SOLUTION MANUAL FOR
Fundamentals of Financial Accounting 7e PhillipsQ
Chapter 1-13 with Appendix C&D
ChapterQ1Q
BusinessQDecisionsQandQFinancialQAccounting
ANSWERSQTOQQUESTIONS
1. AccountingQisQaQsystemQofQanalyzing,Qrecording,QandQsummarizingQtheQresultsQofQaQ
business‘sQactivitiesQandQthenQreportingQthemQtoQdecisionQmakers.Q
2. AnQadvantageQofQoperatingQasQaQsoleQproprietorship,QratherQthanQaQcorporation,QisQ
thatQ itQisQeasyQtoQestablish.QAnotherQadvantageQisQthatQincomeQfromQaQsoleQproprie
torshipQisQ taxedQonlyQonceQinQtheQhandsQofQtheQindividualQproprietorQ(incomeQfromQ
aQQQ Q corporationQisQtaxedQinQtheQcorporationQandQthenQagainQinQtheQhandsQofQth
eQindividualQ shareholder).QAQdisadvantageQofQoperatingQasQaQsoleQproprietorship,Qr
atherQthanQaQ corporation,QisQthatQtheQindividualQproprietorQcanQbeQheldQresponsible
QforQtheQdebtsQofQ theQbusiness.Q
3. FinancialQaccountingQfocusesQonQpreparingQandQusingQtheQfinancialQstatementsQthatQ a
reQmadeQavailableQtoQownersQandQexternalQusersQsuchQasQcustomers,Qcreditors,Qand
Q potentialQinvestorsQwhoQareQinterestedQinQreadingQthem.QManagerialQaccountingQ fo
cusesQonQotherQaccountingQreportsQthatQareQnotQreleasedQtoQtheQgeneralQpublic,Qbut
Q insteadQareQpreparedQforQinternalQdecisionQmakingQandQusedQbyQemployees,Q supe
rvisors,QandQmanagersQwhoQrunQtheQcompany.Q
4. FinancialQreportsQareQusedQbyQbothQinternalQandQexternalQgroupsQandQindividuals.QTh
eQ internalQgroupsQareQcomprisedQofQtheQvariousQmanagersQofQtheQbusiness.QTheQ ex
ternalQgroupsQincludeQinvestors,Qcreditors,QgovernmentalQagencies,QotherQ interestedQpa
rties,QandQtheQpublicQatQlarge.Q
5. TheQbusinessQitself,QnotQtheQindividualQstockholdersQwhoQownQtheQbusiness,QisQviewedQ
asQowningQtheQassetsQandQowingQtheQliabilitiesQonQitsQbalanceQsheet.QAQbusiness‘sQ b
alanceQsheetQincludesQtheQassets,Qliabilities,QandQstockholders‘QequityQofQonlyQthatQ bu
sinessQandQnotQtheQpersonalQassets,Qliabilities,QandQequityQofQtheQstockholders.QTheQ f
inancialQstatementsQofQaQcompanyQshowQtheQresultsQofQtheQbusinessQactivitiesQofQQ Q
onlyQthatQcompany.Q
© 2022 by McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
,FundamentalsQofQFinancialQAccounting,Q7/e
1-1
6. (a)Q OperatingQ–
QTheseQactivitiesQareQdirectlyQrelatedQtoQearningQprofits.QTheyQincludeQ buyingQsupplies,QmakingQpr
oducts,QservingQcustomers,QcleaningQtheQpremises,Q advertising,QrentingQaQbuilding,QrepairingQequipme
nt,QandQobtainingQinsuranceQ coverage.Q
(b) InvestingQ–
QTheseQactivitiesQinvolveQbuyingQandQsellingQproductiveQresourcesQwithQ longQlivesQ(suchQasQbuildings,
Qland,Qequipment,QandQtools),QpurchasingQinvestments,Q andQ lendingQ toQ others.Q
(c) FinancingQ–
QAnyQborrowingQfromQbanks,QrepayingQbankQloans,QreceivingQ contributionsQfromQstockholders,QorQp
ayingQdividendsQtoQstockholdersQareQconsideredQ financingQactivities.Q
7. TheQheadingQofQeachQofQtheQfourQprimaryQfinancialQstatementsQshouldQincludeQtheQ following:Q
(a) NameQofQtheQbusinessQ
(b) NameQofQtheQstatementQ
(c) DateQofQtheQstatement,QorQtheQperiodQofQtimeQthatQtheQstatementQcoversQ
8. (a)Q TheQ purposeQ ofQtheQbalanceQ sheetQisQtoQ reportQ theQfinancialQpositionQ (assets,Q liabilitiesQan
dQstockholders‘Qequity)QofQaQbusinessQatQaQpointQinQtime.Q
(b) TheQ purposeQ ofQ theQ incomeQ statementQ isQ toQ presentQ informationQ aboutQ theQ revenues,Qex
penses,QandQnetQincomeQofQaQbusinessQforQaQspecifiedQperiodQofQtime.Q
(c) TheQ statementQ ofQ retainedQ earningsQ reportsQ theQ wayQ thatQ netQ incomeQ andQ theQ distributionQ
ofQ dividendsQ affectedQ theQ financialQ positionQ ofQ theQ companyQ duringQ theQ period.Q
(d) TheQ purposeQ ofQ theQ statementQ ofQ cashQ flowsQ isQ toQ summarizeQ howQ aQ business‘sQ operating,Q in
vesting,Q andQ financingQ activitiesQ causedQ itsQ cashQ balanceQ toQ changeQ overQaQparticularQperiodQo
fQtime.Q
9. TheQincomeQstatement,QstatementQofQretainedQearnings,QandQstatementQofQcashQflowsQ wouldQbeQda
tedQ―ForQtheQYearQEndedQDecemberQ31,Q2021,‖QbecauseQtheyQreportQtheQ inflowsQandQoutflows
QofQresourcesQoverQaQperiodQofQtime.QInQcontrast,QtheQbalanceQ sheetQwouldQbeQdatedQ―AtQDec
emberQ31,Q2021,‖QbecauseQitQrepresentsQtheQassets,Q liabilitiesQandQstockholders‘QequityQatQaQspec
ificQdate.Q
10. NetQincomeQisQtheQexcessQofQtotalQrevenuesQoverQtotalQexpenses.QAQnetQlossQoccursQifQ totalQexpe
nsesQexceedQtotalQrevenues.Q
11. TheQaccountingQequationQforQtheQbalanceQsheetQis:QAssetsQ=QLiabilitiesQ+Q Stockholders‘QEquity.Q Ass
etsQareQtheQeconomicQresourcesQcontrolledQbyQtheQ company.QQ LiabilitiesQareQamountsQowedQbyQth
eQbusiness.Q Stockholders‘QequityQisQ theQowners‘QclaimsQtoQtheQbusiness.QItQincludesQamountsQcontribu
tedQtoQtheQbusinessQ (byQinvestorsQthroughQpurchasingQtheQcompany‘sQstock)QandQtheQamountsQearne
dQ andQaccumulatedQthroughQprofitableQbusinessQoperations.Q
FundamentalsQofQFinancialQAccounting,Q7/e
1-2
12. TheQequationQforQtheQincomeQstatementQisQRevenuesQ –
QExpensesQ=QNetQIncome.Q RevenuesQareQincreasesQinQaQcompany‘sQresources,QarisingQprimarilyQfro
© 2022 by McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
, mQitsQ operatingQactivities.Q ExpensesQareQdecreasesQinQaQcompany‘sQresources,QarisingQ primarilyQfr
omQitsQoperatingQactivities.QNetQIncomeQisQequalQtoQrevenuesQminusQ expenses.Q (IfQexpensesQareQg
reaterQthanQrevenues,QtheQcompanyQhasQaQNetQLoss.)Q
13. TheQequationQforQtheQstatementQofQretainedQearningsQis:QBeginningQ RetainedQEarningsQ +Q NetQIncome
Q-QDividendsQ=QEndingQRetainedQEarnings.QItQbeginsQwithQ beginning-of-the-
yearQretainedQearningsQwhichQisQtheQpriorQyear‘sQendingQretainedQ earningsQreportedQonQtheQpriorQy
ear‘sQbalanceQsheet.Q TheQcurrentQyear'sQnetQincomeQ reportedQonQtheQincomeQstatementQisQaddedQan
dQtheQcurrentQyear'sQdividendsQareQ subtractedQfromQthisQamount.Q(IfQaQnetQlossQoccurs,QItQwouldQbe
Qsubtracted,QalongQwithQ theQdividends,QfromQtheQpriorQyear‘sQendingQretainedQearningsQbalance.)The
QendingQ retainedQearningsQamountQisQreportedQonQtheQend-of-
yearQbalanceQsheet.Q14.QQQ TheQ equationQforQtheQstatementQofQcashQflowsQis:QCashQflowsQfromQope
ratingQactivitiesQ+Q CashQflowsQfromQinvestingQactivitiesQ+QCashQflowsQfromQfinancingQactivitiesQ=QCh
angeQ inQcashQforQtheQperiod.QChangeQinQcashQforQtheQperiodQ+QBeginningQcashQbalanceQ=Q Ending
QcashQbalance.Q TheQnetQcashQflowsQforQtheQperiodQrepresentQtheQincreaseQorQ decreaseQinQcashQtha
tQoccurredQduringQtheQperiod.Q CashQflowsQfromQoperatingQ activitiesQareQcashQflowsQdirectlyQrelated
QtoQearningQincomeQ(normalQbusinessQQ activity).QCashQflowsQfromQinvestingQactivitiesQincludeQcashQflo
wsQthatQareQrelatedQtoQ theQacquisitionQorQsaleQofQtheQcompany‘sQlong-
termQassets.QCashQflowsQfromQfinancingQ activitiesQareQdirectlyQrelatedQtoQtheQfinancingQofQtheQcomp
any.Q
15. Currently,QtheQFinancialQAccountingQStandardsQBoardQ(FASB)QisQgivenQtheQprimaryQ responsibilityQfor
QsettingQtheQdetailedQrulesQthatQbecomeQGenerallyQAcceptedQ AccountingQPrinciplesQ(GAAP)QinQthe
QUnitedQStates.Q(Internationally,QtheQ InternationalQAccountingQStandardsQBoardQ(IASB)QhasQtheQrespo
nsibilityQforQsettingQ accountingQrulesQknownQasQInternationalQFinancialQReportingQStandardsQ(IFRS).)Q
16. TheQmainQgoalQofQaccountingQrulesQisQtoQensureQthatQcompaniesQproduceQusefulQ financialQinformation
QforQpresentQandQpotentialQinvestors,Qlenders,QandQotherQcreditorsQ inQmakingQdecisionsQinQtheirQcap
acityQasQcapitalQproviders.QQ FinancialQinformationQ mustQshowQrelevanceQandQfaithfulQrepresentation,Q
asQwellQasQbeQcomparable,Q verifiable,Qtimely,QandQunderstandable.Q
FundamentalsQofQFinancialQAccounting,Q7/e
1-3
17. AnQethicalQdilemmaQisQaQsituationQwhereQfollowingQoneQmoralQprincipleQwouldQresultQinQ violatingQan
other.QThreeQstepsQthatQshouldQbeQconsideredQwhenQevaluatingQethicalQ dilemmasQare:Q
(a) IdentifyQwhoQwillQbenefitQfromQtheQsituationQ(often,QtheQmanagerQorQemployee)QandQ howQothers
QwillQbeQharmedQ(otherQemployees,QtheQcompany‘sQreputation,Qowners,Q creditors,QandQtheQpublicQinQ
general).Q
(b) IdentifyQtheQalternativeQcoursesQofQaction.Q
(c) ChooseQtheQalternativeQthatQisQtheQmostQethicalQ–
© 2022 by McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
, QthatQwhichQyouQwouldQbeQproudQ toQhaveQreportedQinQtheQnewsQmedia.Q Often,QthereQisQnoQone
QrightQanswerQandQhardQ choicesQwillQneedQtoQbeQmade.QFollowingQstrongQethicalQpracticesQisQaQk
eyQpartQofQ ensuringQgoodQfinancialQreportingQbyQbusinessesQofQallQsizes.Q
18. AccountingQfraudsQandQcasesQinvolvingQacademicQdishonestyQareQsimilarQinQmanyQ respects.QBothQinvol
veQdeceivingQothersQinQanQattemptQtoQinfluenceQtheirQactionsQorQ decisions,QoftenQresultingQinQtempor
aryQpersonalQgainQforQtheQdeceiver.QForQexample,Q whenQanQaccountingQfraudQisQcommitted,Qfinanci
alQstatementQusersQmayQbeQmisledQ intoQmakingQdecisionsQtheyQwouldn‘tQhaveQmadeQhadQtheQfraud
QnotQoccurredQ(e.g.,Q creditorsQmightQloanQmoneyQtoQtheQcompany,QinvestorsQmightQinvestQinQtheQcom
pany,Q orQstockholdersQmightQrewardQtopQmanagersQwithQbigQbonuses).QWhenQacademicQ dishonestyQi
sQcommitted,QinstructorsQmightQassignQaQhigherQgradeQthanQisQwarrantedQ byQtheQstudent‘sQindividual
Qcontribution.QAnotherQsimilarityQisQthat,QasQaQconsequenceQ ofQtheQdeception,QinnocentQbystandersQm
ayQbeQadverselyQaffectedQbyQfraudQandQ academicQdishonesty.QFraudQmayQrequireQtheQcompanyQto
QchargeQhigherQpricesQtoQ customersQtoQcoverQcostsQincurredQasQaQresultQofQtheQfraud.QAcademicQdi
shonestyQQ mayQleadQtoQstricterQgradingQstandards,QwithQsignificantQdeductionsQtakenQforQ inadequate
QdocumentationQofQsourcesQreferenced.Q AQfinalQsimilarityQisQthatQifQfraudQ andQacademicQdishonesty
QareQultimatelyQuncovered,QbothQareQlikelyQtoQleadQtoQ adverseQlong-
termQconsequencesQforQtheQperpetrator.Q FraudstersQmayQbeQfined,Q imprisoned,QandQencounterQanQa
bruptQendQtoQtheirQcareers.QStudentsQwhoQcheatQmayQ beQpenalizedQthroughQlowerQcourseQgradesQo
rQexpulsion,QandQmightQfindQitQimpossibleQ toQobtainQacademicQreferencesQforQemploymentQapplicatio
ns.Q
FundamentalsQofQFinancialQAccounting,Q7/e
1-4
Authors'QRecommendedQSolutionQTimeQ (T
imeQinQminutes)
SkillsQDevelopmentQ
Mini-exercises Exercises Problems Cases* ContinuingQCase
No. Time No. Time No. Time No. Time No. Time
1Q 3Q 1Q 10Q CP1-1Q 45Q 1Q 20Q 1Q 45Q
2Q 12Q 2Q 10Q CP1-2Q 10Q 2Q 20Q
3Q 12Q 3Q 15Q CP1-3Q 50Q 3Q 30Q
4Q 6Q 4Q 25Q CP1-4Q 5Q 4Q 30Q
5Q 4Q 5Q 25Q PA1-1Q 45Q 5Q 20Q
6Q 6Q 6Q 10Q PA1-2Q 10Q 6Q 30Q
7Q 6Q 7Q 15Q PA1-3Q 50Q 7Q 45Q
8Q 4Q 8Q 10Q PA1-4Q 5Q
9Q 4Q 9Q 20Q PB1-1Q 45Q
© 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 PhillipsQ
Chapter 1-13 with Appendix C&D
ChapterQ1Q
BusinessQDecisionsQandQFinancialQAccounting
ANSWERSQTOQQUESTIONS
1. AccountingQisQaQsystemQofQanalyzing,Qrecording,QandQsummarizingQtheQresultsQofQaQ
business‘sQactivitiesQandQthenQreportingQthemQtoQdecisionQmakers.Q
2. AnQadvantageQofQoperatingQasQaQsoleQproprietorship,QratherQthanQaQcorporation,QisQ
thatQ itQisQeasyQtoQestablish.QAnotherQadvantageQisQthatQincomeQfromQaQsoleQproprie
torshipQisQ taxedQonlyQonceQinQtheQhandsQofQtheQindividualQproprietorQ(incomeQfromQ
aQQQ Q corporationQisQtaxedQinQtheQcorporationQandQthenQagainQinQtheQhandsQofQth
eQindividualQ shareholder).QAQdisadvantageQofQoperatingQasQaQsoleQproprietorship,Qr
atherQthanQaQ corporation,QisQthatQtheQindividualQproprietorQcanQbeQheldQresponsible
QforQtheQdebtsQofQ theQbusiness.Q
3. FinancialQaccountingQfocusesQonQpreparingQandQusingQtheQfinancialQstatementsQthatQ a
reQmadeQavailableQtoQownersQandQexternalQusersQsuchQasQcustomers,Qcreditors,Qand
Q potentialQinvestorsQwhoQareQinterestedQinQreadingQthem.QManagerialQaccountingQ fo
cusesQonQotherQaccountingQreportsQthatQareQnotQreleasedQtoQtheQgeneralQpublic,Qbut
Q insteadQareQpreparedQforQinternalQdecisionQmakingQandQusedQbyQemployees,Q supe
rvisors,QandQmanagersQwhoQrunQtheQcompany.Q
4. FinancialQreportsQareQusedQbyQbothQinternalQandQexternalQgroupsQandQindividuals.QTh
eQ internalQgroupsQareQcomprisedQofQtheQvariousQmanagersQofQtheQbusiness.QTheQ ex
ternalQgroupsQincludeQinvestors,Qcreditors,QgovernmentalQagencies,QotherQ interestedQpa
rties,QandQtheQpublicQatQlarge.Q
5. TheQbusinessQitself,QnotQtheQindividualQstockholdersQwhoQownQtheQbusiness,QisQviewedQ
asQowningQtheQassetsQandQowingQtheQliabilitiesQonQitsQbalanceQsheet.QAQbusiness‘sQ b
alanceQsheetQincludesQtheQassets,Qliabilities,QandQstockholders‘QequityQofQonlyQthatQ bu
sinessQandQnotQtheQpersonalQassets,Qliabilities,QandQequityQofQtheQstockholders.QTheQ f
inancialQstatementsQofQaQcompanyQshowQtheQresultsQofQtheQbusinessQactivitiesQofQQ Q
onlyQthatQcompany.Q
© 2022 by McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
,FundamentalsQofQFinancialQAccounting,Q7/e
1-1
6. (a)Q OperatingQ–
QTheseQactivitiesQareQdirectlyQrelatedQtoQearningQprofits.QTheyQincludeQ buyingQsupplies,QmakingQpr
oducts,QservingQcustomers,QcleaningQtheQpremises,Q advertising,QrentingQaQbuilding,QrepairingQequipme
nt,QandQobtainingQinsuranceQ coverage.Q
(b) InvestingQ–
QTheseQactivitiesQinvolveQbuyingQandQsellingQproductiveQresourcesQwithQ longQlivesQ(suchQasQbuildings,
Qland,Qequipment,QandQtools),QpurchasingQinvestments,Q andQ lendingQ toQ others.Q
(c) FinancingQ–
QAnyQborrowingQfromQbanks,QrepayingQbankQloans,QreceivingQ contributionsQfromQstockholders,QorQp
ayingQdividendsQtoQstockholdersQareQconsideredQ financingQactivities.Q
7. TheQheadingQofQeachQofQtheQfourQprimaryQfinancialQstatementsQshouldQincludeQtheQ following:Q
(a) NameQofQtheQbusinessQ
(b) NameQofQtheQstatementQ
(c) DateQofQtheQstatement,QorQtheQperiodQofQtimeQthatQtheQstatementQcoversQ
8. (a)Q TheQ purposeQ ofQtheQbalanceQ sheetQisQtoQ reportQ theQfinancialQpositionQ (assets,Q liabilitiesQan
dQstockholders‘Qequity)QofQaQbusinessQatQaQpointQinQtime.Q
(b) TheQ purposeQ ofQ theQ incomeQ statementQ isQ toQ presentQ informationQ aboutQ theQ revenues,Qex
penses,QandQnetQincomeQofQaQbusinessQforQaQspecifiedQperiodQofQtime.Q
(c) TheQ statementQ ofQ retainedQ earningsQ reportsQ theQ wayQ thatQ netQ incomeQ andQ theQ distributionQ
ofQ dividendsQ affectedQ theQ financialQ positionQ ofQ theQ companyQ duringQ theQ period.Q
(d) TheQ purposeQ ofQ theQ statementQ ofQ cashQ flowsQ isQ toQ summarizeQ howQ aQ business‘sQ operating,Q in
vesting,Q andQ financingQ activitiesQ causedQ itsQ cashQ balanceQ toQ changeQ overQaQparticularQperiodQo
fQtime.Q
9. TheQincomeQstatement,QstatementQofQretainedQearnings,QandQstatementQofQcashQflowsQ wouldQbeQda
tedQ―ForQtheQYearQEndedQDecemberQ31,Q2021,‖QbecauseQtheyQreportQtheQ inflowsQandQoutflows
QofQresourcesQoverQaQperiodQofQtime.QInQcontrast,QtheQbalanceQ sheetQwouldQbeQdatedQ―AtQDec
emberQ31,Q2021,‖QbecauseQitQrepresentsQtheQassets,Q liabilitiesQandQstockholders‘QequityQatQaQspec
ificQdate.Q
10. NetQincomeQisQtheQexcessQofQtotalQrevenuesQoverQtotalQexpenses.QAQnetQlossQoccursQifQ totalQexpe
nsesQexceedQtotalQrevenues.Q
11. TheQaccountingQequationQforQtheQbalanceQsheetQis:QAssetsQ=QLiabilitiesQ+Q Stockholders‘QEquity.Q Ass
etsQareQtheQeconomicQresourcesQcontrolledQbyQtheQ company.QQ LiabilitiesQareQamountsQowedQbyQth
eQbusiness.Q Stockholders‘QequityQisQ theQowners‘QclaimsQtoQtheQbusiness.QItQincludesQamountsQcontribu
tedQtoQtheQbusinessQ (byQinvestorsQthroughQpurchasingQtheQcompany‘sQstock)QandQtheQamountsQearne
dQ andQaccumulatedQthroughQprofitableQbusinessQoperations.Q
FundamentalsQofQFinancialQAccounting,Q7/e
1-2
12. TheQequationQforQtheQincomeQstatementQisQRevenuesQ –
QExpensesQ=QNetQIncome.Q RevenuesQareQincreasesQinQaQcompany‘sQresources,QarisingQprimarilyQfro
© 2022 by McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
, mQitsQ operatingQactivities.Q ExpensesQareQdecreasesQinQaQcompany‘sQresources,QarisingQ primarilyQfr
omQitsQoperatingQactivities.QNetQIncomeQisQequalQtoQrevenuesQminusQ expenses.Q (IfQexpensesQareQg
reaterQthanQrevenues,QtheQcompanyQhasQaQNetQLoss.)Q
13. TheQequationQforQtheQstatementQofQretainedQearningsQis:QBeginningQ RetainedQEarningsQ +Q NetQIncome
Q-QDividendsQ=QEndingQRetainedQEarnings.QItQbeginsQwithQ beginning-of-the-
yearQretainedQearningsQwhichQisQtheQpriorQyear‘sQendingQretainedQ earningsQreportedQonQtheQpriorQy
ear‘sQbalanceQsheet.Q TheQcurrentQyear'sQnetQincomeQ reportedQonQtheQincomeQstatementQisQaddedQan
dQtheQcurrentQyear'sQdividendsQareQ subtractedQfromQthisQamount.Q(IfQaQnetQlossQoccurs,QItQwouldQbe
Qsubtracted,QalongQwithQ theQdividends,QfromQtheQpriorQyear‘sQendingQretainedQearningsQbalance.)The
QendingQ retainedQearningsQamountQisQreportedQonQtheQend-of-
yearQbalanceQsheet.Q14.QQQ TheQ equationQforQtheQstatementQofQcashQflowsQis:QCashQflowsQfromQope
ratingQactivitiesQ+Q CashQflowsQfromQinvestingQactivitiesQ+QCashQflowsQfromQfinancingQactivitiesQ=QCh
angeQ inQcashQforQtheQperiod.QChangeQinQcashQforQtheQperiodQ+QBeginningQcashQbalanceQ=Q Ending
QcashQbalance.Q TheQnetQcashQflowsQforQtheQperiodQrepresentQtheQincreaseQorQ decreaseQinQcashQtha
tQoccurredQduringQtheQperiod.Q CashQflowsQfromQoperatingQ activitiesQareQcashQflowsQdirectlyQrelated
QtoQearningQincomeQ(normalQbusinessQQ activity).QCashQflowsQfromQinvestingQactivitiesQincludeQcashQflo
wsQthatQareQrelatedQtoQ theQacquisitionQorQsaleQofQtheQcompany‘sQlong-
termQassets.QCashQflowsQfromQfinancingQ activitiesQareQdirectlyQrelatedQtoQtheQfinancingQofQtheQcomp
any.Q
15. Currently,QtheQFinancialQAccountingQStandardsQBoardQ(FASB)QisQgivenQtheQprimaryQ responsibilityQfor
QsettingQtheQdetailedQrulesQthatQbecomeQGenerallyQAcceptedQ AccountingQPrinciplesQ(GAAP)QinQthe
QUnitedQStates.Q(Internationally,QtheQ InternationalQAccountingQStandardsQBoardQ(IASB)QhasQtheQrespo
nsibilityQforQsettingQ accountingQrulesQknownQasQInternationalQFinancialQReportingQStandardsQ(IFRS).)Q
16. TheQmainQgoalQofQaccountingQrulesQisQtoQensureQthatQcompaniesQproduceQusefulQ financialQinformation
QforQpresentQandQpotentialQinvestors,Qlenders,QandQotherQcreditorsQ inQmakingQdecisionsQinQtheirQcap
acityQasQcapitalQproviders.QQ FinancialQinformationQ mustQshowQrelevanceQandQfaithfulQrepresentation,Q
asQwellQasQbeQcomparable,Q verifiable,Qtimely,QandQunderstandable.Q
FundamentalsQofQFinancialQAccounting,Q7/e
1-3
17. AnQethicalQdilemmaQisQaQsituationQwhereQfollowingQoneQmoralQprincipleQwouldQresultQinQ violatingQan
other.QThreeQstepsQthatQshouldQbeQconsideredQwhenQevaluatingQethicalQ dilemmasQare:Q
(a) IdentifyQwhoQwillQbenefitQfromQtheQsituationQ(often,QtheQmanagerQorQemployee)QandQ howQothers
QwillQbeQharmedQ(otherQemployees,QtheQcompany‘sQreputation,Qowners,Q creditors,QandQtheQpublicQinQ
general).Q
(b) IdentifyQtheQalternativeQcoursesQofQaction.Q
(c) ChooseQtheQalternativeQthatQisQtheQmostQethicalQ–
© 2022 by McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
, QthatQwhichQyouQwouldQbeQproudQ toQhaveQreportedQinQtheQnewsQmedia.Q Often,QthereQisQnoQone
QrightQanswerQandQhardQ choicesQwillQneedQtoQbeQmade.QFollowingQstrongQethicalQpracticesQisQaQk
eyQpartQofQ ensuringQgoodQfinancialQreportingQbyQbusinessesQofQallQsizes.Q
18. AccountingQfraudsQandQcasesQinvolvingQacademicQdishonestyQareQsimilarQinQmanyQ respects.QBothQinvol
veQdeceivingQothersQinQanQattemptQtoQinfluenceQtheirQactionsQorQ decisions,QoftenQresultingQinQtempor
aryQpersonalQgainQforQtheQdeceiver.QForQexample,Q whenQanQaccountingQfraudQisQcommitted,Qfinanci
alQstatementQusersQmayQbeQmisledQ intoQmakingQdecisionsQtheyQwouldn‘tQhaveQmadeQhadQtheQfraud
QnotQoccurredQ(e.g.,Q creditorsQmightQloanQmoneyQtoQtheQcompany,QinvestorsQmightQinvestQinQtheQcom
pany,Q orQstockholdersQmightQrewardQtopQmanagersQwithQbigQbonuses).QWhenQacademicQ dishonestyQi
sQcommitted,QinstructorsQmightQassignQaQhigherQgradeQthanQisQwarrantedQ byQtheQstudent‘sQindividual
Qcontribution.QAnotherQsimilarityQisQthat,QasQaQconsequenceQ ofQtheQdeception,QinnocentQbystandersQm
ayQbeQadverselyQaffectedQbyQfraudQandQ academicQdishonesty.QFraudQmayQrequireQtheQcompanyQto
QchargeQhigherQpricesQtoQ customersQtoQcoverQcostsQincurredQasQaQresultQofQtheQfraud.QAcademicQdi
shonestyQQ mayQleadQtoQstricterQgradingQstandards,QwithQsignificantQdeductionsQtakenQforQ inadequate
QdocumentationQofQsourcesQreferenced.Q AQfinalQsimilarityQisQthatQifQfraudQ andQacademicQdishonesty
QareQultimatelyQuncovered,QbothQareQlikelyQtoQleadQtoQ adverseQlong-
termQconsequencesQforQtheQperpetrator.Q FraudstersQmayQbeQfined,Q imprisoned,QandQencounterQanQa
bruptQendQtoQtheirQcareers.QStudentsQwhoQcheatQmayQ beQpenalizedQthroughQlowerQcourseQgradesQo
rQexpulsion,QandQmightQfindQitQimpossibleQ toQobtainQacademicQreferencesQforQemploymentQapplicatio
ns.Q
FundamentalsQofQFinancialQAccounting,Q7/e
1-4
Authors'QRecommendedQSolutionQTimeQ (T
imeQinQminutes)
SkillsQDevelopmentQ
Mini-exercises Exercises Problems Cases* ContinuingQCase
No. Time No. Time No. Time No. Time No. Time
1Q 3Q 1Q 10Q CP1-1Q 45Q 1Q 20Q 1Q 45Q
2Q 12Q 2Q 10Q CP1-2Q 10Q 2Q 20Q
3Q 12Q 3Q 15Q CP1-3Q 50Q 3Q 30Q
4Q 6Q 4Q 25Q CP1-4Q 5Q 4Q 30Q
5Q 4Q 5Q 25Q PA1-1Q 45Q 5Q 20Q
6Q 6Q 6Q 10Q PA1-2Q 10Q 6Q 30Q
7Q 6Q 7Q 15Q PA1-3Q 50Q 7Q 45Q
8Q 4Q 8Q 10Q PA1-4Q 5Q
9Q 4Q 9Q 20Q PB1-1Q 45Q
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