,ACCESS Test Bank for Financial Accounting 8th Canadian Edition Libby
m m m m m m m m m
Chapter 1 m
Financial Statements and Business Decisions
m m m m
Revised: m Augustm 5,m 2022
ANSWERS TO QUESTIONS
m m
1. Accounting mismamsystemmthatmcollectsmandmprocessesm(analyzes,mmeasures,mandmrecor
ds)mfinancialminformationmaboutmanmorganizationmandmreportsmthatminformationmtomd
ecisionmmakers.
2. Financialmaccounting minvolvesmpreparationmofmthembasicmfinancial mstatementsmandmrelatedmd
isclosuresmformexternalmdecisionmmakers.mReporting mismgenerallymonmamquarterlymandmannual
m basis.m Managerial maccounting m involvesm them preparationm ofmdetailedm plans,mbudgets,m foreca
sts,mandmperformancemreportsmforminternalmdecisionmmakers.mReporting mismonmanmongoing mb
asis.
3. Financialmreportsmaremusedmbymbothminternalmandmexternalmgroupsmandmindividuals.mThem
internalmusersmaremthemvariousmmanagersmofmthementity,me.g.mmarketing,mcredit,mandmpu
rchasing.mThemexternalmgroupsmincludemthemowners,minvestors,mcreditors,mgovernmental
m agencies,m other m interestedm parties,m andm them public m atm large.
4. Investorsmpurchasemallmormpartmofmambusinessmandmhopemtomgainmbymreceiving mpartmofmwhat
m them companym earnsm and/or m bym selling mtheir msharemofm them companym inm them futurem atm amhig
hermpricemthanmtheympaid.m Creditorsmlendmmoneymtomamcompanymformamspecificmlengthmofmti
memandmhopemtomgainmbymcharging minterestmonmthemloan.
5. Anmaccounting mentitymismthemorganizationmformwhichmfinancial mdatamaremtombemcollected.mTyp
icalmaccounting mentitiesmaremambusiness,mamchurch,mamgovernmentalmunit,mamuniversity,mandm
other mnonprofitmorganizationsmsuchmasmamhospital.mAmbusinessmismdefinedmandmtreatedmasma
m separatem entitym becausem them owners,m creditors,m investors,m andm other m interestedm partiesm
needmtomevaluatemitsmperformancemandmitsmpotentialmseparatelymfrommother mentitiesmandmfr
ommitsmowners.
6. NamemofmStatement AlternativemTitle
a. Statementmofmearnings Incomemstatement
b. Statementmofmfinancial mposition Balancemsheet
c. Statementmofmcashmflows Cashmflowmstatement
7. Themheading mofmeachmofmthemfourmrequiredmfinancial mstatementsmshouldmincludemthemfollowing:
(a) Namemofmthementity
(b) Titlemofmthemstatement
(c) Specificmdatemormthemperiodmofmtimemitmcovers
(d) Unitmofmmeasure
FinancialmAccounting,m8ce,mLibby,mLibby,mHodge,mKanaan,mSterli ©m2023mMcGraw-
ng HillmLimited.mAllmrights mreserved.
1-1
mynursytest.store
,ACCESS Test Bank for Financial Accounting 8th Canadian Edition Libby
m m m m m m m m m
8. (a)
Thempurposemofmthemstatementmofmearningsmismtompresentminformationmaboutmthem
revenues,mexpenses,mandmthemnetmearningsmofmthementitymformamspecifiedmperiodmofmti
me,minmorder mtomhelpmassessmitsmfinancial mperformancemduring mthatmperiod.
(b) Thempurposemofmthemstatementmofmfinancial mpositionmismtomreportmthemfinancial mposit
ionmofmanmentitymatmamgivenmdate,mthatmis,mtomreportminformationmaboutmthemassets,m
obligations,mandmshareholders’mequitymofmthementitymasmatmamspecificmdate.
(c) Themstatementmofmchangesminmequitymreportsmthemwaymthatmnetmearnings,mthemdistri
butionmofmnetmearningsm(dividends),mandmother mchangesmtomshareholders’mequitymaff
ectedmthemcompany’smfinancial mpositionmduring mthemaccounting mperiod.mThemfocusmin
m thism chapter m ism onm retainedm earnings.m Netm earningsmfor m them year m increasesm them bal
ancemofmretainedmearningsmwhereasmthemdeclarationmofmdividendsmtomthemsharehold
ersmdecreasesmretainedmearnings.
(d) Thempurposemofmthemstatementmofmcashmflowsmismtompresentminformationmaboutmthemfl
owmofmcashmintomthementitym(sources),mthemflowmofmcashmoutmofmthementitym(uses),mand
m them netm increasem or m decreasem inm cashm during m them period.
9. Themstatementmofmearningsmandmthemstatementmofmcashmflowsmaremdatedm“FormthemYear mEn
dedmDecember m31”mbecausemtheymreportmtheminflowsmandmoutflowsmofmresourcesmduring mam
periodmofmtime.mInmcontrast,mthemstatementmofmfinancial mpositionmismdatedm“AtmDecember m3
1”mbecausemitmrepresentsmthemresources,mobligations,mandmshareholders’mequitymasmatmamsp
ecificmdate,mDecember m31.
10. Assetsmaremimportantmtominvestorsmandmcreditorsmbecausemassetsmprovidemambasismformjudgi
ngmwhether msufficientmresourcesmaremavailablemtomoperatemthemcompany.mLiabilitiesmaremim
portantmtomcreditorsmandminvestorsmbecausemthemcompanymmustmbemablemtomgeneratemsuffi
cientmcashmfrommoperationsmormseekmfurther mborrowing mtommeetmthempaymentsmrequiredmb
ymdebtmagreements.m Ifmambusinessmdoesmnotmpaymitsmcreditors,mthemlawmmaymgivemthemcredit
orsmthemrightmtomforcemthemsalemofmassetsmsufficientmtommeetmthemcreditors’mclaims.
11. Netmearningsmismthemexcessmofmtotalmrevenuesmover mtotalmexpenses.mNetmlossmismthemexces
smofmtotalmexpensesmovermtotalmrevenues.
12. Themaccounting mequationmfor mthemstatementmofmearningsmismRevenuesm–
m Expensesm =m Netm earnings.m Revenuesm resultm from m them salem ofmgoodsm andm servicesm tom custo
mers,mregardlessmofmthemtiming mofmcollectionmofmcashmfrommcustomers.mExpensesmrepresent
m them monetarym valuem ofm resourcesm them entitym usedm up,m or m consumed,m tom earnm revenuesm d
uring mthemperiod.mNetmearningsmismsimplymthemexcessmofmrevenuesmover mexpenses.
FinancialmAccounting,m8ce,mLibby,mLibby,mHodge,mKanaan,mSterli ©m2023mMcGraw-
ng HillmLimited.mAllmrights mreserved.
1-2
mynursytest.store
, ACCESS Test Bank for Financial Accounting 8th Canadian Edition Libby
m m m m m m m m m
13. Themaccounting mequationmformthemstatementmofmfinancial mpositionmis:
Assetsm=mLiabilitiesm+mShareholders’mEquity
Assetsmaremthemprobablem(expected)mfuturemeconomicmbenefitsmownedmbymthementitymasmamr
esultmofmpastmtransactions.m Theymaremthemresourcesmownedmbymthembusinessmatmamgivenmpoi
ntminmtimemsuchmasmcash,maccountsmreceivable,mmerchandiseminventory,mmachinery,mbuildin
gs,mland,mandmpatents.mLiabilitiesmaremprobablem(expected)mdebtsmormobligationsmofmthementi
tymasmamresultmofmpastmtransactionsmthatmwillmbemdischargedmwithmassetsm(usuallymcash)morms
ervicesminmthemfuture.mTheymaremthemobligationsmofmthementitymsuchmasmaccountsmpayableman
dmnotesmpayable.mShareholders’mequitymismfinancing mprovidedmbymownersmofmthembusinessma
ndmbymthemnetmearningsmgeneratedmfrommthemoperationsmofmthembusiness.mItmismthemclaimmofm
themownersmtomthemassetsmofmthembusinessmafter mthemcreditors’mclaimsmhavembeenmsatisfied.
m Shareholders’m equitym maym bem thoughtm ofm asm them residual m interestm becausem itm representsm
assetsmminusmliabilities.
14. Themaccounting mequationmformretainedmearningsmis:
Beginning mretainedmearningsm+mNetmearningsm–mDividendsm=mEnding mretainedmearnings
Themequationmbeginsmwithmbeginning-of-the-
yearmretainedmearnings,mi.e.,mthempriormyear’smending mretainedmearningsmreportedmonmthemst
atementmofmfinancial mposition.m Themcurrentmyear'smnetmearningsmreportedmonmthemstatemen
tmofmearningsmismaddedmtomthismamountmandmthemdividendsmdeclaredmduring mthemcurrentmyea
rmaremsubtractedmfrommthismamount.mThemending mretainedmearningsmamountmismreportedmon
m them end-of-periodm statementm ofm financial mposition.
15. Themaccounting mequationmfor mthemstatementmofmcashmflowsm
is:mCashmflowsmfrommoperating mactivities
+/–mCashmflowsmfromminvesting mactivities
+/–mCashmflowsmfrommfinancing mactivities
=mChangeminmcashmformthemperiod.
Themnetmcashmflowsmformthemperiodmrepresentmthemincreasemormdecreaseminmcashmthatmoccurr
edmduring mthemperiod.m Cashmflowsmfrommoperating mactivitiesmaremcashmflowsmdirectlymrelate
dmtomearning mincomem(normalmbusinessmactivitymincluding minterestmpaidmandmincomemtaxesm
paid).mCashmflowsmfromminvesting mactivitiesmcomprisemcashmflowsmthatmaremdirectlymrelatedmt
omthemacquisitionmormsalemofmproductivemassetsmusedmbymthemcompany,msuchmasmplantmandme
quipment.mCashmflowsmfrommfinancing mactivitiesmconsistmofmcashmflowsmthatmaremdirectlymrel
atedmtomthemfinancing mofmthementerprise,msuchmasmissuing msharesmtominvestors.
FinancialmAccounting,m8ce,mLibby,mLibby,mHodge,mKanaan,mSterli ©m2023mMcGraw-
ng HillmLimited.mAllmrights mreserved.
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mynursytest.store
m m m m m m m m m
Chapter 1 m
Financial Statements and Business Decisions
m m m m
Revised: m Augustm 5,m 2022
ANSWERS TO QUESTIONS
m m
1. Accounting mismamsystemmthatmcollectsmandmprocessesm(analyzes,mmeasures,mandmrecor
ds)mfinancialminformationmaboutmanmorganizationmandmreportsmthatminformationmtomd
ecisionmmakers.
2. Financialmaccounting minvolvesmpreparationmofmthembasicmfinancial mstatementsmandmrelatedmd
isclosuresmformexternalmdecisionmmakers.mReporting mismgenerallymonmamquarterlymandmannual
m basis.m Managerial maccounting m involvesm them preparationm ofmdetailedm plans,mbudgets,m foreca
sts,mandmperformancemreportsmforminternalmdecisionmmakers.mReporting mismonmanmongoing mb
asis.
3. Financialmreportsmaremusedmbymbothminternalmandmexternalmgroupsmandmindividuals.mThem
internalmusersmaremthemvariousmmanagersmofmthementity,me.g.mmarketing,mcredit,mandmpu
rchasing.mThemexternalmgroupsmincludemthemowners,minvestors,mcreditors,mgovernmental
m agencies,m other m interestedm parties,m andm them public m atm large.
4. Investorsmpurchasemallmormpartmofmambusinessmandmhopemtomgainmbymreceiving mpartmofmwhat
m them companym earnsm and/or m bym selling mtheir msharemofm them companym inm them futurem atm amhig
hermpricemthanmtheympaid.m Creditorsmlendmmoneymtomamcompanymformamspecificmlengthmofmti
memandmhopemtomgainmbymcharging minterestmonmthemloan.
5. Anmaccounting mentitymismthemorganizationmformwhichmfinancial mdatamaremtombemcollected.mTyp
icalmaccounting mentitiesmaremambusiness,mamchurch,mamgovernmentalmunit,mamuniversity,mandm
other mnonprofitmorganizationsmsuchmasmamhospital.mAmbusinessmismdefinedmandmtreatedmasma
m separatem entitym becausem them owners,m creditors,m investors,m andm other m interestedm partiesm
needmtomevaluatemitsmperformancemandmitsmpotentialmseparatelymfrommother mentitiesmandmfr
ommitsmowners.
6. NamemofmStatement AlternativemTitle
a. Statementmofmearnings Incomemstatement
b. Statementmofmfinancial mposition Balancemsheet
c. Statementmofmcashmflows Cashmflowmstatement
7. Themheading mofmeachmofmthemfourmrequiredmfinancial mstatementsmshouldmincludemthemfollowing:
(a) Namemofmthementity
(b) Titlemofmthemstatement
(c) Specificmdatemormthemperiodmofmtimemitmcovers
(d) Unitmofmmeasure
FinancialmAccounting,m8ce,mLibby,mLibby,mHodge,mKanaan,mSterli ©m2023mMcGraw-
ng HillmLimited.mAllmrights mreserved.
1-1
mynursytest.store
,ACCESS Test Bank for Financial Accounting 8th Canadian Edition Libby
m m m m m m m m m
8. (a)
Thempurposemofmthemstatementmofmearningsmismtompresentminformationmaboutmthem
revenues,mexpenses,mandmthemnetmearningsmofmthementitymformamspecifiedmperiodmofmti
me,minmorder mtomhelpmassessmitsmfinancial mperformancemduring mthatmperiod.
(b) Thempurposemofmthemstatementmofmfinancial mpositionmismtomreportmthemfinancial mposit
ionmofmanmentitymatmamgivenmdate,mthatmis,mtomreportminformationmaboutmthemassets,m
obligations,mandmshareholders’mequitymofmthementitymasmatmamspecificmdate.
(c) Themstatementmofmchangesminmequitymreportsmthemwaymthatmnetmearnings,mthemdistri
butionmofmnetmearningsm(dividends),mandmother mchangesmtomshareholders’mequitymaff
ectedmthemcompany’smfinancial mpositionmduring mthemaccounting mperiod.mThemfocusmin
m thism chapter m ism onm retainedm earnings.m Netm earningsmfor m them year m increasesm them bal
ancemofmretainedmearningsmwhereasmthemdeclarationmofmdividendsmtomthemsharehold
ersmdecreasesmretainedmearnings.
(d) Thempurposemofmthemstatementmofmcashmflowsmismtompresentminformationmaboutmthemfl
owmofmcashmintomthementitym(sources),mthemflowmofmcashmoutmofmthementitym(uses),mand
m them netm increasem or m decreasem inm cashm during m them period.
9. Themstatementmofmearningsmandmthemstatementmofmcashmflowsmaremdatedm“FormthemYear mEn
dedmDecember m31”mbecausemtheymreportmtheminflowsmandmoutflowsmofmresourcesmduring mam
periodmofmtime.mInmcontrast,mthemstatementmofmfinancial mpositionmismdatedm“AtmDecember m3
1”mbecausemitmrepresentsmthemresources,mobligations,mandmshareholders’mequitymasmatmamsp
ecificmdate,mDecember m31.
10. Assetsmaremimportantmtominvestorsmandmcreditorsmbecausemassetsmprovidemambasismformjudgi
ngmwhether msufficientmresourcesmaremavailablemtomoperatemthemcompany.mLiabilitiesmaremim
portantmtomcreditorsmandminvestorsmbecausemthemcompanymmustmbemablemtomgeneratemsuffi
cientmcashmfrommoperationsmormseekmfurther mborrowing mtommeetmthempaymentsmrequiredmb
ymdebtmagreements.m Ifmambusinessmdoesmnotmpaymitsmcreditors,mthemlawmmaymgivemthemcredit
orsmthemrightmtomforcemthemsalemofmassetsmsufficientmtommeetmthemcreditors’mclaims.
11. Netmearningsmismthemexcessmofmtotalmrevenuesmover mtotalmexpenses.mNetmlossmismthemexces
smofmtotalmexpensesmovermtotalmrevenues.
12. Themaccounting mequationmfor mthemstatementmofmearningsmismRevenuesm–
m Expensesm =m Netm earnings.m Revenuesm resultm from m them salem ofmgoodsm andm servicesm tom custo
mers,mregardlessmofmthemtiming mofmcollectionmofmcashmfrommcustomers.mExpensesmrepresent
m them monetarym valuem ofm resourcesm them entitym usedm up,m or m consumed,m tom earnm revenuesm d
uring mthemperiod.mNetmearningsmismsimplymthemexcessmofmrevenuesmover mexpenses.
FinancialmAccounting,m8ce,mLibby,mLibby,mHodge,mKanaan,mSterli ©m2023mMcGraw-
ng HillmLimited.mAllmrights mreserved.
1-2
mynursytest.store
, ACCESS Test Bank for Financial Accounting 8th Canadian Edition Libby
m m m m m m m m m
13. Themaccounting mequationmformthemstatementmofmfinancial mpositionmis:
Assetsm=mLiabilitiesm+mShareholders’mEquity
Assetsmaremthemprobablem(expected)mfuturemeconomicmbenefitsmownedmbymthementitymasmamr
esultmofmpastmtransactions.m Theymaremthemresourcesmownedmbymthembusinessmatmamgivenmpoi
ntminmtimemsuchmasmcash,maccountsmreceivable,mmerchandiseminventory,mmachinery,mbuildin
gs,mland,mandmpatents.mLiabilitiesmaremprobablem(expected)mdebtsmormobligationsmofmthementi
tymasmamresultmofmpastmtransactionsmthatmwillmbemdischargedmwithmassetsm(usuallymcash)morms
ervicesminmthemfuture.mTheymaremthemobligationsmofmthementitymsuchmasmaccountsmpayableman
dmnotesmpayable.mShareholders’mequitymismfinancing mprovidedmbymownersmofmthembusinessma
ndmbymthemnetmearningsmgeneratedmfrommthemoperationsmofmthembusiness.mItmismthemclaimmofm
themownersmtomthemassetsmofmthembusinessmafter mthemcreditors’mclaimsmhavembeenmsatisfied.
m Shareholders’m equitym maym bem thoughtm ofm asm them residual m interestm becausem itm representsm
assetsmminusmliabilities.
14. Themaccounting mequationmformretainedmearningsmis:
Beginning mretainedmearningsm+mNetmearningsm–mDividendsm=mEnding mretainedmearnings
Themequationmbeginsmwithmbeginning-of-the-
yearmretainedmearnings,mi.e.,mthempriormyear’smending mretainedmearningsmreportedmonmthemst
atementmofmfinancial mposition.m Themcurrentmyear'smnetmearningsmreportedmonmthemstatemen
tmofmearningsmismaddedmtomthismamountmandmthemdividendsmdeclaredmduring mthemcurrentmyea
rmaremsubtractedmfrommthismamount.mThemending mretainedmearningsmamountmismreportedmon
m them end-of-periodm statementm ofm financial mposition.
15. Themaccounting mequationmfor mthemstatementmofmcashmflowsm
is:mCashmflowsmfrommoperating mactivities
+/–mCashmflowsmfromminvesting mactivities
+/–mCashmflowsmfrommfinancing mactivities
=mChangeminmcashmformthemperiod.
Themnetmcashmflowsmformthemperiodmrepresentmthemincreasemormdecreaseminmcashmthatmoccurr
edmduring mthemperiod.m Cashmflowsmfrommoperating mactivitiesmaremcashmflowsmdirectlymrelate
dmtomearning mincomem(normalmbusinessmactivitymincluding minterestmpaidmandmincomemtaxesm
paid).mCashmflowsmfromminvesting mactivitiesmcomprisemcashmflowsmthatmaremdirectlymrelatedmt
omthemacquisitionmormsalemofmproductivemassetsmusedmbymthemcompany,msuchmasmplantmandme
quipment.mCashmflowsmfrommfinancing mactivitiesmconsistmofmcashmflowsmthatmaremdirectlymrel
atedmtomthemfinancing mofmthementerprise,msuchmasmissuing msharesmtominvestors.
FinancialmAccounting,m8ce,mLibby,mLibby,mHodge,mKanaan,mSterli ©m2023mMcGraw-
ng HillmLimited.mAllmrights mreserved.
1-3
mynursytest.store
