Solution Manual
Fundamentals Of Financial Accounting
By Fred Phillips, Patricia Libby
8th Edition
,Table Of Contents
Chapter 1: Business Decisions And Financial Accounting
Chapter 2: The Balance Sheet
Chapter 3: The Income Statement
Chapter 4: Adjustments, Financial Statements, And Financial Results
Chapter 5: Fraud, Internal Control, And Cash
Chapter 6: Merchandising Operations And The Multistep Income Statement
Chapter 7: Inventory And Cost Of Goods Sold
Chapter 8: Receivables, Bad Debt Expense, And Interest Revenue
Chapter 9: Long-Lived Tangible And Intangible Assets
Chapter 10: Liabilities
Chapter 11: Stockholders’ Equity
Chapter 12: Statement Cash Flows
Chapter 13: Measuring And Evaluating Financial Performance
,SOLUTION MANUAL FOR
Fundamentals Of Financial Accounting 8e Fred Phillips, Robert Libby, Patricia Libby, Brandy
Mackintosh
Chapter 1-13
Chapter 1
Business Decisions And Financial Accounting
ANSWERS TO QUESTIONS
1. Accounting Is A System Of Analyzing, Recording, And Summarizing The Results
Of A Business‘S Activities And Then Reporting Them To Decision Makers.
2. An Advantage Of Operating As A Sole Proprietorship, Rather Than A Corporation, Is
That It Is Easy To Establish. Another Advantage Is That Income From A Sole
Proprietorship Is Taxed Only Once In The Hands Of The Individual Proprietor (Income
From A Corporation Is Taxed In The Corporation And Then Again In The Hands Of The
Individual Proprietor). A Disadvantage Of Operating As A Sole Proprietorship, Rather
Than A Corporation, Is That The Individual Proprietor Can Be Held Responsible For
The Debts Of The Business.
3. Financial Accounting Focuses On Preparing And Using The Financial Statements That
Are Made Available To Owners And External Users Such As Customers, Creditors, And
Potential Investors Who Are Interested In Reading Them. Managerial Accounting
Focuses On Other Accounting Reports That Are Not Released To The General Public,
But Instead Are Prepared And Used By Employees, Supervisors, And Managers Who
Run The Company.
4. Financial Reports Are Used By Both Internal And External Groups And Individuals. The
Internal Groups Are Comprised Of The Various Managers Of The Business. The
External Groups Include Investors, Creditors, Governmental Agencies, Other Interested
Parties, And The Public At Large.
5. The Business Itself, Not The Individual Shareholders Who Own The Business, Is Viewed
As Owning The Assets And Owing The Liabilities On Its Balance Sheet. A Business‘S
Balance Sheet Includes The Assets, Liabilities, And Shareholders‘ Equity Of Only That
Business And Not The Personal Assets, Liabilities, And Equity Of The Shareholders. The
Financial Statements Of A Company Show The Results Of The Business Activities Of
Only That Company.
6. (A) Operating – These Activities Are Directly Related To Earning Profits. They Include
Buying Supplies, Making Products, Serving Customers, Cleaning The Premises,
Advertising, Renting A Building, Repairing Equipment, And Obtaining Insurance
Coverage.
, Chapter 02 - The Balance Sheet
(b) Investing – These Activities Involve Buying And Selling Productive Resources With
Long Lives (Such As Buildings, Land, Equipment, And Tools), Purchasing Investments,
And Lending To Others.
(c) Financing – Any Borrowing From Banks, Repaying Bank Loans, Receiving
Contributions From Shareholders, Or Paying Dividends To Shareholders Are
Considered Financing Activities.
7. The Heading Of Each Of The Four Primary Financial Statements Should Include The
Following:
(a) Name Of The Business
(b) Name Of The Statement
(c) Date Of The Statement, Or The Period Of Time
8. (A) The Purpose Of The Balance Sheet Is To Report The Financial Position (Assets,
Liabilities And Shareholders‘ Equity) Of A Business At A Point In Time.
(b) The Purpose Of The Income Statement Is To Present Information About The
Revenues, Expenses, And Net Income Of A Business For A Specified Period Of Time.
(c) The Statement Of Retained Earnings Reports The Way That Net Income And The
Distribution Of Dividends Affected The Financial Position Of The Company During The
Period.
(d) The Purpose Of The Statement Of Cash Flows Is To Summarize How A
Business‘S Operating, Investing, And Financing Activities Caused Its Cash Balance
To Change Over A Particular Period Of Time.
9. The Income Statement, Statement Of Retained Earnings, And Statement Of Cash Flows
Would Be Dated ―For The Year Ended December 31, 2020,‖ Because They Report The
Inflows And Outflows Of Resources During A Period Of Time. In Contrast, The Balance
Sheet Would Be Dated ―At December 31, 2020,‖ Because It Represents The Assets,
Liabilities And Shareholders‘ Equity At A Specific Date.
10. Net Income Is The Excess Of Total Revenues Over Total Expenses. A Net Loss Occurs
If Total Expenses Exceed Total Revenues.
11. The Accounting Equation For The Balance Sheet Is: Assets = Liabilities +
Shareholders‘ Equity. Assets Are The Economic Resources Controlled By The
Company. Liabilities
Are Amounts Owed By The Business. Shareholders‘ Equity Is The Owners‘ Claims To
The Business. It Includes Amounts Contributed To The Business (By Investors
Through Purchasing The Company‘S Shares) And The Amounts Earned And
Accumulated Through Profitable Business Operations.
12. The Equation For The Income Statement Is Revenues – Expenses = Net Income.
Revenues Are Increases In A Company‘S Resources, Arising Primarily From Its
Operating Activities. Expenses Are Decreases In A Company‘S Resources, Arising
Primarily From Its Operating Activities. Net Income Is Equal To Revenues Minus
Fundamentals Of Financial Accounting
By Fred Phillips, Patricia Libby
8th Edition
,Table Of Contents
Chapter 1: Business Decisions And Financial Accounting
Chapter 2: The Balance Sheet
Chapter 3: The Income Statement
Chapter 4: Adjustments, Financial Statements, And Financial Results
Chapter 5: Fraud, Internal Control, And Cash
Chapter 6: Merchandising Operations And The Multistep Income Statement
Chapter 7: Inventory And Cost Of Goods Sold
Chapter 8: Receivables, Bad Debt Expense, And Interest Revenue
Chapter 9: Long-Lived Tangible And Intangible Assets
Chapter 10: Liabilities
Chapter 11: Stockholders’ Equity
Chapter 12: Statement Cash Flows
Chapter 13: Measuring And Evaluating Financial Performance
,SOLUTION MANUAL FOR
Fundamentals Of Financial Accounting 8e Fred Phillips, Robert Libby, Patricia Libby, Brandy
Mackintosh
Chapter 1-13
Chapter 1
Business Decisions And Financial Accounting
ANSWERS TO QUESTIONS
1. Accounting Is A System Of Analyzing, Recording, And Summarizing The Results
Of A Business‘S Activities And Then Reporting Them To Decision Makers.
2. An Advantage Of Operating As A Sole Proprietorship, Rather Than A Corporation, Is
That It Is Easy To Establish. Another Advantage Is That Income From A Sole
Proprietorship Is Taxed Only Once In The Hands Of The Individual Proprietor (Income
From A Corporation Is Taxed In The Corporation And Then Again In The Hands Of The
Individual Proprietor). A Disadvantage Of Operating As A Sole Proprietorship, Rather
Than A Corporation, Is That The Individual Proprietor Can Be Held Responsible For
The Debts Of The Business.
3. Financial Accounting Focuses On Preparing And Using The Financial Statements That
Are Made Available To Owners And External Users Such As Customers, Creditors, And
Potential Investors Who Are Interested In Reading Them. Managerial Accounting
Focuses On Other Accounting Reports That Are Not Released To The General Public,
But Instead Are Prepared And Used By Employees, Supervisors, And Managers Who
Run The Company.
4. Financial Reports Are Used By Both Internal And External Groups And Individuals. The
Internal Groups Are Comprised Of The Various Managers Of The Business. The
External Groups Include Investors, Creditors, Governmental Agencies, Other Interested
Parties, And The Public At Large.
5. The Business Itself, Not The Individual Shareholders Who Own The Business, Is Viewed
As Owning The Assets And Owing The Liabilities On Its Balance Sheet. A Business‘S
Balance Sheet Includes The Assets, Liabilities, And Shareholders‘ Equity Of Only That
Business And Not The Personal Assets, Liabilities, And Equity Of The Shareholders. The
Financial Statements Of A Company Show The Results Of The Business Activities Of
Only That Company.
6. (A) Operating – These Activities Are Directly Related To Earning Profits. They Include
Buying Supplies, Making Products, Serving Customers, Cleaning The Premises,
Advertising, Renting A Building, Repairing Equipment, And Obtaining Insurance
Coverage.
, Chapter 02 - The Balance Sheet
(b) Investing – These Activities Involve Buying And Selling Productive Resources With
Long Lives (Such As Buildings, Land, Equipment, And Tools), Purchasing Investments,
And Lending To Others.
(c) Financing – Any Borrowing From Banks, Repaying Bank Loans, Receiving
Contributions From Shareholders, Or Paying Dividends To Shareholders Are
Considered Financing Activities.
7. The Heading Of Each Of The Four Primary Financial Statements Should Include The
Following:
(a) Name Of The Business
(b) Name Of The Statement
(c) Date Of The Statement, Or The Period Of Time
8. (A) The Purpose Of The Balance Sheet Is To Report The Financial Position (Assets,
Liabilities And Shareholders‘ Equity) Of A Business At A Point In Time.
(b) The Purpose Of The Income Statement Is To Present Information About The
Revenues, Expenses, And Net Income Of A Business For A Specified Period Of Time.
(c) The Statement Of Retained Earnings Reports The Way That Net Income And The
Distribution Of Dividends Affected The Financial Position Of The Company During The
Period.
(d) The Purpose Of The Statement Of Cash Flows Is To Summarize How A
Business‘S Operating, Investing, And Financing Activities Caused Its Cash Balance
To Change Over A Particular Period Of Time.
9. The Income Statement, Statement Of Retained Earnings, And Statement Of Cash Flows
Would Be Dated ―For The Year Ended December 31, 2020,‖ Because They Report The
Inflows And Outflows Of Resources During A Period Of Time. In Contrast, The Balance
Sheet Would Be Dated ―At December 31, 2020,‖ Because It Represents The Assets,
Liabilities And Shareholders‘ Equity At A Specific Date.
10. Net Income Is The Excess Of Total Revenues Over Total Expenses. A Net Loss Occurs
If Total Expenses Exceed Total Revenues.
11. The Accounting Equation For The Balance Sheet Is: Assets = Liabilities +
Shareholders‘ Equity. Assets Are The Economic Resources Controlled By The
Company. Liabilities
Are Amounts Owed By The Business. Shareholders‘ Equity Is The Owners‘ Claims To
The Business. It Includes Amounts Contributed To The Business (By Investors
Through Purchasing The Company‘S Shares) And The Amounts Earned And
Accumulated Through Profitable Business Operations.
12. The Equation For The Income Statement Is Revenues – Expenses = Net Income.
Revenues Are Increases In A Company‘S Resources, Arising Primarily From Its
Operating Activities. Expenses Are Decreases In A Company‘S Resources, Arising
Primarily From Its Operating Activities. Net Income Is Equal To Revenues Minus
