by chapter.
A sample of selected pages has been provided for preview.
All available appendices and Excel files (if included in the original resources) are
provided.
We continuously update our files to ensure you receive the latest and most accurate
editions.
New editions are added regularly – stay connected for updates!
⚠️Note on Answer Keys: If the answer key is not included within the chapter
questions, you will find the complete answers and solutions at the end of each
chapter.
✅ Why Buy From Us?
📚 Complete & organized chapter-by-chapter – no missing content, no guessing.
⚡ Instant digital delivery – get your file the moment you pay, no waiting.
📅 Always up to date – we track new editions so you always get the latest version.
💬 Friendly support – real humans ready to help, anytime you need us.
🔒 Safe & secure – thousands of satisfied students trust us every semester.
🛡️Our Guarantees
💰 Money-Back Guarantee: Not satisfied? We offer a full refund – no questions asked.
🔄 Wrong File? No Problem: Contact us and we will replace it immediately with the
correct version, free of charge.
⏰ 24/7 Support: We are always here – reach out anytime and expect a fast response.
, Solutions manual
to accompany
Financial Accounting:
Reporting, analysis and
decision making
8th edition
by
Carlon et al.
© John Wiley & Sons Australia Ltd, 2026
, Chapter 1: An introduction to accounting
Copyright Notice & Terms of Use
Wiley permits the following uses of these Wiley-provided instructors’ materials (the
“Material”):
PowerPoints may be used and adapted by the instructor as presentation material in
classroom lectures
Selected Test Bank materials may be included in instructor-created
quizzes/tests/exams, hand-outs and/or assignments
Selected solutions may be made available to students for end of chapter questions that
are set as homework
These materials should only be made available to students that are enrolled in the unit
where the Wiley text is prescribed
They should be distributed through a secure, password-protected course website and
be available for no longer than the duration of the course.
The limited permission set out above does not extend in any other circumstance to the
reproduction, transmission or display of Material in any other format or medium and for
clarity, does not extend to inclusion in course packs or any saleable products, without written
consent of Wiley. Neither the Solutions Manual or the Test Banks should ever be distributed
in full or significant part.
Please note that, in order to protect the integrity of problem material, permission to reproduce
solutions in any format is not included in this grant of permission and will be reviewed by
Wiley on a case-by-case basis.
© John Wiley and Sons Australia, Ltd 2026 1.1
,Solutions manual to accompany Financial Accounting: Reporting, analysis and decision making 8e. Not for
distribution in full.
Chapter 1: An introduction to accounting
Assignment classification table
Brief
Learning objectives exercises Exercises Problems
1. Explain the business context and the need for 1
decision making.
2. Define accounting, describe the accounting 1
process and define the diverse roles of
accountants.
3. Explain the characteristics of the main forms 1 1A,1B
of business organisation.
4. Understand the Conceptual Framework and
the purpose of financial reporting.
5. Identify the users of financial reports and 3 1 2A; 2B
describe users’ information needs.
6. Identify the elements of each of the four 4,5,6 1,2,3,4,5, 3A,4A,5A,6A
main financial statements. 7, 8,9,10 7A,8A,3B,4B
5B,6B,7B,8B
7. Describe the financial reporting environment. 2
8. Explain the accounting assumptions, 6 3A, 3B
concepts, principles, qualitative
characteristics and constraints
underlying financial statements
9. Calculate and interpret ratios for analysing an 7 11,12,13 9A,10A
entity’s 9B,10B
profitability, liquidity and solvency.
© John Wiley and Sons Australia Ltd, 2026 1.2
, Chapter 1: An introduction to accounting
Solutions to questions
1.1. Describe the decision-making process.
The first step in the process of decision making is to identify the issue or the decision
to be made. The next step is to gather the relevant information required for the
analysis. Once gathered, you then identify the tool or technique that can provide the
analysis of the issue so a decision may be made. The final step is to evaluate the
results of the analysis and make the decision. The primary function of accounting is to
relevant information to aid in making a business decision.
1.2. What are some of the financial decisions owners need to make when running a
new business?
When running a business most of your actions require decisions. Beginning with
deciding which is the most suitable business structure and where are you going to
locate your business and are you going to have an online presence as well, how are
you going to fund your activities (borrow or have equity investors), how many
employees do you need and what level of inventory is required to name a few
decisions. When starting a new business deciding on the suitable accounting system
and information system is important. Are you intending to have EFTPOS? Are you
going to have online sales? Etc.
1.3. What are the advantages to a business of being formed as a company? What are
the disadvantages?
Advantages of company structure are limited liability (shareholders not being
personally liable for corporate debts), indefinite life, easy transferability of ownership
(through selling shares), and greater ability to raise funds. Disadvantages of a
company are the establishment costs and ongoing fees and increased government
regulations.
1.4. Who are the external users of accounting data? Give examples.
External users are those outside the business who have an interest in knowing about
the activities of the entity as resource providers, recipients of goods or services or
parties performing a review of oversight function. Examples include investors,
creditors such as banks and suppliers, taxing authorities, regulatory agencies, trade
unions and customers.
1.5. Listed here are some items found in the financial statements of Ruth Weber Ltd.
Indicate in which financial statement(s) each item would appear.
(a) Sales revenue.
(b) Office equipment.
(c) Accounts receivable.
(d) Interest expense.
(e) Share capital.
(f) Loan payable
(a) Statement of profit or loss.
(b) Statement of financial position.
(c) Statement of financial position.
(d) Statement of profit or loss.
© John Wiley and Sons Australia, Ltd 2026 1.3
,Solutions manual to accompany Financial Accounting: Reporting, analysis and decision making 8e. Not for
distribution in full.
(e) Statement of financial position.
(f) Statement of financial position.
1.6. What is a conceptual framework and what purpose does it serve?
The Conceptual Framework consists of a set of concepts to be followed by preparers
of financial statements and standard setters. The Conceptual Framework provides
guidance to preparers of financial information by defining who is required to report
and who the users are likely to be.
1.7. Why is it important to determine if a business entity is a reporting entity?
Outline the three main indicators that determine if an entity is a reporting entity.
It is important to determine if a business is a reporting entity as it is only reporting
entities that are required to prepare general purpose financial reports in accordance
with the accounting standards.
Three main indicators determine which of the forms of business organisation fall into
the category of a reporting entity. That is, an entity is more likely to be classified as a
reporting entity if it is (1) managed by individuals who are not owners of the entity,
(2) politically or economically important, and (3) sizable in any of the following ways
— sales, assets, borrowings, customers or employees.
1.8. What are the three main categories of the statement of cash flows? Why do you
think these categories were chosen?
The three categories in the statement of cash flows are operating activities, investing
activities and financing activities. The categories were chosen because they represent
the three principal types of business activity.
1.9. What is retained earnings? What items increase the balance in retained
earnings? What items decrease the balance in retained earnings?
Retained earnings is the profit retained in a company. Retained earnings is increased
by profit and is decreased by dividends and by losses.
1.10. What purpose does the going concern assumption serve?
The going concern assumption lends credibility to the historical cost principle;
otherwise items would be reported at liquidation value. By assuming the entity will
continue to operate, assets can continue to be reported at cost because they are
expected to bring benefits to the business through use even though they may have
little or no resale value.
1.11. Shirl Lee, the managing director of Whitegoods Pty Ltd, is pleased. Whitegoods
substantially increased its profit in 2025 while keeping its unit inventory
relatively the same. Rose Ena, chief accountant, cautions Shirl Lee, explaining
that since Whitegoods changed its method of inventory valuation, there is a
comparability problem and it is difficult to determine whether Whitegoods is
better off. Is Rose correct? Why or why not?
Rose Ena is correct. Comparability means that financial statements can be compared
between companies and over time. Using the same accounting principles and
accounting methods from period to period with a company, facilitates comparability.
When accounting methods are inconsistent, it is difficult to determine whether a
company is better off, worse off or the same from period to period.
© John Wiley and Sons Australia Ltd, 2026 1.4
, Chapter 1: An introduction to accounting
1.12. What is meant by the term operating cycle?
A company’s operating cycle is the average time taken to acquire goods and services
and convert them to cash in producing revenues.
1.13. (a) Tia Kim believes that the analysis of financial statements is directed at two
characteristics of an entity: liquidity and profitability. Is Tia correct? Explain.
(b) Are short-term creditors, long-term creditors, and shareholders mainly
interested in the same characteristics of an entity? Explain.
(a) Tia is not correct. There are three characteristics:
liquidity
profitability
solvency.
(b) The three parties are not primarily interested in the same characteristics of a
company. Short-term creditors are primarily interested in the liquidity of the
business. In contrast, long-term creditors and shareholders are primarily
interested in the profitability and solvency of the company. However, they
may use the same financial statements as a source of information.
1.14. Holding all other factors constant, indicate whether each of the following
signals generally good or bad news about an entity.
(a) Increase in the profit margin.
(b) Increase in the current ratio.
(c) Decrease in the debt to total assets ratio.
(d) Increase in the current cash debt coverage.
(a) The increase in profit margin is good news because it means that a larger
percentage of profit is generated for each dollar of net sales.
(b) An increase in the current ratio generally signals good news because the
company improved its liquidity.
(c) The decrease in the debt to total assets ratio is good news because it means
that the company has decreased the proportion of assets funded by creditors,
thus reducing risk of being unable to repay debt.
(d) An increase in current cash debt coverage ratio is good news because it means
that the company has increased its ability to meet short-term obligations. The
higher the current cash debt coverage the more favourable is the liquidity of
the business.
© John Wiley and Sons Australia, Ltd 2026 1.5
,Solutions manual to accompany Financial Accounting: Reporting, analysis and decision making 8e. Not for
distribution in full.
Solutions to brief exercises
BE1.1 Explain the characteristics of the main forms of business organisation. (LO3)
Match each of the following forms of business organisation with a set of characteristics:
sole proprietorship (SP), partnership (P), company (C).
(a) P Shared control, increased skills and resources.
(b) SP Simple to set up and maintain control with founder.
(c) C Easier to transfer ownership and raise funds, no personal
liability.
BE1.2 Describe the financial reporting environment. (LO7)
Indicate whether each statement is true or false.
(a) Accounting standards are set by the Financial Reporting Council.
(b) The ASX Listing Rules are only applicable to entities listed on the ASX.
(c) The Corporations Act is administered by the ATO.
(a) False
(b) True
(c) False
BE1.3 Identify users of accounting financial reports and describe their information
needs. (LO5)
Match each of the following types of evaluation with one of the listed users of
accounting information.
1. Trying to determine whether the company complied with the Corporations Act.
2. Trying to determine whether the entity can pay its obligations.
3. Trying to determine whether a major investment proposal will be cost effective.
4. Trying to determine whether the company’s profit will result in a share price
increase.
5. Trying to determine whether the entity should use debt or equity financing.
(a) 3 Executive directors
(b) 2 Bank managers
(c) 4 Shareholders
(d) 5 Chief Financial Officer
(e) 1 ASIC
© John Wiley and Sons Australia Ltd, 2026 1.6
, Chapter 1: An introduction to accounting
BE1.4 Prepared a statement of financial position. (LO6)
In alphabetical order below are items for ABC Pty Ltd at 31 December. Prepare a
statement of financial position following the format of figure 1.7.
ABC Pty Ltd
Statement of financial position
as at 31 December
Assets
Cash $30 000
Accounts receivable 10 000
Inventory 7 500
Total assets 47 500
Liabilities
Accounts payable 32 500
Net assets $15 000
Equity
Share capital 15 000
Total equity $15 000
BE1.5 Determine the proper financial statement. (LO6)
Indicate which statement you would examine to find each of the following items:
statement of financial position (SFP), statement of profit or loss (P/L) or statement of
cash flows (SCF).
P/L (a) Revenues during the period.
SFP (b) Accounts receivable at the end of the year.
SCF (c) Cash received from borrowing during the period.
SCF (d) Cash payments for the purchase of property, plant and equipment.
BE1.6 Prepare the assets section of a classified statement of financial position. (LO6)
A list of financial statement items for Swift Ltd includes the following: accounts
receivable $15 000; prepaid rent $1000; cash $4500; supplies $2000; short-term
investments $12 000; property, plant and equipment $40 000. Prepare the asset section
of the statement of financial position, showing appropriate classifications.
© John Wiley and Sons Australia, Ltd 2026 1.7
