Solution Manual For Horngren's Financial & Managerial Accounting, The Financial Chapters, 7th Global Edition by Tracie Miller-Nobles, Brenda Mattison

Solution Manual for xx xx




Horngren's Financial & Managerial Accounting, 7th edition xx xx xx xx xx xx




Nobles [All Financial Chapters]
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Chapter 1-15 with Appendix xx xx xx




Chapter 1 xx




Accounting and the Business Environment xx xx xx xx




Review Questions xx




1. Accounting is the information system that measures business activities, processes the
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information into reports, and communicates the results to decision makers. Accounting is the
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language of business.
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2. Financial accounting provides information for external decision makers, such as outside
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investors, lenders, customers, and the federal government. Managerial accounting focuses on
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information for internal decision makers, such as the company’s managers and employees.
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3. Individuals use accounting information to help them manage their money, evaluate a new job,
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and better decide whether they can afford to make a new purchase. Business owners use
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accounting information to set goals, measure progress toward those goals, and make adjustments
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when needed. Investors use accounting information to help them decide whether or not a
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company is a good investment and once they have invested, they use a company’s financial
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statements to analyze how their investment is performing. Creditors use accounting information
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to decide whether to lend money to a business and to evaluate a company’s ability to make the
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loan payments. Taxing authorities use accounting information to calculate the amount of
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income tax that a company has to pay.
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4. Certified Public Accountants (CPAs) are licensed professional accountants who serve the general
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public. They work for public accounting firms, businesses, government, or educational
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institutions. A Chartered Global Management Accountant (CGMA) is an accountant who has
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advanced knowledge in finance, operations, strategy, and management. Certified Management
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Accountants (CMAs) specialize in accounting and financial management knowledge. They
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work for a single company. Certified Financial Planners (CFPs) work with individuals to help
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them budget, plan for retirement, save for education, and manage their finances.
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5. The FASB oversees the creation and governance of accounting standards. They work
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with governmental regulatory agencies, congressionally created groups, and private
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groups.
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6. The guidelines for accounting information are called GAAP. It is the main U.S. accounting
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rule book and is currently created and governed by the FASB. Investors and lenders must
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have information that is relevant and has faithful representation in order to make decisions and
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GAAP provides the framework for this financial reporting.
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©2021 Pearson Education, xx xx
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,7. A sole proprietorship has a single owner, terminates upon the owner’s death or choice, the owner has
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©2021 Pearson Education,
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, personal liability for the business’s debts, and it is not a separate tax entity. A partnership has two
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or more owners, terminates at partner’s choice or death, the partners have personal liability, and it
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is not a separate tax entity. A corporation is a separate legal entity, has one or more owners,
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has indefinite life, the stockholders are not personally liable for the business’s debts, and it is a
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separate tax entity. A limited-liability company has one or more members and each is only
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liable for his or her own actions, has an indefinite life, and is not a separate tax entity.
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8. The land should be recorded at $5,000. The cost principle states that assets should be recorded
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at their historical cost.
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9. The going concern assumption assumes that the entity will remain in business for the
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foreseeable future and long enough to use existing resources for their intended purpose.
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10. The faithful representation concept states that accounting information should be complete,
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neutral, and free from material error.
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11. The monetary unit assumption states that items on the financial statements should be measured
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in terms of a monetary unit.
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12. The IASB is the organization that develops and creates IFRS which are a set of global
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accounting standards that would be used around the world.
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13. Assets = Liabilities + Equity. Assets are economic resources that are expected to benefit the
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business in the future. They are things of value that a business owns or has control of.
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x Liabilities are debts that are owed to creditors. They are one source of claims against assets.
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x Equity is the other source of claims against assets. Equity is the stockholders’ claims against
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assets and is the amount of assets that is left over after the company has paid its liabilities. It
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represents the net worth of the corporation.
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14. Retained earnings increases with revenues. Retained earnings decreases with expenses
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and dividends.
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15. Revenues – Expenses = Net Income. Revenues are earnings resulting from delivering goods
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or services to customers. Expenses are the cost of selling goods or service.
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16. Step 1: Identify the accounts and the account type. Step 2: Decide if each account increases
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or decreases. Step 3: Determine if the accounting equation is in balance.
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17. Income Statement – Shows the difference between an entity’s revenues and expenses and reports the
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net income or net loss for a specific period.
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Statement of Retained Earnings – Shows the changes in retained earnings for a specific period
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xxincluding net income (loss) and dividends. xx xx xx xx xx



Balance Sheet – Shows the assets, liabilities, and stockholders’ equity of the business as of a specific
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date.
Statement of Cash Flows – Shows a business’s cash receipts and cash payments for a specific period.
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18. Return on Assets = Net income / Average total assets. ROA measures how profitably a
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company uses its assets.
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©2021 Pearson Education, xx xx
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, Short Exercises xx




S-F:1-1

a. FA e. MA xx



b. FA f. FA xx



c. FA g. MA xx



d. MA h. FA xx




S-F:1-2

The Financial Accounting Standards Board governs the majority of guidelines, called Generally
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Accepted Accounting Principles (GAAP), that the CPA will use to prepare financial statements for
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Wholly Shirts.
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S-F:1-3

Chloe’s needs will best be met by organizing a corporation since a corporation has an unlimited life
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and is a separate tax entity. In addition, the owners (stockholders) have limited liability. Chloe could
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also consider a limited liability company (LLC) as an option. A LLC meets two of the three
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criteria. It has an unlimited life and limited liability for the owner. However, a LLC is not a
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separate tax entity.
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S-F:1-4

Advantages:
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2. Unification of ownership and management. xx xx xx xx



3. Less government regulation.
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4. Owner has more control over business.
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Disadvantages:
1. The owner pays taxes on the entity’s earnings since it is not a separate tax entity.
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2. No continuous life or transferability of ownership.
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3. Unlimited liability of owner for business’s debts. xx xx xx xx xx xx




S-F:1-5

a. The economic entity assumption
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b. The cost principle.
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c. The monetary unit assumption.
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d. The going concern assumption.
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©2021 Pearson Education,
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Inc.