SOLUTION MANUAL FOR
Fundamentals of Financial Accounting 7e Phillips
Chapter 1-13 with Appendix C&D
Chapter gb1 gb
Business gbDecisions gband gbFinancial gbAccounting
ANSWERS gbTO gbQUESTIONS
1. Accounting gbis gba gbsystem gbof gbanalyzing, gbrecording, gband gbsummarizing gbthe gbresults gbof gba gb
business‘s gbactivities gband gbthen gbreporting gbthem gbto gbdecision gbmakers. gb
2. An gbadvantage gbof gboperating gbas gba gbsole gbproprietorship, gbrather gbthan gba gbcorporation, gbis
gbthat g b it gbis gbeasy gbto gbestablish. gbAnother gbadvantage gbis gbthat gbincome gbfrom gba gbsole
gbproprietorship gbis g b taxed gbonly gbonce gbin gbthe gbhands gbof gbthe gbindividual gbproprietor
gb(income gbfrom gba gb g b g b g b corporation gbis gbtaxed gbin gbthe gbcorporation gband gbthen gbagain gbin
gbthe gbhands gbof gbthe gbindividual g b shareholder). gbA gbdisadvantage gbof gboperating gbas gba
gbsole gbproprietorship, gbrather gbthan gba g b corporation, gbis gbthat gbthe gbindividual gbproprietor
gbcan gbbe gbheld gbresponsible gbfor gbthe gbdebts gbof g b the gbbusiness. gb
3. Financial gbaccounting gbfocuses gbon gbpreparing gband gbusing gbthe gbfinancial gbstatements gbthat
g b are gbmade gbavailable gbto gbowners gband gbexternal gbusers gbsuch gbas gbcustomers, gbcreditors,
gband g b potential gbinvestors gbwho gbare gbinterested gbin gbreading gbthem. gbManagerial
gbaccounting g b focuses gbon gbother gbaccounting gbreports gbthat gbare gbnot gbreleased gbto gbthe
gbgeneral gbpublic, gbbut g b instead gbare gbprepared gbfor gbinternal gbdecision gbmaking gband gbused
gbby gbemployees, g b supervisors, gband gbmanagers gbwho gbrun gbthe gbcompany. gb
4. Financial gbreports gbare gbused gbby gbboth gbinternal gband gbexternal gbgroups gband gbindividuals.
gbThe g b internal gbgroups gbare gbcomprised gbof gbthe gbvarious gbmanagers gbof gbthe gbbusiness.
gbThe g b external gbgroups gbinclude gbinvestors, gbcreditors, gbgovernmental gbagencies, gbother
g b interested gbparties, gband gbthe gbpublic gbat gblarge. gb
5. The gbbusiness gbitself, gbnot gbthe gbindividual gbstockholders gbwho gbown gbthe gbbusiness, gbis gbviewed
g b as gbowning gbthe gbassets gband gbowing gbthe gbliabilities gbon gbits gbbalance gbsheet. gbA gbbusiness‘s
g b balance gbsheet gbincludes gbthe gbassets, gbliabilities, gband gbstockholders‘ gbequity gbof gbonly gbthat
g b business gband gbnot gbthe gbpersonal gbassets, gbliabilities, gband gbequity gbof gbthe gbstockholders.
gbThe g b financial gbstatements gbof gba gbcompany gbshow gbthe gbresults gbof gbthe gbbusiness
gbactivities gbof gb g b g b only gbthat gbcompany. gb
© gb2022 gbby gbMcGraw gbHill gbLLC. g b All gbrights gbreserved. gbNo gbreproduction gbor gbdistribution gbwithout gbthe gbprior gbwritten
gbconsent gbof gbMcGraw gbHill gbLLC.
,Fundamentals gbof gbFinancial 1-1
gbAccounting, gb7/e
© gb2022 gbby gbMcGraw gbHill gbLLC. g b All gbrights gbreserved. gbNo gbreproduction gbor gbdistribution gbwithout gbthe gbprior gbwritten
gbconsent gbof gbMcGraw gbHill gbLLC.
,6. (a) g b Operating gb– gbThese gbactivities gbare gbdirectly gbrelated gbto gbearning gbprofits. gbThey
gbinclude g b buying gbsupplies, gbmaking gbproducts, gbserving gbcustomers, gbcleaning gbthe
gbpremises, g b advertising, gbrenting gba gbbuilding, gbrepairing gbequipment, gband gbobtaining
gbinsurance g b coverage. gb
(b) Investing gb– gbThese gbactivities gbinvolve gbbuying gband gbselling gbproductive gbresources gbwith
g b long gblives gb(such gbas gbbuildings, gbland, gbequipment, gband gbtools), gbpurchasing gbinvestments,
g b and g b lending g b to g b others. gb
(c) Financing gb– gbAny gbborrowing gbfrom gbbanks, gbrepaying gbbank gbloans, gbreceiving
g b contributionsgbfromgbstockholders,gborgbpayinggbdividendsgbtogbstockholdersgbaregbconsidered
g b financing gbactivities. gb
7. The gbheading gbof gbeach gbof gbthe gbfour gbprimary gbfinancial gbstatements gbshould gbinclude
gbthe g b following: gb
(a) Name gbof gbthe gbbusiness gb
(b) Name gbof gbthe gbstatement gb
(c) Date gbof gbthe gbstatement, gbor gbthe gbperiod gbof gbtime gbthat gbthe gbstatement gbcovers gb
8. (a) g b The gbpurpose gb of gb the gbbalance gb sheet gbis gbto gb report gb the gbfinancial gbposition
gb (assets, g b liabilities gband gbstockholders‘ gbequity) gbof gba gbbusiness gbat gba gbpoint gbin gbtime.
gb
(b) The g b purpose g b of g b the g b income g b statement g b is g b to g b present g b information
g b about g b the g b revenues, gbexpenses, gband gbnet gbincome gbof gba gbbusiness gbfor gba
gbspecified gbperiod gbof gbtime. gb
(c) The g b statement g b of g b retained g b earnings g b reports g b the g b way g b that g b net g b income
g b and g b the g b distribution g b of g b dividends g b affected g b the g b financial g b position g b of g b the
g b company g b during g b the g b period. gb
(d) The g b purpose g b of g b the g b statement g b of g b cash g b flows g b is g b to g b summarize g b how g b a
g b business‘s g b operating, g b investing, g b and g b financing g b activities g b caused g b its g b cash
g b balance g b to g b change g b over gba gbparticular gbperiod gbof gbtime. gb
9. The gbincome gbstatement, gbstatement gbof gbretained gbearnings, gband gbstatement gbof gbcash gbflows
g b would gbbe gbdated gb―For gbthe gbYear gbEnded gbDecember gb31, gb2021,‖ gbbecause gbthey
gbreport gbthe g b inflows gband gboutflows gbof gbresources gbover gba gbperiod gbof gbtime. gbIn
gbcontrast, gbthe gbbalance g b sheet gbwould gbbe gbdated gb―At gbDecember gb31, gb2021,‖
gbbecause gbit gbrepresents gbthe gbassets, g b liabilities gband gbstockholders‘ gbequity gbat gba
gbspecific gbdate. gb
10. Net gbincome gbis gbthe gbexcess gbof gbtotal gbrevenues gbover gbtotal gbexpenses. gbA gbnet gbloss
gboccurs gbif g b total gbexpenses gbexceed gbtotal gbrevenues. gb
11. The gbaccounting gbequation gbfor gbthe gbbalance gbsheet gbis: gbAssets gb= gbLiabilities gb+
g b Stockholders‘ gbEquity. g b Assets gbare gbthe gbeconomic gbresources gbcontrolled gbby gbthe
g b company. gb g b Liabilities gbare gbamounts gbowed gbby gbthe gbbusiness. g b Stockholders‘ gbequity
gbis g b the gbowners‘ gbclaims gbto gbthe gbbusiness. gbIt gbincludes gbamounts gbcontributed gbto gbthe
gbbusiness g b (by gbinvestors gbthrough gbpurchasing gbthe gbcompany‘s gbstock) gband gbthe gbamounts
gbearned g b and gbaccumulated gbthrough gbprofitable gbbusiness gboperations. gb
© gb2022 gbby gbMcGraw gbHill gbLLC. g b All gbrights gbreserved. gbNo gbreproduction gbor gbdistribution gbwithout gbthe gbprior gbwritten
gbconsent gbof gbMcGraw gbHill gbLLC.
, Fundamentals gbof gbFinancial 1-2
gbAccounting, gb7/e
© gb2022 gbby gbMcGraw gbHill gbLLC. g b All gbrights gbreserved. gbNo gbreproduction gbor gbdistribution gbwithout gbthe gbprior gbwritten
gbconsent gbof gbMcGraw gbHill gbLLC.
Fundamentals of Financial Accounting 7e Phillips
Chapter 1-13 with Appendix C&D
Chapter gb1 gb
Business gbDecisions gband gbFinancial gbAccounting
ANSWERS gbTO gbQUESTIONS
1. Accounting gbis gba gbsystem gbof gbanalyzing, gbrecording, gband gbsummarizing gbthe gbresults gbof gba gb
business‘s gbactivities gband gbthen gbreporting gbthem gbto gbdecision gbmakers. gb
2. An gbadvantage gbof gboperating gbas gba gbsole gbproprietorship, gbrather gbthan gba gbcorporation, gbis
gbthat g b it gbis gbeasy gbto gbestablish. gbAnother gbadvantage gbis gbthat gbincome gbfrom gba gbsole
gbproprietorship gbis g b taxed gbonly gbonce gbin gbthe gbhands gbof gbthe gbindividual gbproprietor
gb(income gbfrom gba gb g b g b g b corporation gbis gbtaxed gbin gbthe gbcorporation gband gbthen gbagain gbin
gbthe gbhands gbof gbthe gbindividual g b shareholder). gbA gbdisadvantage gbof gboperating gbas gba
gbsole gbproprietorship, gbrather gbthan gba g b corporation, gbis gbthat gbthe gbindividual gbproprietor
gbcan gbbe gbheld gbresponsible gbfor gbthe gbdebts gbof g b the gbbusiness. gb
3. Financial gbaccounting gbfocuses gbon gbpreparing gband gbusing gbthe gbfinancial gbstatements gbthat
g b are gbmade gbavailable gbto gbowners gband gbexternal gbusers gbsuch gbas gbcustomers, gbcreditors,
gband g b potential gbinvestors gbwho gbare gbinterested gbin gbreading gbthem. gbManagerial
gbaccounting g b focuses gbon gbother gbaccounting gbreports gbthat gbare gbnot gbreleased gbto gbthe
gbgeneral gbpublic, gbbut g b instead gbare gbprepared gbfor gbinternal gbdecision gbmaking gband gbused
gbby gbemployees, g b supervisors, gband gbmanagers gbwho gbrun gbthe gbcompany. gb
4. Financial gbreports gbare gbused gbby gbboth gbinternal gband gbexternal gbgroups gband gbindividuals.
gbThe g b internal gbgroups gbare gbcomprised gbof gbthe gbvarious gbmanagers gbof gbthe gbbusiness.
gbThe g b external gbgroups gbinclude gbinvestors, gbcreditors, gbgovernmental gbagencies, gbother
g b interested gbparties, gband gbthe gbpublic gbat gblarge. gb
5. The gbbusiness gbitself, gbnot gbthe gbindividual gbstockholders gbwho gbown gbthe gbbusiness, gbis gbviewed
g b as gbowning gbthe gbassets gband gbowing gbthe gbliabilities gbon gbits gbbalance gbsheet. gbA gbbusiness‘s
g b balance gbsheet gbincludes gbthe gbassets, gbliabilities, gband gbstockholders‘ gbequity gbof gbonly gbthat
g b business gband gbnot gbthe gbpersonal gbassets, gbliabilities, gband gbequity gbof gbthe gbstockholders.
gbThe g b financial gbstatements gbof gba gbcompany gbshow gbthe gbresults gbof gbthe gbbusiness
gbactivities gbof gb g b g b only gbthat gbcompany. gb
© gb2022 gbby gbMcGraw gbHill gbLLC. g b All gbrights gbreserved. gbNo gbreproduction gbor gbdistribution gbwithout gbthe gbprior gbwritten
gbconsent gbof gbMcGraw gbHill gbLLC.
,Fundamentals gbof gbFinancial 1-1
gbAccounting, gb7/e
© gb2022 gbby gbMcGraw gbHill gbLLC. g b All gbrights gbreserved. gbNo gbreproduction gbor gbdistribution gbwithout gbthe gbprior gbwritten
gbconsent gbof gbMcGraw gbHill gbLLC.
,6. (a) g b Operating gb– gbThese gbactivities gbare gbdirectly gbrelated gbto gbearning gbprofits. gbThey
gbinclude g b buying gbsupplies, gbmaking gbproducts, gbserving gbcustomers, gbcleaning gbthe
gbpremises, g b advertising, gbrenting gba gbbuilding, gbrepairing gbequipment, gband gbobtaining
gbinsurance g b coverage. gb
(b) Investing gb– gbThese gbactivities gbinvolve gbbuying gband gbselling gbproductive gbresources gbwith
g b long gblives gb(such gbas gbbuildings, gbland, gbequipment, gband gbtools), gbpurchasing gbinvestments,
g b and g b lending g b to g b others. gb
(c) Financing gb– gbAny gbborrowing gbfrom gbbanks, gbrepaying gbbank gbloans, gbreceiving
g b contributionsgbfromgbstockholders,gborgbpayinggbdividendsgbtogbstockholdersgbaregbconsidered
g b financing gbactivities. gb
7. The gbheading gbof gbeach gbof gbthe gbfour gbprimary gbfinancial gbstatements gbshould gbinclude
gbthe g b following: gb
(a) Name gbof gbthe gbbusiness gb
(b) Name gbof gbthe gbstatement gb
(c) Date gbof gbthe gbstatement, gbor gbthe gbperiod gbof gbtime gbthat gbthe gbstatement gbcovers gb
8. (a) g b The gbpurpose gb of gb the gbbalance gb sheet gbis gbto gb report gb the gbfinancial gbposition
gb (assets, g b liabilities gband gbstockholders‘ gbequity) gbof gba gbbusiness gbat gba gbpoint gbin gbtime.
gb
(b) The g b purpose g b of g b the g b income g b statement g b is g b to g b present g b information
g b about g b the g b revenues, gbexpenses, gband gbnet gbincome gbof gba gbbusiness gbfor gba
gbspecified gbperiod gbof gbtime. gb
(c) The g b statement g b of g b retained g b earnings g b reports g b the g b way g b that g b net g b income
g b and g b the g b distribution g b of g b dividends g b affected g b the g b financial g b position g b of g b the
g b company g b during g b the g b period. gb
(d) The g b purpose g b of g b the g b statement g b of g b cash g b flows g b is g b to g b summarize g b how g b a
g b business‘s g b operating, g b investing, g b and g b financing g b activities g b caused g b its g b cash
g b balance g b to g b change g b over gba gbparticular gbperiod gbof gbtime. gb
9. The gbincome gbstatement, gbstatement gbof gbretained gbearnings, gband gbstatement gbof gbcash gbflows
g b would gbbe gbdated gb―For gbthe gbYear gbEnded gbDecember gb31, gb2021,‖ gbbecause gbthey
gbreport gbthe g b inflows gband gboutflows gbof gbresources gbover gba gbperiod gbof gbtime. gbIn
gbcontrast, gbthe gbbalance g b sheet gbwould gbbe gbdated gb―At gbDecember gb31, gb2021,‖
gbbecause gbit gbrepresents gbthe gbassets, g b liabilities gband gbstockholders‘ gbequity gbat gba
gbspecific gbdate. gb
10. Net gbincome gbis gbthe gbexcess gbof gbtotal gbrevenues gbover gbtotal gbexpenses. gbA gbnet gbloss
gboccurs gbif g b total gbexpenses gbexceed gbtotal gbrevenues. gb
11. The gbaccounting gbequation gbfor gbthe gbbalance gbsheet gbis: gbAssets gb= gbLiabilities gb+
g b Stockholders‘ gbEquity. g b Assets gbare gbthe gbeconomic gbresources gbcontrolled gbby gbthe
g b company. gb g b Liabilities gbare gbamounts gbowed gbby gbthe gbbusiness. g b Stockholders‘ gbequity
gbis g b the gbowners‘ gbclaims gbto gbthe gbbusiness. gbIt gbincludes gbamounts gbcontributed gbto gbthe
gbbusiness g b (by gbinvestors gbthrough gbpurchasing gbthe gbcompany‘s gbstock) gband gbthe gbamounts
gbearned g b and gbaccumulated gbthrough gbprofitable gbbusiness gboperations. gb
© gb2022 gbby gbMcGraw gbHill gbLLC. g b All gbrights gbreserved. gbNo gbreproduction gbor gbdistribution gbwithout gbthe gbprior gbwritten
gbconsent gbof gbMcGraw gbHill gbLLC.
, Fundamentals gbof gbFinancial 1-2
gbAccounting, gb7/e
© gb2022 gbby gbMcGraw gbHill gbLLC. g b All gbrights gbreserved. gbNo gbreproduction gbor gbdistribution gbwithout gbthe gbprior gbwritten
gbconsent gbof gbMcGraw gbHill gbLLC.
