SOLUTION MANUAL FOR
Financial Accounting 11th Edition
by Robert Libby, All Chapters 1 - 13
,TABLE OF CONTENTS
CHAPTER 1: Financial Statements and Business Decisions
Focus Company: Le-Nature’s Inc.
CHAPTER 2: Investing and Financing Decisions and the Accounting System
Focus Company: Chipotle Mexican Grill
CHAPTER 3: Operating Decisions and the Accounting System
Focus Company: Chipotle Mexican Grill
CHAPTER 4: Adjustments, Financial Statements, and the Closing Process
Focus Company: Chipotle Mexican Grill
CHAPTER 5: Communicating and Analyzing Accounting Information
Focus Company: Apple Inc.
CHAPTER 6: Reporting and Interpreting Sales Revenue, Receivables, and Cash
Focus Company: Skechers U.S.A.
CHAPTER 7: Reporting and Interpreting Cost of Goods Sold and Inventory
Focus Company: Harley-Davidson, Inc.
CHAPTER 8: Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural
Resources
Focus Company: FedEx Corporation
CHAPTER 9: Reporting and Interpreting Liabilities
Focus Company: Starbucks
CHAPTER 10: Reporting and Interpreting Bond Securities
Focus Company: Amazon
CHAPTER 11: Reporting and Interpreting Stockholders’ Equity
Focus Company: Microsoft
CHAPTER 12: Statement of Cash Flows
Focus Company: National Beverage Corporation
CHAPTER 13: Analyzing Financial Statements
Focus Company: The Home Depot
,Chapter 1
Financial Statements and Business Decisions
ANSWERS TO QUESTIONS
1. Accounting is a system that collects and processes (analyzes, measures, and
records) financial information about an organization and reports that information to
decision makers.
2. Financial accounting involves preparation of the four basic financial statements and
related disclosures for external decision makers. Managerial accounting involves
the preparation of detailed plans, budgets, forecasts, and performance reports for
internal decision makers.
3. Financial reports are used by both internal and external groups and individuals. The
internal groups are comprised of the various managers of the entity. The external
groups include the owners, investors, creditors, governmental agencies, other
interested parties, and the public at large.
4. Investors purchase all or part of a business and hope to gain by receiving part of
what the company earns and/or selling their ownership interest in the company in
the future at a higher price than they paid. Creditors lend money to a company for
a specific length of time and hope to gain by charging interest on the loan.
5. In a society, each organization can be defined as a separate accounting entity. An
accounting entity is the organization for which financial data are to be collected.
Typical accounting entities are a business, a church, a governmental unit, a
university and other nonprofit organizations such as a hospital and a welfare
organization. A business typically is defined and treated as a separate entity
because the owners, creditors, investors, and other interested parties need to
evaluate its performance and its potential separately from other entities and from its
owners.
6. Name of Statement Alternative Title
(a) Income Statement (a) Statement of Earnings; Statement of
Income; Statement of Operations
(b) Balance Sheet (b) Statement of Financial Position
(c) Cash Flow Statement (c) Statement of Cash Flows
7. The heading of each of the four required financial statements should include the
following:
, (a) Name of the entity
(b) Name of the statement
(c) Date of the statement, or the period of time
(d) Unit of measure
8. (a) The purpose of the income statement is to present information about the
revenues, expenses, and the net income of an entity for a specified period of
time.
(b) The purpose of the balance sheet is to report the financial position of an entity
at a given date, that is, to report information about the assets, liabilities and
stockholders’ equity of the entity as of a specific date.
(c) The purpose of the statement of cash flows is to present information about the
flow of cash into the entity (sources), the flow of cash out of the entity (uses),
and the net increase or decrease in cash during the period.
(d) The statement of stockholders’ equity reports the changes in each of the
company’s stockholders’ equity accounts during the accounting period,
including issue and repurchase of stock and the way that net income and
distribution of dividends affected the retained earnings of the company during
that period.
9. The income statement and the statement of cash flows are dated ―For the Year
Ended December 31‖ because they report the inflows and outflows of resources
during a period of time. In contrast, the balance sheet is dated ―At December 31‖
because it represents the resources, obligations, and stockholders’ equity at a
specific date.
10. Assets bare bimportant bto bcreditors band binvestors bbecause bassets bprovide ba
bbasis bfor bjudging bwhether bsufficient bresources bare bavailable bto boperate bthe
bcompany. bAssetsbare balso bimportant bbecause bthey bcould bbe bsold bfor bcash bin
bthe bevent bthe bcompany bgoes bout bof bbusiness. bLiabilities bare bimportant bto
bcreditors band binvestors bbecause bthe bcompany b must bbe bable bto bgenerate
bsufficient bcash bfrom boperations bor bfurther bborrowing bto bmeet bthe bpayments
brequired bby bdebt bagreements. bIf ba bbusiness bdoes bnot bpay bits bcreditors, bthe
blaw bmay bgive bthe bcreditors bthe bright bto bforce bthe bsale bof bassets bsufficient
bto bmeet btheir bclaims.
11. Net bincome bis bthe bexcess bof btotal brevenues bover btotal bexpenses. bNet
bloss bis bthebexcess bof btotal bexpenses bover btotal b revenues.
12. The bequation bfor bthe bincome bstatement bis bRevenues b - bExpenses b= bNet
bIncome b(orbNet bLoss bif bthe bamount bis bnegative). bThus, bthe bthree bmajor
bitems breported bon bthe bincome bstatement bare b(1) brevenues, b(2) bexpenses,
band b(3) b net bincome.
13. The bequation bfor bthe bbalance bsheet b(also bknown bas bthe bbasic baccounting
bequation) bis: bAssets b= bLiabilities b+ bStockholders’ bEquity. bAssets bare bthe
bprobable b(expected) bfuture beconomic bbenefits bowned bby b the bentity bas ba
bresult bof bpast btransactions. b Theybare bthe bresources bowned bby bthe bbusiness
bat ba bgiven bpoint bin btime bsuch bas bcash, breceivables, binventory, bmachinery,
bbuildings, bland, band bpatents. bLiabilities bare bprobable b(expected) bdebts bor
Financial Accounting 11th Edition
by Robert Libby, All Chapters 1 - 13
,TABLE OF CONTENTS
CHAPTER 1: Financial Statements and Business Decisions
Focus Company: Le-Nature’s Inc.
CHAPTER 2: Investing and Financing Decisions and the Accounting System
Focus Company: Chipotle Mexican Grill
CHAPTER 3: Operating Decisions and the Accounting System
Focus Company: Chipotle Mexican Grill
CHAPTER 4: Adjustments, Financial Statements, and the Closing Process
Focus Company: Chipotle Mexican Grill
CHAPTER 5: Communicating and Analyzing Accounting Information
Focus Company: Apple Inc.
CHAPTER 6: Reporting and Interpreting Sales Revenue, Receivables, and Cash
Focus Company: Skechers U.S.A.
CHAPTER 7: Reporting and Interpreting Cost of Goods Sold and Inventory
Focus Company: Harley-Davidson, Inc.
CHAPTER 8: Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural
Resources
Focus Company: FedEx Corporation
CHAPTER 9: Reporting and Interpreting Liabilities
Focus Company: Starbucks
CHAPTER 10: Reporting and Interpreting Bond Securities
Focus Company: Amazon
CHAPTER 11: Reporting and Interpreting Stockholders’ Equity
Focus Company: Microsoft
CHAPTER 12: Statement of Cash Flows
Focus Company: National Beverage Corporation
CHAPTER 13: Analyzing Financial Statements
Focus Company: The Home Depot
,Chapter 1
Financial Statements and Business Decisions
ANSWERS TO QUESTIONS
1. Accounting is a system that collects and processes (analyzes, measures, and
records) financial information about an organization and reports that information to
decision makers.
2. Financial accounting involves preparation of the four basic financial statements and
related disclosures for external decision makers. Managerial accounting involves
the preparation of detailed plans, budgets, forecasts, and performance reports for
internal decision makers.
3. Financial reports are used by both internal and external groups and individuals. The
internal groups are comprised of the various managers of the entity. The external
groups include the owners, investors, creditors, governmental agencies, other
interested parties, and the public at large.
4. Investors purchase all or part of a business and hope to gain by receiving part of
what the company earns and/or selling their ownership interest in the company in
the future at a higher price than they paid. Creditors lend money to a company for
a specific length of time and hope to gain by charging interest on the loan.
5. In a society, each organization can be defined as a separate accounting entity. An
accounting entity is the organization for which financial data are to be collected.
Typical accounting entities are a business, a church, a governmental unit, a
university and other nonprofit organizations such as a hospital and a welfare
organization. A business typically is defined and treated as a separate entity
because the owners, creditors, investors, and other interested parties need to
evaluate its performance and its potential separately from other entities and from its
owners.
6. Name of Statement Alternative Title
(a) Income Statement (a) Statement of Earnings; Statement of
Income; Statement of Operations
(b) Balance Sheet (b) Statement of Financial Position
(c) Cash Flow Statement (c) Statement of Cash Flows
7. The heading of each of the four required financial statements should include the
following:
, (a) Name of the entity
(b) Name of the statement
(c) Date of the statement, or the period of time
(d) Unit of measure
8. (a) The purpose of the income statement is to present information about the
revenues, expenses, and the net income of an entity for a specified period of
time.
(b) The purpose of the balance sheet is to report the financial position of an entity
at a given date, that is, to report information about the assets, liabilities and
stockholders’ equity of the entity as of a specific date.
(c) The purpose of the statement of cash flows is to present information about the
flow of cash into the entity (sources), the flow of cash out of the entity (uses),
and the net increase or decrease in cash during the period.
(d) The statement of stockholders’ equity reports the changes in each of the
company’s stockholders’ equity accounts during the accounting period,
including issue and repurchase of stock and the way that net income and
distribution of dividends affected the retained earnings of the company during
that period.
9. The income statement and the statement of cash flows are dated ―For the Year
Ended December 31‖ because they report the inflows and outflows of resources
during a period of time. In contrast, the balance sheet is dated ―At December 31‖
because it represents the resources, obligations, and stockholders’ equity at a
specific date.
10. Assets bare bimportant bto bcreditors band binvestors bbecause bassets bprovide ba
bbasis bfor bjudging bwhether bsufficient bresources bare bavailable bto boperate bthe
bcompany. bAssetsbare balso bimportant bbecause bthey bcould bbe bsold bfor bcash bin
bthe bevent bthe bcompany bgoes bout bof bbusiness. bLiabilities bare bimportant bto
bcreditors band binvestors bbecause bthe bcompany b must bbe bable bto bgenerate
bsufficient bcash bfrom boperations bor bfurther bborrowing bto bmeet bthe bpayments
brequired bby bdebt bagreements. bIf ba bbusiness bdoes bnot bpay bits bcreditors, bthe
blaw bmay bgive bthe bcreditors bthe bright bto bforce bthe bsale bof bassets bsufficient
bto bmeet btheir bclaims.
11. Net bincome bis bthe bexcess bof btotal brevenues bover btotal bexpenses. bNet
bloss bis bthebexcess bof btotal bexpenses bover btotal b revenues.
12. The bequation bfor bthe bincome bstatement bis bRevenues b - bExpenses b= bNet
bIncome b(orbNet bLoss bif bthe bamount bis bnegative). bThus, bthe bthree bmajor
bitems breported bon bthe bincome bstatement bare b(1) brevenues, b(2) bexpenses,
band b(3) b net bincome.
13. The bequation bfor bthe bbalance bsheet b(also bknown bas bthe bbasic baccounting
bequation) bis: bAssets b= bLiabilities b+ bStockholders’ bEquity. bAssets bare bthe
bprobable b(expected) bfuture beconomic bbenefits bowned bby b the bentity bas ba
bresult bof bpast btransactions. b Theybare bthe bresources bowned bby bthe bbusiness
bat ba bgiven bpoint bin btime bsuch bas bcash, breceivables, binventory, bmachinery,
bbuildings, bland, band bpatents. bLiabilities bare bprobable b(expected) bdebts bor
