Solution Manual for Financial Accounting 11th Edition Robert Libby, Patricia Libby, Complete Chapters 1 - 13, Verified Newest Version

SOLUTION MANUAL FOR , f , f




FINANCIALACCOUNTING11THEDITIONROBERT JI




LIBBY,PATRICIALIBBY,FRANKHODGE ,f f, f, f,




Chapter1 f,




FinancialStatementsandBusinessDecisions


ANSWERSTOQUESTIONS

1. Accountingisasystemthatcollectsandprocesses(analyzes,measures,and f, f, f, f, f, f, f, f, f, f,




records)financialinformationaboutanorganizationandreportsthatinformationto
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decisionmakers.
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2. Financialaccountinginvolvespreparationofthefourbasicfinancialstatementsand f, f, f, f, f, f, f, f,




relateddisclosuresforexternaldecisionmakers.Managerialaccountinginvolvesthe
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preparationofdetailedplans,budgets,forecasts,andperformancereportsfor internal
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decision makers.
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3. Financialreportsareusedbybothinternalandexternalgroupsandindividuals.The
f, f, f, f, f, f, f, f, f, f,




internalgroupsarecomprisedofthevariousmanagersoftheentity.Theexternal
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groupsincludetheowners, investors,creditors,governmentalagencies,other
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interested parties, and the public at large.
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4. Investorspurchaseallorpartofabusinessandhopetogainbyreceivingpartof
f, f, f, f, f, f, f, f, f, f, f, f, f, f, f,




whatthecompanyearnsand/orsellingtheirownershipinterest inthecompanyin
,f f, f, f, f, f, f, f, f, ji f, f, f,




thefutureatahigherpricethantheypaid.Creditorslendmoneytoacompanyfora
,f f, f, f, f, f, f, f, f, f, f, f, f, f, f, f, f,




specificlengthoftimeandhopetogainbycharginginterestontheloan.
,f f, f, f, f, f, f, f, f, f, f, f, f, f,

,5. Inasociety,eachorganizationcanbedefinedasaseparateaccountingentity.An
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accountingentityistheorganizationforwhichfinancialdataaretobecollected.
,f f, f, f, f, f, f, f, f, f, f, f, f,




Typicalaccountingentitiesareabusiness,achurch,agovernmentalunit,a
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universityandothernonprofitorganizationssuchasahospitalandawelfare
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organization.Abusinesstypicallyisdefinedandtreatedasaseparateentitybecause
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theowners,creditors,investors,andotherinterestedpartiesneedtoevaluateits
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performanceanditspotentialseparatelyfromotherentitiesandfromitsowners.
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6. NameofStatement f, f, AlternativeTitle
(a) IncomeStatement f, (a) StatementofEarnings;Statementof ,f f, f, f, f,




Income;StatementofOperations f, f, f,




(b) BalanceSheet f, (b)StatementofFinancialPosition f, f, f, f,




(c) CashFlowStatement f, (c) StatementofCashFlows , f f, f, f,




7. Theheadingofeachofthefourrequiredfinancialstatementsshouldincludethe
f, f, f, f, f, f, f, f, f, f, f, f,




following:
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(a) Nameoftheentity f, f, f,




(b) Nameofthestatement f, f, f,




(c) Dateofthestatement,ortheperiodoftime f, f, f, f, f, f, f,




(d) Unitofmeasure f, f,




8. (a) Thepurposeoftheincomestatementistopresentinformationaboutthe
f, f, f, f, f, f, f, f, f, f, f,




revenues,expenses,andthenetincomeofanentityforaspecifiedperiodof
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time.
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(b) Thepurposeofthebalancesheetistoreportthefinancialpositionofanentityata
f, f, f, f, f, f, f, f, f, f, f, f, f, f, f,




givendate,thatis,toreportinformationabouttheassets,liabilitiesand
,f f, f, f, f, f, f, f, f, f, f, f,




stockholders’equityoftheentityasofa specific date.
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(c) The purpose of the statement of cash flows is to present information about the
f, f, f, f, f, f, f, f, ,f f, f, ,f ji



flow of cash into the entity (sources), the flow of cash out of the entity (uses),
f, f, f, f, f, f, f, f, f, f, f, f, f, f, f, f,




andthenetincreaseordecreaseincashduringtheperiod.
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(d) Thestatementofstockholders’equityreportsthechangesineachofthe
f, f, f, f, f, f, f, f, f, f, f,




company’sstockholders’ equityaccounts during theaccounting period,
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includingissueandrepurchaseofstockandthewaythatnetincomeand
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distributionofdividendsaffectedtheretainedearningsofthecompanyduring
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thatperiod.
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9. Theincomestatementandthestatementofcashflowsaredated―FortheYear
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EndedDecember31‖becausetheyreporttheinflowsandoutflowsofresources
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during aperiodoftime.In contrast,thebalancesheet isdated ―AtDecember 31‖
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becauseitrepresentstheresources,obligations,andstockholders’equityata
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specificdate.
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,10. Assetsareimportanttocreditorsandinvestorsbecauseassetsprovideabasisfor
f, f, f, f, f, f, f, f, f, f, f, f,




judgingwhethersufficientresourcesareavailabletooperatethecompany.Assets
,f f, f, f, f, f, f, f, f, f,




arealsoimportantbecausetheycouldbesoldforcashintheeventthecompany
,f f, f, f, f, f, f, f, f, f, f, f, f, f, f,




goesoutofbusiness.Liabilitiesareimportanttocreditorsandinvestorsbecause
,f f, f, f, f, f, f, f, f, f, f, f,




thecompanymustbeabletogeneratesufficientcashfromoperationsorfurther
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borrowingtomeetthepaymentsrequiredbydebtagreements.Ifabusinessdoes
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notpayitscreditors,thelawmaygivethecreditorstherighttoforcethesaleof assets
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sufficient to meet their claims.
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11. Netincomeistheexcessoftotalrevenuesovertotalexpenses.Net lossisthe
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excess of total expenses over total revenues.
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12. The equation for theincome statement is Revenues - Expenses = Net Income (or
f, f, f, f, f, f, f, f, f, ji ,f




Net Loss if the amount is negative). Thus, the three major items reported on the
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incomestatementare(1)revenues,(2)expenses,and(3)netincome.
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13. Theequationforthebalancesheet(alsoknownasthebasicaccountingequation)is:
f, f, f, f, f, f, f, f, f, f, f, f, f,




Assets=Liabilities+Stockholders’Equity.Assetsaretheprobable(expected)future
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economicbenefitsownedbytheentityasaresultofpasttransactions. Theyarethe
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resourcesownedbythebusinessatagivenpointintimesuchascash,receivables,
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inventory, machinery,buildings, land,andpatents.Liabilitiesareprobable
,f ,f f, ,f f, f, f, f, f,




(expected)debtsorobligationsoftheentityasaresultofpasttransactionsthatwill
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bepaidwithassetsorservicesinthefuture.Theyaretheobligationsoftheentity
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suchasaccountspayable,notespayable,andbondspayable.Stockholders’equity
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isfinancingprovidedbyownersofthebusinessandoperations.Itistheclaimofthe
,f f, f, f, f, f, f, f, f, f, f, f, f, f, f, f,




ownerstotheassetsofthebusinessafterthecreditors’claimshavebeensatisfied.It
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maybethoughtofastheresidualinterestbecauseitrepresentsassetsminus liabilities.
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14. Theequationforthestatementofcashflowsis:Cashflowsfromoperatingactivities
f, f, f, f, f, f, f, f, f, f, f, f, f,




+Cashflowsfrominvestingactivities+Cashflowsfromfinancingactivities=Change
f, f, f, f, f, f, f, f, f, f, f, f, f,




incashfortheperiod.Thenetcashflowsfortheperiodrepresenttheincreaseor
,f f, f, f, f, f, f, f, f, f, f, f, f, f, f, f,




decreaseincashthatoccurredduringtheperiod.Cashflowsfromoperatingactivities
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arecashflowsdirectlyrelatedtoearningincome(normalbusinessactivityincluding
,f f, f, f, f, f, f, f, f, f, f, f,




interestpaidandincometaxespaid).Cashflowsfrominvestingactivitiesincludecash
,f f, f, f, f, f, f, f, f, f, f, f, f,




flowsthatarerelatedtotheacquisitionorsaleofproductiveassetsusedbythe
,f f, f, f, f, f, f, f, f, f, f, f, f, f, f,




company.Cashflowsfromfinancingactivitiesaredirectlyrelatedtothefinancingof the
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enterprise itself.
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15. Theretainedearningsequationis:BeginningRetainedEarnings+NetIncome-
f, f, f, f, f, ,f f, f, f, f, f,




Dividends=Ending RetainedEarnings.Itbegins withbeginning-of-the-year
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RetainedEarningswhichistheprioryear’sendingretainedearningsreportedon
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thebalancesheet. Thecurrentyear'sNetIncomereportedontheincome
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statementisaddedandthecurrentyear'sDividendsaresubtractedfromthis
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amount.TheendingRetainedEarningsamountisreportedontheend-of-period
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balancesheet.
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, 16. Marketingmanagersandcreditmanagersusecustomers'financialstatementsto f, f, f, f, f, f, f, f, f,




decidewhethertoextendthemcreditfortheirpurchases.Purchasingmanagers use
,f f, f, f, f, f, f, f, f, f, f, , f




potentialsuppliers'financialstatementstojudgewhetherthesuppliershavethe
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resourcesnecessarytomeetcurrentandfuturedemand.Humanresourcemanagers
,f f, f, f, f, f, f, f, f, f, f,




usefinancialstatementsasabasisforcontractnegotiations,todeterminewhatpay
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ratesthecompanycanafford. Thenetincomefigureevenservesasabasistopay
,f f, f, f, f, , f f, f, f, f, f, f, f, f, f, f,




bonusesnotonlytomanagement,buttootheremployeesthroughprofitsharing plans.
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17. TheSecuritiesandExchangeCommission(SEC)istheU.S.governmentagency
f, f, f, f, f, f, f, f, f, f,




whichdeterminesthefinancialstatementsthatpubliccompaniesmustprovideto
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stockholdersandthemeasurementrulesusedinproducingthosestatements.The
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FinancialAccountingStandardsBoard(FASB)istheprivatesectorbodygiventhe
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primaryresponsibilitytoworkoutthedetailedruleswhichbecomegenerally accepted
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accounting principles.
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18. Managementisresponsibleforpreparingthefinancialstatementsandother f, f, f, f, f, f, f, f, f,




informationcontainedintheannualreportandforthemaintenanceofasystemof
,f f, f, f, f, f, f, f, f, f, f, f, f, f,




internalaccountingpolicies,proceduresandcontrols.Thesemeasuresare intended
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toprovidereasonableassurance,at appropriatecost,thattransactionsare processed
,f f, f, f, ji f, f, f, f, ,f




inaccordancewithcompanyauthorizationaswellasproperlyrecordedandreported
,f f, f, f, f, f, f, f, f, f, f, f,




inthefinancialstatements,andthatassetsareadequatelysafeguarded.Independent
,f f, f, f, f, f, f, f, f, f, f,




auditorsexaminethefinancialreports(preparedbymanagement)andtheunderlying
,f f, f, f, f, f, f, f, f, f, f,




recordstoassurethatthereportsrepresentwhattheyclaimandconformwith generally
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accepted accounting principles (GAAP).
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19. Asoleproprietorshipisanunincorporatedbusinessownedbyoneindividual.A
f, f, f, f, f, f, f, f, f, f, f,




partnershipisanunincorporatedassociationoftwoormoreindividualstocarryona
,f f, f, f, f, f, f, f, f, f, f, f, f, f,




business.Acorporationisabusinessthatisorganizedunderthelawsofa particular
,f f, f, f, f, f, f, f, f, f, f, f, f, f, , f




statewherebyacharterisgrantedandtheentityisauthorizedtoissuesharesofstockas
,f f, f, f, f, f, f, f, f, f, f, f, f, f, f, f, ,f




evidence ofownership bytheowners(i.e.,stockholders).
f, ,f f, ,f f, f, f, f,




20. ACPAfirmnormallyrendersthreeservices:auditing,managementadvisory
,f f, f, f, f, f, f, ,f f,




services,andtaxservices.Auditinginvolvesexaminationoftherecordsandfinancial
,f f, f, f, f, f, f, f, f, f, f, f,




reportstodeterminewhetherthey―fairlypresent‖thefinancialpositionand results of
,f f, f, f, f, ,f ,f




operationsoftheentity.Managementadvisoryservicesinvolvemanagementadvice
,f f, f, f, f, f, f, f, f, f,




toindividualbusinessenterprisesandotherentities,muchlikethoseprovidedbya
,f f, f, f, f, f, f, f, f, f, f, f, f,




consultingfirm.Taxservicesinvolveprovidingtaxplanningadvicetoclients(both
,f f, f, f, f, f, f, f, f, f, f, f,




individualsandbusinesses) andpreparationof theirtaxreturns.
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ANSWERSTOMULTIPLECHOICE f,




1. , f b) 2. d) , f 3. d) , f 4. c) , f 5. a) , f




6. , f d) 7. a) , f 8. a) , f 9. c) , f 10. b)