SOLUTION MANUAL FOR | |
Fundamentals of Financial Accounting 7e Phillips
| | | | | |
Chapter1-13 with Appendix C&D
| | | |
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 | shareholder). |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 |for |internal
|decision |making |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 |stockholders |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 |stockholders‘ |equity |of |only |that | business |and |not |the
|personal |assets, |liabilities, |and |equity |of |the |stockholders. |The | financial |statements |of |a
|company |show |the |results |of |the |business |activities |of | | | only |that |company. |
Fundamentals |of |Financial 1-1
|Accounting, |7/e
© |2022 |by |McGraw |Hill |LLC. | All |rights |reserved. |No |reproduction |or |distribution |without |the |prior |written |consent |of |McGraw |Hill |LLC.
,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. |
(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|stockholders,|or|paying|dividends|to|stockholders|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 |that |the |statement |covers |
8. (a) | The |purpose |of |the |balance |sheet |is |to |report |the |financial |position |(assets,
| liabilities |and |stockholders‘ |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, |2021,‖ |because |they |report |the | inflows
|and |outflows |of |resources |over |a |period |of |time. |In |contrast, |the |balance | sheet |would |be
|dated |―At |December |31, |2021,‖ |because |it |represents |the |assets, | liabilities |and
|stockholders‘ |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 |+ | Stockholders‘
|Equity. | Assets |are |the |economic |resources |controlled |by |the | company. | | Liabilities |are
|amounts |owed |by |the |business. | Stockholders‘ |equity |is | the |owners‘ |claims |to |the |business.
|It |includes |amounts |contributed |to |the |business | (by |investors |through |purchasing |the
|company‘s |stock) |and |the |amounts |earned | and |accumulated |through |profitable |business
|operations. |
Fundamentals |of |Financial 1-2
|Accounting, |7/e
© |2022 |by |McGraw |Hill |LLC. | All |rights |reserved. |No |reproduction |or |distribution |without |the |prior |written |consent |of |McGraw |Hill |LLC.
,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 | expenses. | (If |expenses |are |greater
|than |revenues, |the |company |has |a |Net |Loss.) |
13. The |equation |for |the |statement |of |retained |earnings |is: |Beginning | Retained |Earnings | + | Net
|Income |- |Dividends |= |Ending |Retained |Earnings. |It |begins |with | beginning-of-the-year
|retained |earnings |which |is |the |prior |year‘s |ending |retained | earnings |reported |on |the |prior
|year‘s |balance |sheet. | The |current |year's |net |income | reported |on |the |income |statement |is
|added |and |the |current |year's |dividends |are | subtracted |from |this |amount. |(If |a |net |loss
|occurs, |It |would |be |subtracted, |along |with | the |dividends, |from |the |prior |year‘s |ending
|retained |earnings |balance.)The |ending | retained |earnings |amount |is |reported |on |the |end-
of-year |balance |sheet. |14. | | | The | equation |for |the |statement |of |cash |flows |is: |Cash |flows
|from |operating |activities |+ | Cash |flows |from |investing |activities |+ |Cash |flows |from |financing
|activities |= |Change | in |cash |for |the |period. |Change |in |cash |for |the |period |+ |Beginning |cash
|balance |= | Ending |cash |balance. | The |net |cash |flows |for |the |period |represent |the |increase
|or | decrease |in |cash |that |occurred |during |the |period. | Cash |flows |from |operating | activities
|are |cash |flows |directly |related |to |earning |income |(normal |business | | activity). |Cash |flows
|from |investing |activities |include |cash |flows |that |are |related |to | the |acquisition |or |sale |of |the
|company‘s |long-term |assets. |Cash |flows |from |financing | activities |are |directly |related |to |the
|financing |of |the |company. |
15. Currently, |the |Financial |Accounting |Standards |Board |(FASB) |is |given |the |primary
| responsibility |for |setting |the |detailed |rules |that |become |Generally |Accepted | Accounting
|Principles |(GAAP) |in |the |United |States. |(Internationally, |the | International |Accounting
|Standards |Board |(IASB) |has |the |responsibility |for |setting | accounting |rules |known |as
|International |Financial |Reporting |Standards |(IFRS).) |
16. The |main |goal |of |accounting |rules |is |to |ensure |that |companies |produce |useful | financial
|information |for |present |and |potential |investors, |lenders, |and |other |creditors | in |making
|decisions |in |their |capacity |as |capital |providers. | | Financial |information | must |show |relevance
|and |faithful |representation, |as |well |as |be |comparable, | verifiable, |timely, |and
|understandable. |
Fun
© |2022 |by |McGraw |Hill |LLC. | All |rights |reserved. |No |reproduction |or |distribution |without |the |prior |written |consent |of |McGraw |Hill |LLC.
, damentals |of |Financial
|Accounting, |7/e 1-3
© |2022 |by |McGraw |Hill |LLC. | All |rights |reserved. |No |reproduction |or |distribution |without |the |prior |written |consent |of |McGraw |Hill |LLC.
Fundamentals of Financial Accounting 7e Phillips
| | | | | |
Chapter1-13 with Appendix C&D
| | | |
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 | shareholder). |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 |for |internal
|decision |making |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 |stockholders |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 |stockholders‘ |equity |of |only |that | business |and |not |the
|personal |assets, |liabilities, |and |equity |of |the |stockholders. |The | financial |statements |of |a
|company |show |the |results |of |the |business |activities |of | | | only |that |company. |
Fundamentals |of |Financial 1-1
|Accounting, |7/e
© |2022 |by |McGraw |Hill |LLC. | All |rights |reserved. |No |reproduction |or |distribution |without |the |prior |written |consent |of |McGraw |Hill |LLC.
,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. |
(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|stockholders,|or|paying|dividends|to|stockholders|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 |that |the |statement |covers |
8. (a) | The |purpose |of |the |balance |sheet |is |to |report |the |financial |position |(assets,
| liabilities |and |stockholders‘ |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, |2021,‖ |because |they |report |the | inflows
|and |outflows |of |resources |over |a |period |of |time. |In |contrast, |the |balance | sheet |would |be
|dated |―At |December |31, |2021,‖ |because |it |represents |the |assets, | liabilities |and
|stockholders‘ |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 |+ | Stockholders‘
|Equity. | Assets |are |the |economic |resources |controlled |by |the | company. | | Liabilities |are
|amounts |owed |by |the |business. | Stockholders‘ |equity |is | the |owners‘ |claims |to |the |business.
|It |includes |amounts |contributed |to |the |business | (by |investors |through |purchasing |the
|company‘s |stock) |and |the |amounts |earned | and |accumulated |through |profitable |business
|operations. |
Fundamentals |of |Financial 1-2
|Accounting, |7/e
© |2022 |by |McGraw |Hill |LLC. | All |rights |reserved. |No |reproduction |or |distribution |without |the |prior |written |consent |of |McGraw |Hill |LLC.
,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 | expenses. | (If |expenses |are |greater
|than |revenues, |the |company |has |a |Net |Loss.) |
13. The |equation |for |the |statement |of |retained |earnings |is: |Beginning | Retained |Earnings | + | Net
|Income |- |Dividends |= |Ending |Retained |Earnings. |It |begins |with | beginning-of-the-year
|retained |earnings |which |is |the |prior |year‘s |ending |retained | earnings |reported |on |the |prior
|year‘s |balance |sheet. | The |current |year's |net |income | reported |on |the |income |statement |is
|added |and |the |current |year's |dividends |are | subtracted |from |this |amount. |(If |a |net |loss
|occurs, |It |would |be |subtracted, |along |with | the |dividends, |from |the |prior |year‘s |ending
|retained |earnings |balance.)The |ending | retained |earnings |amount |is |reported |on |the |end-
of-year |balance |sheet. |14. | | | The | equation |for |the |statement |of |cash |flows |is: |Cash |flows
|from |operating |activities |+ | Cash |flows |from |investing |activities |+ |Cash |flows |from |financing
|activities |= |Change | in |cash |for |the |period. |Change |in |cash |for |the |period |+ |Beginning |cash
|balance |= | Ending |cash |balance. | The |net |cash |flows |for |the |period |represent |the |increase
|or | decrease |in |cash |that |occurred |during |the |period. | Cash |flows |from |operating | activities
|are |cash |flows |directly |related |to |earning |income |(normal |business | | activity). |Cash |flows
|from |investing |activities |include |cash |flows |that |are |related |to | the |acquisition |or |sale |of |the
|company‘s |long-term |assets. |Cash |flows |from |financing | activities |are |directly |related |to |the
|financing |of |the |company. |
15. Currently, |the |Financial |Accounting |Standards |Board |(FASB) |is |given |the |primary
| responsibility |for |setting |the |detailed |rules |that |become |Generally |Accepted | Accounting
|Principles |(GAAP) |in |the |United |States. |(Internationally, |the | International |Accounting
|Standards |Board |(IASB) |has |the |responsibility |for |setting | accounting |rules |known |as
|International |Financial |Reporting |Standards |(IFRS).) |
16. The |main |goal |of |accounting |rules |is |to |ensure |that |companies |produce |useful | financial
|information |for |present |and |potential |investors, |lenders, |and |other |creditors | in |making
|decisions |in |their |capacity |as |capital |providers. | | Financial |information | must |show |relevance
|and |faithful |representation, |as |well |as |be |comparable, | verifiable, |timely, |and
|understandable. |
Fun
© |2022 |by |McGraw |Hill |LLC. | All |rights |reserved. |No |reproduction |or |distribution |without |the |prior |written |consent |of |McGraw |Hill |LLC.
, damentals |of |Financial
|Accounting, |7/e 1-3
© |2022 |by |McGraw |Hill |LLC. | All |rights |reserved. |No |reproduction |or |distribution |without |the |prior |written |consent |of |McGraw |Hill |LLC.
