SOLUTION MANUAL FOR Financial Accounting 11th Edition Robert Libby, Patricia Libby, Frank Hodge

FULL SOLUTION MANUAL FOR
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Financial Accounting 11th Edition Robert Libby,
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Patricia Libby, Frank Hodge
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Chapter 1 N N




Financial Statements and Business Decisions
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ANSWERS TO QUESTIONS N N NN

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1. AccountingNisNaNsystemNthatNcollectsNandNprocessesN(analyzes,Nmeasures,NandNrec
ords)NfinancialNinformationNaboutNanNorganizationNandNreportsNthatNinformationNtoNd
ecisionNmakers.NNN
N

2. FinancialNaccountingNinvolvesNpreparationNofNtheNfourNbasicNfinancialNstatementsNan
dNrelatedNdisclosuresNforNexternalNdecisionNmakers.NNManagerialNaccountingNinvolve
sNtheNpreparationNofNdetailedNplans,Nbudgets,Nforecasts,NandNperformanceNreportsNf
orNinternalNdecisionNmakers.NNN
N

3. FinancialNreportsNareNusedNbyNbothNinternalNandNexternalNgroupsNandNindividuals.NT
heNinternalNgroupsNareNcomprisedNofNtheNvariousNmanagersNofNtheNentity.NTheNexter
nalNgroupsNincludeNtheNowners,Ninvestors,Ncreditors,NgovernmentalNagencies,NotherN
interestedNparties,NandNtheNpublicNatNlarge.N
N

4. InvestorsNpurchaseNallNorNpartNofNaNbusinessNandNhopeNtoNgainNbyNreceivingNpartNofN
whatNtheNcompanyNearnsNand/orNsellingNtheirNownershipNinterestNinNtheNcompanyNinN
theNfutureNatNaNhigherNpriceNthanNtheyNpaid.NNCreditorsNlendNmoneyNtoNaNcompanyNfo
rNaNspecificNlengthNofNtimeNandNhopeNtoNgainNbyNchargingNinterestNonNtheNloan.NNN
N

5. InNaNsociety,NeachNorganizationNcanNbeNdefinedNasNaNseparateNaccountingNentity.NA
nNaccountingNentityNisNtheNorganizationNforNwhichNfinancialNdataNareNtoNbeNcollected.N
TypicalNaccountingNentitiesNareNaNbusiness,NaNchurch,NaNgovernmentalNunit,NaNunive
rsityNandNotherNnonprofitNorganizationsNsuchNasNaNhospitalNandNaNwelfareNorganizati
on.NANbusinessNtypicallyNisNdefinedNandNtreatedNasNaNseparateNentityNbecauseNtheNo
wners,Ncreditors,Ninvestors,NandNotherNinterestedNpartiesNneedNtoNevaluateNitsNperfor
manceNandNitsNpotentialNseparatelyNfromNotherNentitiesNandNfromNitsNowners.N
N

6. NameNofNStatementNN N AlternativeNTitleN
(a) IncomeNStatementN (a)NStatementNofNEarnings;NStatementNofNN
N N N N N Income;NStatementNofNOperationsN
(b) BalanceNSheetN (b)NStatementNofNFinancialNPositionN

FinancialNAccounting,N11/eNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNN 2-1N
©NMcGrawNHillNLLC.NNAllNrightsNreserved.NNoNreproductionNorNdistributionNwithoutNtheNpriorNwrittenNconsentNofNMcGrawNHillNLLC.N
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, (c) CashNFlowNStatementNN (c)NStatementNofNCashNFlowsN
N

7. TheNheadingNofNeachNofNtheNfourNrequiredNfinancialNstatementsNshouldNincludeNtheNf
ollowing:N
(a) NameNofNtheNentityN
(b) NameNofNtheNstatementN
(c) DateNofNtheNstatement,NorNtheNperiodNofNtimeN
(d) UnitNofNmeasureN
N

8. (a)N
TheNpurposeNofNtheNincomeNstatementNisNtoNpresentNinformationNaboutNtheNre
venues,Nexpenses,NandNtheNnetNincomeNofNanNentityNforNaNspecifiedNperiodNofNtime.N
(b) TheNpurposeNofNtheNbalanceNsheetNisNtoNreportNtheNfinancialNpositionNofNanNentityNatNaN
givenNdate,NthatNis,NtoNreportNinformationNaboutNtheNassets,NliabilitiesNandNstockholder
s’NequityNofNtheNentityNasNofNaNspecificNdate.N
(c) TheNpurposeNofNtheNstatementNofNcashNflowsNisNtoNpresentNinformationNaboutNtheNflowN
ofNcashNintoNtheNentityN(sources),NtheNflowNofNcashNoutNofNtheNentityN(uses),NandNtheNne
tNincreaseNorNdecreaseNinNcashNduringNtheNperiod.N
(d) TheNstatementNofNstockholders’NequityNreportsNtheNchangesNinNeachNofNtheNcompany’s
Nstockholders’NequityNaccountsNduringNtheNaccountingNperiod,NincludingNissueNandNrep

urchaseNofNstockNandNtheNwayNthatNnetNincomeNandNdistributionNofNdividendsNaffectedN
theNretainedNearningsNofNtheNcompanyNduringNthatNperiod.N
N N N

9. TheNincomeNstatementNandNtheNstatementNofNcashNflowsNareNdatedN―ForNtheNYearN
EndedNDecemberN31‖NbecauseNtheyNreportNtheNinflowsNandNoutflowsNofNresourcesNd
uringNaNperiodNofNtime.NInNcontrast,NtheNbalanceNsheetNisNdatedN―AtNDecemberN31‖N
becauseNitNrepresentsNtheNresources,Nobligations,NandNstockholders’NequityNatNaNsp
ecificNdate.N
N

10. AssetsNareNimportantNtoNcreditorsNandNinvestorsNbecauseNassetsNprovideNaNbasisNfo
rNjudgingNwhetherNsufficientNresourcesNareNavailableNtoNoperateNtheNcompany.NNAss
etsNareNalsoNimportantNbecauseNtheyNcouldNbeNsoldNforNcashNinNtheNeventNtheNcomp
anyNgoesNoutNofNbusiness.NLiabilitiesNareNimportantNtoNcreditorsNandNinvestorsNbeca
useNtheNcompanyNmustNbeNableNtoNgenerateNsufficientNcashNfromNoperationsNorNfurt
herNborrowingNtoNmeetNtheNpaymentsNrequiredNbyNdebtNagreements.NNIfNaNbusinessN
doesNnotNpayNitsNcreditors,NtheNlawNmayNgiveNtheNcreditorsNtheNrightNtoNforceNtheNsal
eNofNassetsNsufficientNtoNmeetNtheirNclaims.N
N

11. NetNincomeNisNtheNexcessNofNtotalNrevenuesNoverNtotalNexpenses.NNetNlossNisNtheNex
cessNofNtotalNexpensesNoverNtotalNrevenues.N
N

12. TheNequationNforNtheNincomeNstatementNisNRevenuesN-
NExpensesN=NNetNIncomeN(orNNetNLossNifNtheNamountNisNnegative).NThus,NtheNthreeN

majorNitemsNreportedNonNtheNincomeNstatementNareN(1)Nrevenues,N(2)Nexpenses,Nan
dN(3)NnetNincome.N
13. TheNequationNforNtheNbalanceNsheetN(alsoNknownNasNtheNbasicNaccountingNequation)
Nis:NAssetsN=NLiabilitiesN+NStockholders’NEquity.NAssetsNareNtheNprobableN(expected)

NfutureNeconomicNbenefitsNownedNbyNtheNentityNasNaNresultNofNpastNtransactions.NNTh

eyNareNtheNresourcesNownedNbyNtheNbusinessNatNaNgivenNpointNinNtimeNsuchNasNcash
,Nreceivables,Ninventory,Nmachinery,Nbuildings,Nland,NandNpatents.NLiabilitiesNareNpro
2-2N NN SolutionsNManualN
©NMcGrawNHillNLLC.NNAllNrightsNreserved.NNoNreproductionNorNdistributionNwithoutNtheNpriorNwrittenNconsentNofNMcGrawNHillNLLC.N
N

, bableN(expected)NdebtsNorNobligationsNofNtheNentityNasNaNresultNofNpastNtransactionsN
thatNwillNbeNpaidNwithNassetsNorNservicesNinNtheNfuture.NTheyNareNtheNobligationsNofNt
heNentityNsuchNasNaccountsNpayable,NnotesNpayable,NandNbondsNpayable.NStockhol
ders’NequityNisNfinancingNprovidedNbyNownersNofNtheNbusinessNandNoperations.NItNisNt
heNclaimNofNtheNownersNtoNtheNassetsNofNtheNbusinessNafterNtheNcreditors’NclaimsNha
veNbeenNsatisfied.NItNmayNbeNthoughtNofNasNtheNresidualNinterestNbecauseNitNreprese
ntsNassetsNminusNliabilities.N
N

14. TheNequationNforNtheNstatementNofNcashNflowsNis:NCashNflowsNfromNoperatingNactiviti
esN
+NCashNflowsNfromNinvestingNactivitiesN+NCashNflowsNfromNfinancingNactivitiesN=NChang
eNinNcashNforNtheNperiod.NTheNnetNcashNflowsNforNtheNperiodNrepresentNtheNincreaseNorN
decreaseNinNcashNthatNoccurredNduringNtheNperiod.NNCashNflowsNfromNoperatingNactiviti
esNareNcashNflowsNdirectlyNrelatedNtoNearningNincomeN(normalNbusinessNactivityNincludi
ngNinterestNpaidNandNincomeNtaxesNpaid).NCashNflowsNfromNinvestingNactivitiesNincludeN
cashNflowsNthatNareNrelatedNtoNtheNacquisitionNorNsaleNofNproductiveNassetsNusedNbyNth
eNcompany.NCashNflowsNfromNfinancingNactivitiesNareNdirectlyNrelatedNtoNtheNfinancingN
ofNtheNenterpriseNitself.NN
N

15. TheNretainedNearningsNequationNis:NBeginningNRetainedNEarningsN+NNNetNIncomeN-
NDividendsN=NEndingNRetainedNEarnings.NItNbeginsNwithNbeginning-of-the-

yearNRetainedNEarningsNwhichNisNtheNpriorNyear’sNendingNretainedNearningsNreporte
dNonNtheNbalanceNsheet.NNTheNcurrentNyear'sNNetNIncomeNreportedNonNtheNincomeNst
atementNisNaddedNandNtheNcurrentNyear'sNDividendsNareNsubtractedNfromNthisNamou
nt.NTheNendingNRetainedNEarningsNamountNisNreportedNonNtheNend-of-
periodNbalanceNsheet.N
N

16. MarketingNmanagersNandNcreditNmanagersNuseNcustomers'NfinancialNstatementsNtoN
decideNwhetherNtoNextendNthemNcreditNforNtheirNpurchases.NPurchasingNmanagersNu
seNpotentialNsuppliers'NfinancialNstatementsNtoNjudgeNwhetherNtheNsuppliersNhaveNth
eNresourcesNnecessaryNtoNmeetNcurrentNandNfutureNdemand.NHumanNresourceNman
agersNuseNfinancialNstatementsNasNaNbasisNforNcontractNnegotiations,NtoNdetermineN
whatNpayNratesNtheNcompanyNcanNafford.NNTheNnetNincomeNfigureNevenNservesNasNaN
basisNtoNpayNbonusesNnotNonlyNtoNmanagement,NbutNtoNotherNemployeesNthroughNpr
ofitNsharingNplans.N
N

17. TheNSecuritiesNandNExchangeNCommissionN(SEC)NisNtheNU.S.NgovernmentNagencyN
whichNdeterminesNtheNfinancialNstatementsNthatNpublicNcompaniesNmustNprovideNtoN
stockholdersNandNtheNmeasurementNrulesNusedNinNproducingNthoseNstatements.NTh
eNFinancialNAccountingNStandardsNBoardN(FASB)NisNtheNprivateNsectorNbodyNgivenNt
heNprimaryNresponsibilityNtoNworkNoutNtheNdetailedNrulesNwhichNbecomeNgenerallyNac
ceptedNaccountingNprinciples.NNN
18. ManagementNisNresponsibleNforNpreparingNtheNfinancialNstatementsNandNotherNinfor
mationNcontainedNinNtheNannualNreportNandNforNtheNmaintenanceNofNaNsystemNofNinte
rnalNaccountingNpolicies,NproceduresNandNcontrols.NTheseNmeasuresNareNintendedNt
oNprovideNreasonableNassurance,NatNappropriateNcost,NthatNtransactionsNareNproces
sedNinNaccordanceNwithNcompanyNauthorizationNasNwellNasNproperlyNrecordedNandNr
eportedNinNtheNfinancialNstatements,NandNthatNassetsNareNadequatelyNsafeguarded.NN
IndependentNauditorsNexamineNtheNfinancialNreportsN(preparedNbyNmanagement)Nan
FinancialNAccounting,N11/eNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNN 2-3N
©NMcGrawNHillNLLC.NNAllNrightsNreserved.NNoNreproductionNorNdistributionNwithoutNtheNpriorNwrittenNconsentNofNMcGrawNHillNLLC.N
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, dNtheNunderlyingNrecordsNtoNassureNthatNtheNreportsNrepresentNwhatNtheyNclaimNandN
conformNwithNgenerallyNacceptedNaccountingNprinciplesN(GAAP).NN
N

19. ANsoleNproprietorshipNisNanNunincorporatedNbusinessNownedNbyNoneNindividual.NANp
artnershipNisNanNunincorporatedNassociationNofNtwoNorNmoreNindividualsNtoNcarryNonN
aNbusiness.NANcorporationNisNaNbusinessNthatNisNorganizedNunderNtheNlawsNofNaNparti
cularNstateNwherebyNaNcharterNisNgrantedNandNtheNentityNisNauthorizedNtoNissueNshar
esNofNstockNasNevidenceNofNownershipNbyNtheNownersN(i.e.,Nstockholders).N
N

20. ANCPANfirmNnormallyNrendersNthreeNservices:Nauditing,NmanagementNadvisoryNservi
ces,NandNtaxNservices.NAuditingNinvolvesNexaminationNofNtheNrecordsNandNfinancialNr
eportsNtoNdetermineNwhetherNtheyN―fairlyNpresent‖NtheNfinancialNpositionNandNresult
sNofNoperationsNofNtheNentity.NManagementNadvisoryNservicesNinvolveNmanagementN
adviceNtoNindividualNbusinessNenterprisesNandNotherNentities,NmuchNlikeNthoseNprovi
dedNbyNaNconsultingNfirm.NTaxNservicesNinvolveNprovidingNtaxNplanningNadviceNtoNclie
ntsN(bothNindividualsNandNbusinesses)NandNpreparationNofNtheirNtaxNreturns.N
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ANSWERS TO MULTIPLE CHOICEN N N N

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1.Nb)N 2.Nd)N 3.Nd)N 4.Nc)N 5.Na)N
6.Nd)N 7.Na)N 8.Na)N 9.Nc)N 10.Nb)N
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Authors' Recommended Solution Time
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(TimeNinNminutes)N
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Mini- ExercisesN ProblemsN AlternateNProblems CasesNandNProjects
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exercisesN
No. Time No. Time No. Time No.N TimeN No.N TimeN
N N N N N N

1N 5N 1N 12N 1N 45N 1N 45N 1N 20N
2N 5N 2N 12N 2N 45N 2N 45N 2N 30N
3N 5N 3N 12N 3N 45N 3N 45N 3N 30N
N N N N N N
4N 20N 4N 45N
N N N N N N
5N 25N 5N 60N
N N N N N N
6N 20N 6N 30N
N N N N N N
N N 7N 15N N N 7N 20N
8N 25N ContiNnuingN 8N *N
N N N N N N
N N 9N 25N N N ProNblemN N N

10N 25N 1N 45N
N N N N N N N N
11N 30N
N N N N N N N N
12N 30N
N N N N N N N N
13N 15N
N N N N N N N N
14N 35N
N N N N N N N N
15N 12N
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2-4N NN SolutionsNManualN
©NMcGrawNHillNLLC.NNAllNrightsNreserved.NNoNreproductionNorNdistributionNwithoutNtheNpriorNwrittenNconsentNofNMcGrawNHillNLLC.N
N