TEST BANK
All Chapters Included
1-1
, Financial Accounting, 8th Canadian Edition by Libby, Hodge, Kanaan,
Sterling Chapters 1 - 13, Complete
TABLE OF CONTENTS
CHAPTER ONE
Financial Statements and Business Decisions
CHAPTER TWO
Investing and Financing Decisions and the Accounting System
CHAPTER THREE
Operating Decisions and the Accounting System
CHAPTER FOUR
Adjustments, Financial Statements, and the Closing Process
CHAPTER FIVE
Reporting and Interpreting Sales Revenue, Receivables, and Cash
CHAPTER SIX
Reporting and Interpreting Cost of Sales and Inventory
CHAPTER SEVEN
Reporting and Interpreting Long-Lived Assets
CHAPTER EIGHT
Reporting and Interpreting Current Liabilities
CHAPTER NINE
Reporting and Interpreting Non-current Liabilities
CHAPTER TEN
Reporting and Interpreting Shareholders' Equity
CHAPTER ELEVEN
Statement of Cash Flows
CHAPTER TWELVE
Communicating Accounting Information and Analyzing Financial Statements
CHAPTER THIRTEEN
Reporting and Interpreting Investments in Other Corporations
1-2
,CHAPTER ONE
Financial Statements and Business Decisions
ANSWERS TO QUESTIONS
1. Accounting is a system that collects and processes (analyzes, measures, and
records) financial information about an organization and reports that
information todecision makers.
2. Financial accounting involves preparation of the four basic financial
statements andrelated disclosures for external decision makers. Managerial
accounting involves the preparation of detailed plans, budgets, forecasts, and
performance reports for internal decision makers.
3. Financial reports are used by both internal and external groups and
individuals. Theinternal groups are comprised of the various managers of the
entity. The external groups include the owners, investors, creditors,
governmental agencies, other interested parties, and the public at large.
4. Investors purchase all or part of a business and hope to gain by receiving part
of what the company earns and/or selling the company in the future at a
higher price than they paid. Creditors lend money to a company for a specific
length of time andhope to gain by charging interest on the loan.
5. In a society each organization can be defined as a separate accounting entity.
An accounting entity is the organization for which financial data are to be
collected. Typical accounting entities are a business, a church, a governmental
unit, a university and other nonprofit organizations such as a hospital and a
welfare organization. A business typically is defined and treated as a separate
entity because the owners, creditors, investors, and other interested parties
need to evaluate its performance and its potential separately from other
entities and from itsowners.
6. Name of Statement Alternative Title
(a) Income Statement (a) Statement of Earnings; Statement of
Income; Statement of Operations
(b) Balance Sheet (b) Statement of Financial Position
(c) Audit Report (c) Report of Independent Accountants
1-3
, 7. The heading of each of the four required financial statements should
include thefollowing:
(a) Name of the entity
(b) Name of the statement
(c) Date of the statement, or the period of time
(d) Unit of measure
8. (a) The purpose of the income statement is to present information about
the revenues, expenses, and the net income of the entity for a specified
period oftime.
(b) The purpose of the balance sheet is to report the financial position of an
entity at a given date, that is, to report information about the assets,
obligations and stockholders’ equity of the entity as of a specific date.
(c) The purpose of the statement of cash flows is to present information
about theflow of cash into the entity (sources), the flow of cash out of
the entity (uses), and the net increase or decrease in cash during the
period.
(d) The statement of retained earnings reports the way that net income and
distribution of dividends affected the retained earnings of the company
duringthe accounting period.
9. The income statement and the statement of cash flows are dated “For the
YearEnded December 31, 2010,” because they report the inflows and
outflows of resources during a period of time. In contrast, the balance
sheet is dated “At December 31, 2010,” because it represents the
resources, obligations and stockholders’ equity at a specific date.
10. Assets are important to creditors and investors because assets provide a basis
for judging whether sufficient resources are available to operate the
company. Assetsare also important because they could be sold for cash in the
event the company goes out of business. Liabilities are important to creditors
and investors because the company must be able to generate sufficient cash
from operations or further borrowing to meet the payments required by debt
agreements. If a business does not pay its creditors, the law may give the
creditors the right to force the sale of assets sufficient to meet their claims.
11. Net income is the excess of total revenues over total expenses. Net loss is
theexcess of total expenses over total revenues.
12. The equation for the income statement is Revenues - Expenses = Net Income
(orNet Loss if the amount is negative). Thus, the three major items reported
on the income statement are (1) revenues, (2) expenses, and (3) net income.
1-4
All Chapters Included
1-1
, Financial Accounting, 8th Canadian Edition by Libby, Hodge, Kanaan,
Sterling Chapters 1 - 13, Complete
TABLE OF CONTENTS
CHAPTER ONE
Financial Statements and Business Decisions
CHAPTER TWO
Investing and Financing Decisions and the Accounting System
CHAPTER THREE
Operating Decisions and the Accounting System
CHAPTER FOUR
Adjustments, Financial Statements, and the Closing Process
CHAPTER FIVE
Reporting and Interpreting Sales Revenue, Receivables, and Cash
CHAPTER SIX
Reporting and Interpreting Cost of Sales and Inventory
CHAPTER SEVEN
Reporting and Interpreting Long-Lived Assets
CHAPTER EIGHT
Reporting and Interpreting Current Liabilities
CHAPTER NINE
Reporting and Interpreting Non-current Liabilities
CHAPTER TEN
Reporting and Interpreting Shareholders' Equity
CHAPTER ELEVEN
Statement of Cash Flows
CHAPTER TWELVE
Communicating Accounting Information and Analyzing Financial Statements
CHAPTER THIRTEEN
Reporting and Interpreting Investments in Other Corporations
1-2
,CHAPTER ONE
Financial Statements and Business Decisions
ANSWERS TO QUESTIONS
1. Accounting is a system that collects and processes (analyzes, measures, and
records) financial information about an organization and reports that
information todecision makers.
2. Financial accounting involves preparation of the four basic financial
statements andrelated disclosures for external decision makers. Managerial
accounting involves the preparation of detailed plans, budgets, forecasts, and
performance reports for internal decision makers.
3. Financial reports are used by both internal and external groups and
individuals. Theinternal groups are comprised of the various managers of the
entity. The external groups include the owners, investors, creditors,
governmental agencies, other interested parties, and the public at large.
4. Investors purchase all or part of a business and hope to gain by receiving part
of what the company earns and/or selling the company in the future at a
higher price than they paid. Creditors lend money to a company for a specific
length of time andhope to gain by charging interest on the loan.
5. In a society each organization can be defined as a separate accounting entity.
An accounting entity is the organization for which financial data are to be
collected. Typical accounting entities are a business, a church, a governmental
unit, a university and other nonprofit organizations such as a hospital and a
welfare organization. A business typically is defined and treated as a separate
entity because the owners, creditors, investors, and other interested parties
need to evaluate its performance and its potential separately from other
entities and from itsowners.
6. Name of Statement Alternative Title
(a) Income Statement (a) Statement of Earnings; Statement of
Income; Statement of Operations
(b) Balance Sheet (b) Statement of Financial Position
(c) Audit Report (c) Report of Independent Accountants
1-3
, 7. The heading of each of the four required financial statements should
include thefollowing:
(a) Name of the entity
(b) Name of the statement
(c) Date of the statement, or the period of time
(d) Unit of measure
8. (a) The purpose of the income statement is to present information about
the revenues, expenses, and the net income of the entity for a specified
period oftime.
(b) The purpose of the balance sheet is to report the financial position of an
entity at a given date, that is, to report information about the assets,
obligations and stockholders’ equity of the entity as of a specific date.
(c) The purpose of the statement of cash flows is to present information
about theflow of cash into the entity (sources), the flow of cash out of
the entity (uses), and the net increase or decrease in cash during the
period.
(d) The statement of retained earnings reports the way that net income and
distribution of dividends affected the retained earnings of the company
duringthe accounting period.
9. The income statement and the statement of cash flows are dated “For the
YearEnded December 31, 2010,” because they report the inflows and
outflows of resources during a period of time. In contrast, the balance
sheet is dated “At December 31, 2010,” because it represents the
resources, obligations and stockholders’ equity at a specific date.
10. Assets are important to creditors and investors because assets provide a basis
for judging whether sufficient resources are available to operate the
company. Assetsare also important because they could be sold for cash in the
event the company goes out of business. Liabilities are important to creditors
and investors because the company must be able to generate sufficient cash
from operations or further borrowing to meet the payments required by debt
agreements. If a business does not pay its creditors, the law may give the
creditors the right to force the sale of assets sufficient to meet their claims.
11. Net income is the excess of total revenues over total expenses. Net loss is
theexcess of total expenses over total revenues.
12. The equation for the income statement is Revenues - Expenses = Net Income
(orNet Loss if the amount is negative). Thus, the three major items reported
on the income statement are (1) revenues, (2) expenses, and (3) net income.
1-4
