SOLUTION MANUAL FOR d d
Fundamentals of Financial Accounting 7e Phillips
d d d d d d
Chapter 1-13 with Appendix C&D
d d d d
Chapter d1 d
Business dDecisions dand dFinancial dAccounting
ANSWERS dTO dQUESTIONS
1. Accounting dis da dsystem dof danalyzing, drecording, dand dsummarizing dthe dresults dof da d
business‘s dactivities dand dthen dreporting dthem dto ddecision dmakers. d
2. An dadvantage dof doperating das da dsole dproprietorship, drather dthan da dcorporation, dis dthat
d it dis deasy dto destablish. dAnother dadvantage dis dthat dincome dfrom da dsole dproprietorship dis
d taxed donly donce din dthe dhands d of dthe dindividual dproprietor d(income dfrom da d d d
d corporation dis dtaxed din dthe dcorporation dand dthen dagain din dthe dhands dof dthe dindividual
d shareholder). dA ddisadvantage dof doperating das da dsole dproprietorship, drather dthan da
d corporation, dis dthat dthe dindividual dproprietor dcan dbe dheld dresponsible dfor dthe ddebts dof
d the dbusiness. d
3. Financial daccounting dfocuses don dpreparing dand dusing dthe dfinancial dstatements dthat d are
dmade davailable dto downers dand dexternal dusers dsuch das dcustomers, dcreditors, dand
d potential dinvestors dwho dare dinterested din dreading dthem. dManagerial daccounting d focuses
don dother daccounting dreports dthat dare dnot dreleased dto dthe dgeneral dpublic, dbut d instead
dare dprepared dfor dinternal ddecision dmaking dand dused dby demployees, d supervisors, dand
dmanagers dwho drun dthe dcompany. d
4. Financial dreports dare dused dby dboth dinternal dand dexternal dgroups dand dindividuals. dThe
d internal dgroups dare dcomprised dof dthe dvarious dmanagers dof dthe dbusiness. dThe d external
dgroups dinclude dinvestors, dcreditors, dgovernmental dagencies, dother d interested dparties,
dand dthe dpublic dat dlarge. d
5. The dbusiness ditself, dnot dthe dindividual dstockholders dwho down dthe dbusiness, dis dviewed d as
downing dthe dassets dand dowing dthe dliabilities don dits dbalance dsheet. dA dbusiness‘s d balance
dsheet dincludes dthe dassets, dliabilities, dand dstockholders‘ dequity dof donly dthat d business dand
dnot dthe dpersonal dassets, dliabilities, dand dequity dof dthe dstockholders. dThe d financial
dstatements dof da dcompany dshow dthe dresults dof dthe dbusiness dactivities dof d d d only dthat
dcompany. d
© d2022 dby dMcGraw dHill dLLC. d All drights dreserved. dNo dreproduction dor ddistribution dwithout dthe dprior dwritten dconsent dof
dMcGraw dHill dLLC.
,Fundamentals dof dFinancial 1-1
dAccounting, d7/e
© d2022 dby dMcGraw dHill dLLC. d All drights dreserved. dNo dreproduction dor ddistribution dwithout dthe dprior dwritten dconsent dof
dMcGraw dHill dLLC.
,6. (a) d Operating d– dThese dactivities dare ddirectly drelated dto dearning dprofits. dThey dinclude
d buying dsupplies, dmaking dproducts, dserving dcustomers, dcleaning dthe dpremises,
d advertising, drenting da dbuilding, drepairing dequipment, dand dobtaining dinsurance
d coverage. d
(b) Investing d– dThese dactivities dinvolve dbuying dand dselling dproductive dresources dwith
d long dlives d(such das dbuildings, dland, dequipment, dand dtools), dpurchasing dinvestments, d and
d lending d to d others. d
(c) Financing d– dAny dborrowing dfrom dbanks, drepaying dbank dloans, dreceiving d contributions
dfromdstockholders,dordpayingddividendsdt odstockholdersdaredconsidered d financing dactivities. d
7. The dheading dof deach dof dthe dfour dprimary dfinancial dstatements dshould dinclude dthe
d following: d
(a) Name dof dthe dbusiness d
(b) Name dof dthe dstatement d
(c) Date dof dthe dstatement, dor dthe dperiod dof dtime dthat dthe dstatement dcovers d
8. (a) d The dpurpose dof dthe dbalance dsheet dis dto dreport dthe dfinancial dposition d(assets,
d liabilities dand dstockholders‘ dequity) dof da dbusiness dat da dpoint din dtime. d
(b) The d purpose d of d the d income d statement d is d to d present d information d about
d the d revenues, dexpenses, dand dnet dincome dof da dbusiness dfor da dspecified dperiod dof
dtime. d
(c) The d statement d of d retained d earnings d reports d the d way d that d net d income
d and d the d distribution d of d dividends d affected d the d financial d position d of d the
d company d during d the d period. d
(d) The d purpose d of d the d statement d of d cash d flows d is d to d summarize d how d a d business‘s
d operating, d investing, d and d financing d activities d caused d its d cash d balance d to
d change d over da dparticular dperiod dof dtime. d
9. The dincome dstatement, dstatement dof dretained dearnings, dand dstatement dof dcash dflows
d would dbe ddated d―For dthe dYear dEnded dDecember d31, d2021,‖ dbecause dthey dreport
dthe d inflows dand doutflows dof dresources dover da dperiod dof dtime. dIn dcontrast, dthe dbalance
d sheet dwould dbe ddated d―At dDecember d31, d2021,‖ dbecause dit drepresents dthe dassets,
d liabilities dand dstockholders‘ dequity dat da dspecific ddate. d
10. Net dincome dis dthe dexcess dof dtotal drevenues dover dtotal dexpenses. dA dnet dloss doccurs dif
d total dexpenses dexceed dtotal drevenues. d
11. The daccounting dequation dfor dthe dbalance dsheet dis: dAssets d= dLiabilities d+ d Stockholders‘
dEquity. d Assets dare dthe deconomic dresources dcontrolled dby dthe d company. d d Liabilities dare
damounts dowed dby dthe dbusiness. d Stockholders‘ dequity dis d the downers‘ dclaims dto dthe
dbusiness. dIt dincludes damounts dcontributed dto dthe dbusiness d (by dinvestors dthrough
dpurchasing dthe dcompany‘s dstock) dand dthe damounts dearned d and daccumulated dthrough
dprofitable dbusiness doperations. d
© d2022 dby dMcGraw dHill dLLC. d All drights dreserved. dNo dreproduction dor ddistribution dwithout dthe dprior dwritten dconsent dof
dMcGraw dHill dLLC.
, Fundamentals dof dFinancial 1-2
dAccounting, d7/e
© d2022 dby dMcGraw dHill dLLC. d All drights dreserved. dNo dreproduction dor ddistribution dwithout dthe dprior dwritten dconsent dof
dMcGraw dHill dLLC.
Fundamentals of Financial Accounting 7e Phillips
d d d d d d
Chapter 1-13 with Appendix C&D
d d d d
Chapter d1 d
Business dDecisions dand dFinancial dAccounting
ANSWERS dTO dQUESTIONS
1. Accounting dis da dsystem dof danalyzing, drecording, dand dsummarizing dthe dresults dof da d
business‘s dactivities dand dthen dreporting dthem dto ddecision dmakers. d
2. An dadvantage dof doperating das da dsole dproprietorship, drather dthan da dcorporation, dis dthat
d it dis deasy dto destablish. dAnother dadvantage dis dthat dincome dfrom da dsole dproprietorship dis
d taxed donly donce din dthe dhands d of dthe dindividual dproprietor d(income dfrom da d d d
d corporation dis dtaxed din dthe dcorporation dand dthen dagain din dthe dhands dof dthe dindividual
d shareholder). dA ddisadvantage dof doperating das da dsole dproprietorship, drather dthan da
d corporation, dis dthat dthe dindividual dproprietor dcan dbe dheld dresponsible dfor dthe ddebts dof
d the dbusiness. d
3. Financial daccounting dfocuses don dpreparing dand dusing dthe dfinancial dstatements dthat d are
dmade davailable dto downers dand dexternal dusers dsuch das dcustomers, dcreditors, dand
d potential dinvestors dwho dare dinterested din dreading dthem. dManagerial daccounting d focuses
don dother daccounting dreports dthat dare dnot dreleased dto dthe dgeneral dpublic, dbut d instead
dare dprepared dfor dinternal ddecision dmaking dand dused dby demployees, d supervisors, dand
dmanagers dwho drun dthe dcompany. d
4. Financial dreports dare dused dby dboth dinternal dand dexternal dgroups dand dindividuals. dThe
d internal dgroups dare dcomprised dof dthe dvarious dmanagers dof dthe dbusiness. dThe d external
dgroups dinclude dinvestors, dcreditors, dgovernmental dagencies, dother d interested dparties,
dand dthe dpublic dat dlarge. d
5. The dbusiness ditself, dnot dthe dindividual dstockholders dwho down dthe dbusiness, dis dviewed d as
downing dthe dassets dand dowing dthe dliabilities don dits dbalance dsheet. dA dbusiness‘s d balance
dsheet dincludes dthe dassets, dliabilities, dand dstockholders‘ dequity dof donly dthat d business dand
dnot dthe dpersonal dassets, dliabilities, dand dequity dof dthe dstockholders. dThe d financial
dstatements dof da dcompany dshow dthe dresults dof dthe dbusiness dactivities dof d d d only dthat
dcompany. d
© d2022 dby dMcGraw dHill dLLC. d All drights dreserved. dNo dreproduction dor ddistribution dwithout dthe dprior dwritten dconsent dof
dMcGraw dHill dLLC.
,Fundamentals dof dFinancial 1-1
dAccounting, d7/e
© d2022 dby dMcGraw dHill dLLC. d All drights dreserved. dNo dreproduction dor ddistribution dwithout dthe dprior dwritten dconsent dof
dMcGraw dHill dLLC.
,6. (a) d Operating d– dThese dactivities dare ddirectly drelated dto dearning dprofits. dThey dinclude
d buying dsupplies, dmaking dproducts, dserving dcustomers, dcleaning dthe dpremises,
d advertising, drenting da dbuilding, drepairing dequipment, dand dobtaining dinsurance
d coverage. d
(b) Investing d– dThese dactivities dinvolve dbuying dand dselling dproductive dresources dwith
d long dlives d(such das dbuildings, dland, dequipment, dand dtools), dpurchasing dinvestments, d and
d lending d to d others. d
(c) Financing d– dAny dborrowing dfrom dbanks, drepaying dbank dloans, dreceiving d contributions
dfromdstockholders,dordpayingddividendsdt odstockholdersdaredconsidered d financing dactivities. d
7. The dheading dof deach dof dthe dfour dprimary dfinancial dstatements dshould dinclude dthe
d following: d
(a) Name dof dthe dbusiness d
(b) Name dof dthe dstatement d
(c) Date dof dthe dstatement, dor dthe dperiod dof dtime dthat dthe dstatement dcovers d
8. (a) d The dpurpose dof dthe dbalance dsheet dis dto dreport dthe dfinancial dposition d(assets,
d liabilities dand dstockholders‘ dequity) dof da dbusiness dat da dpoint din dtime. d
(b) The d purpose d of d the d income d statement d is d to d present d information d about
d the d revenues, dexpenses, dand dnet dincome dof da dbusiness dfor da dspecified dperiod dof
dtime. d
(c) The d statement d of d retained d earnings d reports d the d way d that d net d income
d and d the d distribution d of d dividends d affected d the d financial d position d of d the
d company d during d the d period. d
(d) The d purpose d of d the d statement d of d cash d flows d is d to d summarize d how d a d business‘s
d operating, d investing, d and d financing d activities d caused d its d cash d balance d to
d change d over da dparticular dperiod dof dtime. d
9. The dincome dstatement, dstatement dof dretained dearnings, dand dstatement dof dcash dflows
d would dbe ddated d―For dthe dYear dEnded dDecember d31, d2021,‖ dbecause dthey dreport
dthe d inflows dand doutflows dof dresources dover da dperiod dof dtime. dIn dcontrast, dthe dbalance
d sheet dwould dbe ddated d―At dDecember d31, d2021,‖ dbecause dit drepresents dthe dassets,
d liabilities dand dstockholders‘ dequity dat da dspecific ddate. d
10. Net dincome dis dthe dexcess dof dtotal drevenues dover dtotal dexpenses. dA dnet dloss doccurs dif
d total dexpenses dexceed dtotal drevenues. d
11. The daccounting dequation dfor dthe dbalance dsheet dis: dAssets d= dLiabilities d+ d Stockholders‘
dEquity. d Assets dare dthe deconomic dresources dcontrolled dby dthe d company. d d Liabilities dare
damounts dowed dby dthe dbusiness. d Stockholders‘ dequity dis d the downers‘ dclaims dto dthe
dbusiness. dIt dincludes damounts dcontributed dto dthe dbusiness d (by dinvestors dthrough
dpurchasing dthe dcompany‘s dstock) dand dthe damounts dearned d and daccumulated dthrough
dprofitable dbusiness doperations. d
© d2022 dby dMcGraw dHill dLLC. d All drights dreserved. dNo dreproduction dor ddistribution dwithout dthe dprior dwritten dconsent dof
dMcGraw dHill dLLC.
, Fundamentals dof dFinancial 1-2
dAccounting, d7/e
© d2022 dby dMcGraw dHill dLLC. d All drights dreserved. dNo dreproduction dor ddistribution dwithout dthe dprior dwritten dconsent dof
dMcGraw dHill dLLC.
