SOLUTION MANUAL d
Fundamentalsof Financial Accounting 7th
d d d d
Edition
d
FredPhillips,RobertLibby,All Chapters1-13
d d d d d d d d
, TABLEOFCONTENTS d d d
CHAPTER 1: Business Decisions and Financial Accounting CHAPTER
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2: The Balance Sheet
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CHAPTER 3: The Income Statement
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CHAPTER4:Adjustments,FinancialStatements,andFinancialResults CHAPTER
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5:Fraud,InternalControl,andCash
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CHAPTER 6: Merchandising Operations and the Multi-step Income Statement CHAPTER
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d 7: Inventory and Cost ofGoods Sold
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CHAPTER 8: Receivables, Bad Debt Expense, and Interest Revenue CHAPTER 9:
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Long-LivedTangibleandIntangibleAssets
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CHAPTER 10: Liabilities d d
CHAPTER11:Shareholders'Equity d d d
d CHAPTER 12: Statement of Cash Flows
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CHAPTER 13: Measuring and Evaluating Financial Performance
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,Chapter1 d
BusinessDecisionsandFinancialAccounting d d d d
ANSWERS TO QUESTIONS d d
1. Accounting isa system of analyzing, recording,and summarizing theresultsofa d d d d d d d d d d d d
business‘sactivities andthenreporting themtodecision makers.
d d d d d d d d d
2. An advantage of operating as a sole proprietorship, rather than a corporation, is that it is easy to
d d d d d d d d d d d d d d d d d
establish. Another advantage is that income from a sole proprietorship is taxed only once in the hands
d d d d d d d d d d d d d d d d d
of the individual proprietor (income from a corporation is taxed in the corporation and then againinthe
d d d d d d d d d d d d d d d d d d
handsoftheindividualproprietor).Adisadvantage ofoperatingasasoleproprietorship, rather than a
d d d d d d d d d d d d d d d d
corporation, is that the individual proprietor can be held responsible forthedebtsofthebusiness.
d d d d d d d d d d d d d d d d
3. Financial accounting focuses on preparing and usingthe financial statements that are made
d d d d d d d d d d d d
availabletoownersand externaluserssuchascustomers, creditors,andpotential investorswho are
d d d d d d d d d d d d d d d
interested inreadingthem. Managerialaccountingfocuses onother accounting reportsthat arenot
d d d d d d d d d d d d d d
releasedtothegeneralpublic,butinsteadareprepared andusedbyemployees,supervisors, and
d d d d d d d d d d d d d d d
managers who run the company.
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4. Financial reports are used byboth internal and externalgroups and individuals. The internal
d d d d d d d d d d d d d
groupsarecomprised of thevarious managersofthebusiness.Theexternal groupsinclude
d d d d d d d d d d d d d d
investors,creditors,governmentalagencies,otherinterestedparties,and thepublicatlarge.
d d d d d d d d d d d d
5. Thebusinessitself,nottheindividualshareholderswhoownthebusiness,isviewedas owningthe assets
d d d d d d d d d d d d d d d d
andowingtheliabilities onitsbalancesheet.Abusiness‘sbalance sheetincludestheassets, liabilities,and
d d d d d d d d d d d d d d d d d
shareholders‘equityofonlythatbusinessand notthepersonalassets,liabilities,and equityofthe
d d d d d d d d d d d d d d d d
shareholders. Thefinancial statementsofacompanyshowtheresultsofthebusiness activitiesofonly
d d d d d d d d d d d d d d d d
thatcompany.
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6. (a) Operating–Theseactivitiesaredirectlyrelatedtoearningprofits. Theyinclude buyingsupplies,
d d d d d d d d d d d d d d
making products, serving customers, cleaning the premises, advertising, renting a building, repairing
d d d d d d d d d d d d
equipment, and obtaining insurance coverage.
d d d d d
, (b) Investing–Theseactivitiesinvolvebuyingandsellingproductiveresources withlong lives(such as d d d d d d d d d d d d d d
buildings,land,equipment,andtools),purchasing investments,andlending toothers.
d d d d d d d d d d d
(c) Financing – Anyborrowing from banks,repaying bank loans, receiving contributions from d d d d d d d d d d d
shareholders, or paying dividends to shareholders are considered financing activities.
d d d d d d d d d d
7. Theheadingof eachofthefour primaryfinancialstatementsshould includethefollowing:
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(a) Name of the business d d d
(b) Name of the statement d d d
(c) Date of the statement, or theperiod of time d d d d d d d d
8. (a) Thepurpose ofthebalance sheetis toreportthefinancialposition (assets, liabilities and
d d d d d d d d d d d d d d d
shareholders‘equity)ofabusinessatapointintime.
d d d d d d d d d d
(b) The purpose of the income statement is to present information about the revenues, expenses, and
d d d d d d d d d d d d d d
netincomeofabusinessforaspecifiedperiodoftime.
d d d d d d d d d d d
(c) Thestatement of retained earnings reports the waythat netincome andthe distributionof
d d d d d d d d d d d d d d
dividendsaffectedthefinancialpositionofthecompanyduringtheperiod.
d d d d d d d d d d d
(d) Thepurpose ofthe statement of cashflowsistosummarize howabusiness‘s operating, investing,
d d d d d d d d d d d d d d d
and financing activities caused its cashbalance tochangeover a particular period of time.
d d d d d d d d d d d d d d d
9. The income statement, statement of retained earnings, and statement of cash flows would bedated
d d d d d d d d d d d d d d
―For the Year Ended December 31, 2020,‖ because they report the inflows and outflows of resources
d d d d d d d d d d d d d d d
during a period of time. In contrast, the balance sheet would be dated―AtDecember 31,2020,‖
d d d d d d d d d d d d d d d d d
becauseitrepresentstheassets,liabilitiesand shareholders‘ equityat a specific date.
d d d d d d d d d d d d d
10. Net incomeistheexcessoftotalrevenuesovertotalexpenses. Anet lossoccurs iftotal expenses exceed
d d d d d d d d d d d d d d d d d d
totalrevenues.
d d
11. Theaccounting equation for thebalance sheet is: Assets = Liabilities + Shareholders‘ Equity. Assets
d d d d d d d d d d d d d d
are the economic resources controlled by the company.
d d d Liabilitiesare d d d d d d
amountsowedbythebusiness. Shareholders‘equityistheowners‘claimstothe business.It includes
d d d d d d d d d d d d d d d d
amounts contributedtothebusiness(byinvestors through purchasing thecompany‘s shares) and the
d d d d d d d d d d d d d d
amounts earned and accumulated through profitablebusiness operations.
d d d d d d d d
12. Theequationfortheincome statementisRevenues–Expenses=NetIncome. Revenuesare increases
d d d d d d d d d d d d d d d
inacompany‘sresources,arisingprimarilyfromitsoperating activities. Expensesare decreasesina
d d d d d d d d d d d d d d d
company‘sresources,arisingprimarilyfromits operatingactivities.NetIncomeis equaltorevenues
d d d d d d d d d d d d d d
minusexpenses. (Ifexpensesare greaterthanrevenues,thecompanyhasa NetLoss.)
d d d d d d d d d d d d d d
Fundamentalsof Financial Accounting 7th
d d d d
Edition
d
FredPhillips,RobertLibby,All Chapters1-13
d d d d d d d d
, TABLEOFCONTENTS d d d
CHAPTER 1: Business Decisions and Financial Accounting CHAPTER
d d d d d d d
2: The Balance Sheet
d d d d
CHAPTER 3: The Income Statement
d d d d
CHAPTER4:Adjustments,FinancialStatements,andFinancialResults CHAPTER
d d d d d d d d
5:Fraud,InternalControl,andCash
d d d d d d
CHAPTER 6: Merchandising Operations and the Multi-step Income Statement CHAPTER
d d d d d d d d d
d 7: Inventory and Cost ofGoods Sold
d d d d d d
CHAPTER 8: Receivables, Bad Debt Expense, and Interest Revenue CHAPTER 9:
d d d d d d d d d d
Long-LivedTangibleandIntangibleAssets
d d d d d
CHAPTER 10: Liabilities d d
CHAPTER11:Shareholders'Equity d d d
d CHAPTER 12: Statement of Cash Flows
d d d d d
CHAPTER 13: Measuring and Evaluating Financial Performance
d d d d d d
,Chapter1 d
BusinessDecisionsandFinancialAccounting d d d d
ANSWERS TO QUESTIONS d d
1. Accounting isa system of analyzing, recording,and summarizing theresultsofa d d d d d d d d d d d d
business‘sactivities andthenreporting themtodecision makers.
d d d d d d d d d
2. An advantage of operating as a sole proprietorship, rather than a corporation, is that it is easy to
d d d d d d d d d d d d d d d d d
establish. Another advantage is that income from a sole proprietorship is taxed only once in the hands
d d d d d d d d d d d d d d d d d
of the individual proprietor (income from a corporation is taxed in the corporation and then againinthe
d d d d d d d d d d d d d d d d d d
handsoftheindividualproprietor).Adisadvantage ofoperatingasasoleproprietorship, rather than a
d d d d d d d d d d d d d d d d
corporation, is that the individual proprietor can be held responsible forthedebtsofthebusiness.
d d d d d d d d d d d d d d d d
3. Financial accounting focuses on preparing and usingthe financial statements that are made
d d d d d d d d d d d d
availabletoownersand externaluserssuchascustomers, creditors,andpotential investorswho are
d d d d d d d d d d d d d d d
interested inreadingthem. Managerialaccountingfocuses onother accounting reportsthat arenot
d d d d d d d d d d d d d d
releasedtothegeneralpublic,butinsteadareprepared andusedbyemployees,supervisors, and
d d d d d d d d d d d d d d d
managers who run the company.
d d d d d
4. Financial reports are used byboth internal and externalgroups and individuals. The internal
d d d d d d d d d d d d d
groupsarecomprised of thevarious managersofthebusiness.Theexternal groupsinclude
d d d d d d d d d d d d d d
investors,creditors,governmentalagencies,otherinterestedparties,and thepublicatlarge.
d d d d d d d d d d d d
5. Thebusinessitself,nottheindividualshareholderswhoownthebusiness,isviewedas owningthe assets
d d d d d d d d d d d d d d d d
andowingtheliabilities onitsbalancesheet.Abusiness‘sbalance sheetincludestheassets, liabilities,and
d d d d d d d d d d d d d d d d d
shareholders‘equityofonlythatbusinessand notthepersonalassets,liabilities,and equityofthe
d d d d d d d d d d d d d d d d
shareholders. Thefinancial statementsofacompanyshowtheresultsofthebusiness activitiesofonly
d d d d d d d d d d d d d d d d
thatcompany.
d d
6. (a) Operating–Theseactivitiesaredirectlyrelatedtoearningprofits. Theyinclude buyingsupplies,
d d d d d d d d d d d d d d
making products, serving customers, cleaning the premises, advertising, renting a building, repairing
d d d d d d d d d d d d
equipment, and obtaining insurance coverage.
d d d d d
, (b) Investing–Theseactivitiesinvolvebuyingandsellingproductiveresources withlong lives(such as d d d d d d d d d d d d d d
buildings,land,equipment,andtools),purchasing investments,andlending toothers.
d d d d d d d d d d d
(c) Financing – Anyborrowing from banks,repaying bank loans, receiving contributions from d d d d d d d d d d d
shareholders, or paying dividends to shareholders are considered financing activities.
d d d d d d d d d d
7. Theheadingof eachofthefour primaryfinancialstatementsshould includethefollowing:
d d d d d d d d d d d d d
(a) Name of the business d d d
(b) Name of the statement d d d
(c) Date of the statement, or theperiod of time d d d d d d d d
8. (a) Thepurpose ofthebalance sheetis toreportthefinancialposition (assets, liabilities and
d d d d d d d d d d d d d d d
shareholders‘equity)ofabusinessatapointintime.
d d d d d d d d d d
(b) The purpose of the income statement is to present information about the revenues, expenses, and
d d d d d d d d d d d d d d
netincomeofabusinessforaspecifiedperiodoftime.
d d d d d d d d d d d
(c) Thestatement of retained earnings reports the waythat netincome andthe distributionof
d d d d d d d d d d d d d d
dividendsaffectedthefinancialpositionofthecompanyduringtheperiod.
d d d d d d d d d d d
(d) Thepurpose ofthe statement of cashflowsistosummarize howabusiness‘s operating, investing,
d d d d d d d d d d d d d d d
and financing activities caused its cashbalance tochangeover a particular period of time.
d d d d d d d d d d d d d d d
9. The income statement, statement of retained earnings, and statement of cash flows would bedated
d d d d d d d d d d d d d d
―For the Year Ended December 31, 2020,‖ because they report the inflows and outflows of resources
d d d d d d d d d d d d d d d
during a period of time. In contrast, the balance sheet would be dated―AtDecember 31,2020,‖
d d d d d d d d d d d d d d d d d
becauseitrepresentstheassets,liabilitiesand shareholders‘ equityat a specific date.
d d d d d d d d d d d d d
10. Net incomeistheexcessoftotalrevenuesovertotalexpenses. Anet lossoccurs iftotal expenses exceed
d d d d d d d d d d d d d d d d d d
totalrevenues.
d d
11. Theaccounting equation for thebalance sheet is: Assets = Liabilities + Shareholders‘ Equity. Assets
d d d d d d d d d d d d d d
are the economic resources controlled by the company.
d d d Liabilitiesare d d d d d d
amountsowedbythebusiness. Shareholders‘equityistheowners‘claimstothe business.It includes
d d d d d d d d d d d d d d d d
amounts contributedtothebusiness(byinvestors through purchasing thecompany‘s shares) and the
d d d d d d d d d d d d d d
amounts earned and accumulated through profitablebusiness operations.
d d d d d d d d
12. Theequationfortheincome statementisRevenues–Expenses=NetIncome. Revenuesare increases
d d d d d d d d d d d d d d d
inacompany‘sresources,arisingprimarilyfromitsoperating activities. Expensesare decreasesina
d d d d d d d d d d d d d d d
company‘sresources,arisingprimarilyfromits operatingactivities.NetIncomeis equaltorevenues
d d d d d d d d d d d d d d
minusexpenses. (Ifexpensesare greaterthanrevenues,thecompanyhasa NetLoss.)
d d d d d d d d d d d d d d
