SOLUTION MANUAL FOR cd cd
Fundamentals of Financial Accounting 7e Phillips cd cd cd cd cd cd
Chapter1-13 withAppendixC&D c
d cd d
c cd
Chapter 1 cd cd
BusinessDecisions andFinancial Accounting
cd cd cd cd
ANSWERS TO QUESTIONS cd cd
1. Accounting is a system of analyzing, recording, and summarizing the results of a
cd cd cd cd cd cd cd cd cd cd cd cd cd
business‘s activities and then reporting them to decision makers. cd cd cd cd cd cd cd cd cd
2. An advantage of operating as a sole proprietorship, rather than a corporation, is that it is easy
cd cd cd cd cd cd cd cd cd cd cd cd cd c d cd cd
to establish. Another advantage is that income from a sole proprietorship is taxed only once in
cd cd cd cd cd cd cd cd cd cd cd cd c d cd cd cd
the hands of the individual proprietor (income from a corporation is taxed in the corporation
cd cd cd cd cd cd cd cd cd cd c d c d c d cd cd cd cd cd
and then again in the hands of the individual shareholder). A disadvantage of operating as a
cd cd cd cd cd cd cd cd cd c d cd cd cd cd cd cd
sole proprietorship, rather than a corporation, is that the individual proprietor can be held
cd cd cd cd cd c d cd cd cd cd cd cd cd cd
responsible for the debts of the business.
cd cd cd cd cd c d cd cd
3. Financial accounting focuses on preparing and using the financial statements that are made
cd cd cd cd cd cd cd cd cd cd c d cd
available to owners and external users such as customers, creditors, and potential investors
cd cd cd cd cd cd cd cd cd cd cd c d cd
who are interested in reading them. Managerial accounting focuses on other accounting
cd cd cd cd cd cd cd cd c d cd cd cd
reports that are not released to the general public, but instead are prepared for internal
cd cd cd cd cd cd cd cd cd cd c d cd cd cd cd
decision making and used by employees, supervisors, and managers who run the company.
cd cd cd cd cd cd c d cd cd cd cd cd cd cd
4. Financial reports are used by both internal and external groups and individuals. The internal
cd cd cd cd cd cd cd cd cd cd cd cd c d
groups are comprised of the various managers of the business. The external groups include
cd cd cd cd cd cd cd cd cd cd cd c d cd cd
investors, creditors, governmental agencies, other interested parties, and the public at large.
cd cd cd cd cd c d cd cd cd cd cd cd cd
5. The business itself, not the individual stockholders who own the business, is viewed as owning the
cd cd cd cd cd cd cd cd cd cd cd cd c d cd cd
assets and owing the liabilities on its balance sheet. A business‘s balance sheet includes the
cd cd cd cd cd cd cd cd cd cd cd c d cd cd cd
assets, liabilities, and stockholders‘ equity of only that business and not the personal assets,
cd cd cd cd cd cd cd cd c d cd cd cd cd cd
liabilities, and equity of the stockholders. The financial statements of a company show the
cd cd cd cd cd cd cd c d cd cd cd cd cd cd
results of the business activities of only that company.
cd cd cd cd cd cd cd c d c d cd cd cd
Fundamentals of Financial cd cd 1-1
Accounting, 7/e
cd cd
© 2022 by McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
cd cd cd cd cd c d cd cd cd cd cd cd cd cd cd cd cd cd cd cd cd
,6. (a) Operating – These activities are directly related to earning profits. They include buying
c d cd cd cd cd cd cd cd cd cd cd cd c d
supplies, making products, serving customers, cleaning the premises, advertising, renting a
cd cd cd cd cd cd cd cd c d cd cd
building, repairing equipment, and obtaining insurance coverage.
cd cd cd cd cd cd c d cd
(b) Investing – These activities involve buying and selling productive resources with long livescd cd cd cd cd cd cd cd cd cd c d cd
(such as buildings, land, equipment, and tools), purchasing investments, and lending to
cd cd cd cd cd cd cd cd cd c d c d c d
others.
c d cd
(c) Financing– Anyborrowingfrom banks, repayingbankloans,receiving contributionsfrom cd cd cd cd cd cd cd cd cd c d cd
stockholders,orpayingdividendstostockholdersareconsidered financingactivities.
cd cd cd cd cd cd cd cd c d cd cd
7. The heading of each of the four primary financial statements should include the following:
cd cd cd cd cd cd cd cd cd cd cd cd c d cd
(a) Name of the business cd cd cd cd
(b) Name of the statement cd cd cd cd
(c) Date of the statement, or the period of time that the statement covers
cd cd cd cd cd cd cd cd cd cd cd cd cd
8. (a) The purpose of the balance sheet is to report the financial position (assets, liabilities
c d cd cd cd cd cd cd cd cd cd cd cd cd c d
and stockholders‘ equity) of a business at a point in time.
cd cd cd cd cd cd cd cd cd cd cd cd
(b) The purpose of the income statement is to present information about the
c d c d c d c d c d c d c d c d c d c d c d
revenues, expenses, and net income of a business for a specified period of time.
c d cd cd cd cd cd cd cd cd cd cd cd cd cd cd
(c) The statement of retained earnings reports the way that net income and the
c d c d c d c d c d c d c d c d c d c d c d c d
distribution of dividends affected the financial position of the company during the
c d c d c d c d c d c d c d c d c d c d c d c d
period.
c d cd
(d) The purpose of the statement of cash flows is to summarize how a business‘s
cd cd c d c d c d c d c d cd c d c d c d c d c d
operating, investing, and financing activities caused its cash balance to
c d c d c d c d c d c d c d c d c d c d
change over a particular period of time.
c d c d cd cd cd cd cd cd
9. The income statement, statement of retained earnings, and statement of cash flows would be
cd cd cd cd cd cd cd cd cd cd cd c d cd
dated ―For the Year Ended December 31, 2021,‖ because they report the inflows and
cd cd cd cd cd cd cd cd cd cd cd cd c d cd
outflows of resources over a period of time. In contrast, the balance sheet would be dated
cd cd cd cd cd cd cd cd cd cd cd cd c d cd cd cd
―At December 31, 2021,‖ because it represents the assets, liabilities and stockholders‘
cd cd cd cd cd cd cd cd cd c d cd cd
equity at a specific date.
cd cd cd cd cd cd
10. Net income is the excess of total revenues over total expenses. A net loss occurs if total
cd cd cd cd cd cd cd cd cd cd cd cd cd cd cd c d
expenses exceed total revenues.
cd cd cd cd cd
11. The accounting equation for the balance sheet is: Assets = Liabilities + Stockholders‘ Equity.
cd cd cd cd cd cd cd cd cd cd cd c d cd
Assets are the economic resources controlled by the company. Liabilities are amounts owed
c d cd cd cd cd cd cd cd c d cd c d cd cd cd
by the business. Stockholders‘ equity is the owners‘ claims to the business. It includes amounts
cd cd cd c d cd cd c d cd cd cd cd cd cd cd cd
contributed to the business (by investors through purchasing the company‘s stock) and the
cd cd cd cd c d cd cd cd cd cd cd cd cd
amounts earned and accumulated through profitable business operations.
cd cd c d cd cd cd cd cd cd
Fundamentals of Financial cd cd 1-2
Accounting, 7/e
cd cd
© 2022 by McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
cd cd cd cd cd c d cd cd cd cd cd cd cd cd cd cd cd cd cd cd cd
,12. The equation for the income statement is Revenues – Expenses = Net Income. Revenues are
cd cd cd cd cd cd cd cd cd cd cd cd c d cd
increases in a company‘s resources, arising primarily from its operating activities. Expenses
cd cd cd cd cd cd cd cd cd c d cd c d
are decreases in a company‘s resources, arising primarily from its operating activities. Net
cd cd cd cd cd cd cd c d cd cd cd cd cd
Income is equal to revenues minus expenses. (If expenses are greater than revenues, the
cd cd cd cd cd cd c d c d cd cd cd cd cd cd
company has a Net Loss.)
cd cd cd cd cd cd
13. The equation for the statement of retained earnings is: Beginning Retained Earnings + Net
cd cd cd cd cd cd cd cd cd c d cd c d c d
Income - Dividends = Ending Retained Earnings. It begins with beginning-of-the-year retained
cd cd cd cd cd cd cd cd cd cd c d cd
earnings which is the prior year‘s ending retained earnings reported on the prior year‘s
cd cd cd cd cd cd cd cd c d cd cd cd cd cd
balance sheet. The current year's net income reported on the income statement is added and
cd cd c d cd cd cd cd c d cd cd cd cd cd cd cd
the current year's dividends are subtracted from this amount. (If a net loss occurs, It would be
cd cd cd cd cd c d cd cd cd cd cd cd cd cd cd cd cd
subtracted, along with the dividends, from the prior year‘s ending retained earnings
cd cd cd c d cd cd cd cd cd cd cd cd
balance.)The ending retained earnings amount is reported on the end-of-year balance sheet.
cd cd c d cd cd cd cd cd cd cd cd cd
14. The equation for the statement of cash flows is: Cash flows from operating activities +
cd cd cd c d c d cd cd cd cd cd cd cd cd cd cd cd cd cd
Cash flows from investing activities + Cash flows from financing activities = Change in cash for
c d cd cd cd cd cd cd cd cd cd cd cd cd c d cd cd
the period. Change in cash for the period + Beginning cash balance = Ending cash balance.
cd cd cd cd cd cd cd cd cd cd cd cd cd c d cd cd
The net cash flows for the period represent the increase or decrease in cash that occurred
c d cd cd cd cd cd cd cd cd cd cd c d cd cd cd cd
during the period. Cash flows from operating activities are cash flows directly related to
cd cd cd c d cd cd cd c d cd cd cd cd cd cd
earning income (normal business activity). Cash flows from investing activities include cash
cd cd cd cd cd c d cd cd cd cd cd cd cd
flows that are related to the acquisition or sale of the company‘s long-term assets. Cash flows
cd cd cd cd cd c d cd cd cd cd cd cd cd cd cd cd
from financing activities are directly related to the financing of the company.
cd cd c d cd cd cd cd cd cd cd cd cd cd
15. Currently, the Financial Accounting Standards Board (FASB) is given the primary
cd cd cd cd cd cd cd cd cd cd
responsibility for setting the detailed rules that become Generally Accepted Accounting
c d cd cd cd cd cd cd cd cd cd c d
Principles (GAAP) in the United States. (Internationally, the International Accounting
cd cd cd cd cd cd cd cd c d cd
Standards Board (IASB) has the responsibility for setting accounting rules known as
cd cd cd cd cd cd cd cd c d cd cd cd
International Financial Reporting Standards (IFRS).)
cd cd cd cd cd cd
16. The main goal of accounting rules is to ensure that companies produce useful financial
cd cd cd cd cd cd cd cd cd cd cd cd c d
information for present and potential investors, lenders, and other creditors
cd in making cd cd cd cd cd cd cd cd cd c d cd
decisions in their capacity as capital providers. Financial information must show relevance
cd cd cd cd cd cd cd cd c d cd c d cd cd
and faithful representation, as well as be comparable, verifiable, timely, and understandable.
cd
cd
cd cd cd cd cd cd cd c d cd cd cd
Fundamentals of Financial cd cd 1-3
Accounting, 7/e
cd cd
© 2022 by McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
cd cd cd cd cd c d cd cd cd cd cd cd cd cd cd cd cd cd cd cd cd
, 17. An ethical dilemma is a situation where following one moral principle would result in violating
cd cd cd cd cd cd cd cd cd cd cd cd cd c d
another. Three steps that should be considered when evaluating ethical dilemmas are:
cd cd cd cd cd cd cd cd cd cd c d cd cd
(a) Identify who will benefit from the situation (often, the manager or employee) and how cd cd cd cd cd cd cd cd cd cd cd cd c d
others will be harmed (other employees, the company‘s reputation, owners, creditors, and the
cd cd cd cd cd cd cd cd cd cd c d cd cd
public in general).
cd cd cd cd
(b) Identify the alternative courses of action. cd cd cd cd cd cd
(c) Choose the alternative that is the most ethical – that which you would be proud to have cd cd cd cd cd cd cd cd cd cd cd cd cd cd c d cd
reported in the news media. Often, there is no one right answer and hard choices will need
cd cd cd cd cd c d cd cd cd cd cd cd cd cd c d cd cd
to be made. Following strong ethical practices is a key part of ensuring good financial
cd cd cd cd cd cd cd cd cd cd cd cd c d cd cd
reporting by businesses of all sizes.
cd cd cd cd cd cd cd
18. Accounting frauds and cases involving academic dishonesty are similar in many respects. Both
cd cd cd cd cd cd cd cd cd cd c d cd
involve deceiving others in an attempt to influence their actions or decisions, often resulting in
cd cd cd cd cd cd cd cd cd cd cd c d cd cd cd
temporary personal gain for the deceiver. For example, when an accounting fraud is
cd cd cd cd cd cd cd cd c d cd cd cd cd
committed, financial statement users may be misled into making decisions they wouldn‘t have
cd cd cd cd cd cd cd c d cd cd cd cd cd
made had the fraud not occurred (e.g., creditors might loan money to the company, investors
cd cd cd cd cd cd cd c d cd cd cd cd cd cd cd
might invest in the company, or stockholders might reward top managers with big bonuses).
cd cd cd cd cd c d cd cd cd cd cd cd cd cd
When academic dishonesty is committed, instructors might assign a higher grade than is
cd cd c d cd cd cd cd cd cd cd cd cd cd
warranted by the student‘s individual contribution. Another similarity is that, as a consequence
cd c d cd cd cd cd cd cd cd cd cd cd cd
of the deception, innocent bystanders may be adversely affected by fraud and academic
c d cd cd cd cd cd cd cd cd cd cd cd c d
dishonesty. Fraud may require the company to charge higher prices to customers to cover costs
cd cd cd cd cd cd cd cd cd cd cd c d cd cd cd
incurred as a result of the fraud. Academic dishonesty may lead to stricter grading standards,
cd cd cd cd cd cd cd cd cd cd c d cd cd cd cd cd
with significant deductions taken for inadequate documentation of sources referenced. A
cd cd cd cd cd c d cd cd cd cd c d
final similarity is that if fraud and academic dishonesty are ultimately uncovered, both are
cd cd cd cd cd cd c d cd cd cd cd cd cd cd
likely to lead to adverse long-term consequences for the perpetrator. Fraudsters may be
cd cd cd cd c d cd cd cd cd cd c d cd cd
fined, imprisoned, and encounter an abrupt end to their careers. Students who cheat may
cd c d cd cd cd cd cd cd cd cd cd cd cd cd
be penalized through lower course grades or expulsion, and might find it impossible to
c d cd cd cd cd cd cd cd cd cd cd cd cd c d
obtain academic references for employment applications.
cd cd cd cd cd cd cd
Fundamentals of Financial cd cd 1-4
Accounting, 7/e
cd cd
© 2022 by McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
cd cd cd cd cd c d cd cd cd cd cd cd cd cd cd cd cd cd cd cd cd
Fundamentals of Financial Accounting 7e Phillips cd cd cd cd cd cd
Chapter1-13 withAppendixC&D c
d cd d
c cd
Chapter 1 cd cd
BusinessDecisions andFinancial Accounting
cd cd cd cd
ANSWERS TO QUESTIONS cd cd
1. Accounting is a system of analyzing, recording, and summarizing the results of a
cd cd cd cd cd cd cd cd cd cd cd cd cd
business‘s activities and then reporting them to decision makers. cd cd cd cd cd cd cd cd cd
2. An advantage of operating as a sole proprietorship, rather than a corporation, is that it is easy
cd cd cd cd cd cd cd cd cd cd cd cd cd c d cd cd
to establish. Another advantage is that income from a sole proprietorship is taxed only once in
cd cd cd cd cd cd cd cd cd cd cd cd c d cd cd cd
the hands of the individual proprietor (income from a corporation is taxed in the corporation
cd cd cd cd cd cd cd cd cd cd c d c d c d cd cd cd cd cd
and then again in the hands of the individual shareholder). A disadvantage of operating as a
cd cd cd cd cd cd cd cd cd c d cd cd cd cd cd cd
sole proprietorship, rather than a corporation, is that the individual proprietor can be held
cd cd cd cd cd c d cd cd cd cd cd cd cd cd
responsible for the debts of the business.
cd cd cd cd cd c d cd cd
3. Financial accounting focuses on preparing and using the financial statements that are made
cd cd cd cd cd cd cd cd cd cd c d cd
available to owners and external users such as customers, creditors, and potential investors
cd cd cd cd cd cd cd cd cd cd cd c d cd
who are interested in reading them. Managerial accounting focuses on other accounting
cd cd cd cd cd cd cd cd c d cd cd cd
reports that are not released to the general public, but instead are prepared for internal
cd cd cd cd cd cd cd cd cd cd c d cd cd cd cd
decision making and used by employees, supervisors, and managers who run the company.
cd cd cd cd cd cd c d cd cd cd cd cd cd cd
4. Financial reports are used by both internal and external groups and individuals. The internal
cd cd cd cd cd cd cd cd cd cd cd cd c d
groups are comprised of the various managers of the business. The external groups include
cd cd cd cd cd cd cd cd cd cd cd c d cd cd
investors, creditors, governmental agencies, other interested parties, and the public at large.
cd cd cd cd cd c d cd cd cd cd cd cd cd
5. The business itself, not the individual stockholders who own the business, is viewed as owning the
cd cd cd cd cd cd cd cd cd cd cd cd c d cd cd
assets and owing the liabilities on its balance sheet. A business‘s balance sheet includes the
cd cd cd cd cd cd cd cd cd cd cd c d cd cd cd
assets, liabilities, and stockholders‘ equity of only that business and not the personal assets,
cd cd cd cd cd cd cd cd c d cd cd cd cd cd
liabilities, and equity of the stockholders. The financial statements of a company show the
cd cd cd cd cd cd cd c d cd cd cd cd cd cd
results of the business activities of only that company.
cd cd cd cd cd cd cd c d c d cd cd cd
Fundamentals of Financial cd cd 1-1
Accounting, 7/e
cd cd
© 2022 by McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
cd cd cd cd cd c d cd cd cd cd cd cd cd cd cd cd cd cd cd cd cd
,6. (a) Operating – These activities are directly related to earning profits. They include buying
c d cd cd cd cd cd cd cd cd cd cd cd c d
supplies, making products, serving customers, cleaning the premises, advertising, renting a
cd cd cd cd cd cd cd cd c d cd cd
building, repairing equipment, and obtaining insurance coverage.
cd cd cd cd cd cd c d cd
(b) Investing – These activities involve buying and selling productive resources with long livescd cd cd cd cd cd cd cd cd cd c d cd
(such as buildings, land, equipment, and tools), purchasing investments, and lending to
cd cd cd cd cd cd cd cd cd c d c d c d
others.
c d cd
(c) Financing– Anyborrowingfrom banks, repayingbankloans,receiving contributionsfrom cd cd cd cd cd cd cd cd cd c d cd
stockholders,orpayingdividendstostockholdersareconsidered financingactivities.
cd cd cd cd cd cd cd cd c d cd cd
7. The heading of each of the four primary financial statements should include the following:
cd cd cd cd cd cd cd cd cd cd cd cd c d cd
(a) Name of the business cd cd cd cd
(b) Name of the statement cd cd cd cd
(c) Date of the statement, or the period of time that the statement covers
cd cd cd cd cd cd cd cd cd cd cd cd cd
8. (a) The purpose of the balance sheet is to report the financial position (assets, liabilities
c d cd cd cd cd cd cd cd cd cd cd cd cd c d
and stockholders‘ equity) of a business at a point in time.
cd cd cd cd cd cd cd cd cd cd cd cd
(b) The purpose of the income statement is to present information about the
c d c d c d c d c d c d c d c d c d c d c d
revenues, expenses, and net income of a business for a specified period of time.
c d cd cd cd cd cd cd cd cd cd cd cd cd cd cd
(c) The statement of retained earnings reports the way that net income and the
c d c d c d c d c d c d c d c d c d c d c d c d
distribution of dividends affected the financial position of the company during the
c d c d c d c d c d c d c d c d c d c d c d c d
period.
c d cd
(d) The purpose of the statement of cash flows is to summarize how a business‘s
cd cd c d c d c d c d c d cd c d c d c d c d c d
operating, investing, and financing activities caused its cash balance to
c d c d c d c d c d c d c d c d c d c d
change over a particular period of time.
c d c d cd cd cd cd cd cd
9. The income statement, statement of retained earnings, and statement of cash flows would be
cd cd cd cd cd cd cd cd cd cd cd c d cd
dated ―For the Year Ended December 31, 2021,‖ because they report the inflows and
cd cd cd cd cd cd cd cd cd cd cd cd c d cd
outflows of resources over a period of time. In contrast, the balance sheet would be dated
cd cd cd cd cd cd cd cd cd cd cd cd c d cd cd cd
―At December 31, 2021,‖ because it represents the assets, liabilities and stockholders‘
cd cd cd cd cd cd cd cd cd c d cd cd
equity at a specific date.
cd cd cd cd cd cd
10. Net income is the excess of total revenues over total expenses. A net loss occurs if total
cd cd cd cd cd cd cd cd cd cd cd cd cd cd cd c d
expenses exceed total revenues.
cd cd cd cd cd
11. The accounting equation for the balance sheet is: Assets = Liabilities + Stockholders‘ Equity.
cd cd cd cd cd cd cd cd cd cd cd c d cd
Assets are the economic resources controlled by the company. Liabilities are amounts owed
c d cd cd cd cd cd cd cd c d cd c d cd cd cd
by the business. Stockholders‘ equity is the owners‘ claims to the business. It includes amounts
cd cd cd c d cd cd c d cd cd cd cd cd cd cd cd
contributed to the business (by investors through purchasing the company‘s stock) and the
cd cd cd cd c d cd cd cd cd cd cd cd cd
amounts earned and accumulated through profitable business operations.
cd cd c d cd cd cd cd cd cd
Fundamentals of Financial cd cd 1-2
Accounting, 7/e
cd cd
© 2022 by McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
cd cd cd cd cd c d cd cd cd cd cd cd cd cd cd cd cd cd cd cd cd
,12. The equation for the income statement is Revenues – Expenses = Net Income. Revenues are
cd cd cd cd cd cd cd cd cd cd cd cd c d cd
increases in a company‘s resources, arising primarily from its operating activities. Expenses
cd cd cd cd cd cd cd cd cd c d cd c d
are decreases in a company‘s resources, arising primarily from its operating activities. Net
cd cd cd cd cd cd cd c d cd cd cd cd cd
Income is equal to revenues minus expenses. (If expenses are greater than revenues, the
cd cd cd cd cd cd c d c d cd cd cd cd cd cd
company has a Net Loss.)
cd cd cd cd cd cd
13. The equation for the statement of retained earnings is: Beginning Retained Earnings + Net
cd cd cd cd cd cd cd cd cd c d cd c d c d
Income - Dividends = Ending Retained Earnings. It begins with beginning-of-the-year retained
cd cd cd cd cd cd cd cd cd cd c d cd
earnings which is the prior year‘s ending retained earnings reported on the prior year‘s
cd cd cd cd cd cd cd cd c d cd cd cd cd cd
balance sheet. The current year's net income reported on the income statement is added and
cd cd c d cd cd cd cd c d cd cd cd cd cd cd cd
the current year's dividends are subtracted from this amount. (If a net loss occurs, It would be
cd cd cd cd cd c d cd cd cd cd cd cd cd cd cd cd cd
subtracted, along with the dividends, from the prior year‘s ending retained earnings
cd cd cd c d cd cd cd cd cd cd cd cd
balance.)The ending retained earnings amount is reported on the end-of-year balance sheet.
cd cd c d cd cd cd cd cd cd cd cd cd
14. The equation for the statement of cash flows is: Cash flows from operating activities +
cd cd cd c d c d cd cd cd cd cd cd cd cd cd cd cd cd cd
Cash flows from investing activities + Cash flows from financing activities = Change in cash for
c d cd cd cd cd cd cd cd cd cd cd cd cd c d cd cd
the period. Change in cash for the period + Beginning cash balance = Ending cash balance.
cd cd cd cd cd cd cd cd cd cd cd cd cd c d cd cd
The net cash flows for the period represent the increase or decrease in cash that occurred
c d cd cd cd cd cd cd cd cd cd cd c d cd cd cd cd
during the period. Cash flows from operating activities are cash flows directly related to
cd cd cd c d cd cd cd c d cd cd cd cd cd cd
earning income (normal business activity). Cash flows from investing activities include cash
cd cd cd cd cd c d cd cd cd cd cd cd cd
flows that are related to the acquisition or sale of the company‘s long-term assets. Cash flows
cd cd cd cd cd c d cd cd cd cd cd cd cd cd cd cd
from financing activities are directly related to the financing of the company.
cd cd c d cd cd cd cd cd cd cd cd cd cd
15. Currently, the Financial Accounting Standards Board (FASB) is given the primary
cd cd cd cd cd cd cd cd cd cd
responsibility for setting the detailed rules that become Generally Accepted Accounting
c d cd cd cd cd cd cd cd cd cd c d
Principles (GAAP) in the United States. (Internationally, the International Accounting
cd cd cd cd cd cd cd cd c d cd
Standards Board (IASB) has the responsibility for setting accounting rules known as
cd cd cd cd cd cd cd cd c d cd cd cd
International Financial Reporting Standards (IFRS).)
cd cd cd cd cd cd
16. The main goal of accounting rules is to ensure that companies produce useful financial
cd cd cd cd cd cd cd cd cd cd cd cd c d
information for present and potential investors, lenders, and other creditors
cd in making cd cd cd cd cd cd cd cd cd c d cd
decisions in their capacity as capital providers. Financial information must show relevance
cd cd cd cd cd cd cd cd c d cd c d cd cd
and faithful representation, as well as be comparable, verifiable, timely, and understandable.
cd
cd
cd cd cd cd cd cd cd c d cd cd cd
Fundamentals of Financial cd cd 1-3
Accounting, 7/e
cd cd
© 2022 by McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
cd cd cd cd cd c d cd cd cd cd cd cd cd cd cd cd cd cd cd cd cd
, 17. An ethical dilemma is a situation where following one moral principle would result in violating
cd cd cd cd cd cd cd cd cd cd cd cd cd c d
another. Three steps that should be considered when evaluating ethical dilemmas are:
cd cd cd cd cd cd cd cd cd cd c d cd cd
(a) Identify who will benefit from the situation (often, the manager or employee) and how cd cd cd cd cd cd cd cd cd cd cd cd c d
others will be harmed (other employees, the company‘s reputation, owners, creditors, and the
cd cd cd cd cd cd cd cd cd cd c d cd cd
public in general).
cd cd cd cd
(b) Identify the alternative courses of action. cd cd cd cd cd cd
(c) Choose the alternative that is the most ethical – that which you would be proud to have cd cd cd cd cd cd cd cd cd cd cd cd cd cd c d cd
reported in the news media. Often, there is no one right answer and hard choices will need
cd cd cd cd cd c d cd cd cd cd cd cd cd cd c d cd cd
to be made. Following strong ethical practices is a key part of ensuring good financial
cd cd cd cd cd cd cd cd cd cd cd cd c d cd cd
reporting by businesses of all sizes.
cd cd cd cd cd cd cd
18. Accounting frauds and cases involving academic dishonesty are similar in many respects. Both
cd cd cd cd cd cd cd cd cd cd c d cd
involve deceiving others in an attempt to influence their actions or decisions, often resulting in
cd cd cd cd cd cd cd cd cd cd cd c d cd cd cd
temporary personal gain for the deceiver. For example, when an accounting fraud is
cd cd cd cd cd cd cd cd c d cd cd cd cd
committed, financial statement users may be misled into making decisions they wouldn‘t have
cd cd cd cd cd cd cd c d cd cd cd cd cd
made had the fraud not occurred (e.g., creditors might loan money to the company, investors
cd cd cd cd cd cd cd c d cd cd cd cd cd cd cd
might invest in the company, or stockholders might reward top managers with big bonuses).
cd cd cd cd cd c d cd cd cd cd cd cd cd cd
When academic dishonesty is committed, instructors might assign a higher grade than is
cd cd c d cd cd cd cd cd cd cd cd cd cd
warranted by the student‘s individual contribution. Another similarity is that, as a consequence
cd c d cd cd cd cd cd cd cd cd cd cd cd
of the deception, innocent bystanders may be adversely affected by fraud and academic
c d cd cd cd cd cd cd cd cd cd cd cd c d
dishonesty. Fraud may require the company to charge higher prices to customers to cover costs
cd cd cd cd cd cd cd cd cd cd cd c d cd cd cd
incurred as a result of the fraud. Academic dishonesty may lead to stricter grading standards,
cd cd cd cd cd cd cd cd cd cd c d cd cd cd cd cd
with significant deductions taken for inadequate documentation of sources referenced. A
cd cd cd cd cd c d cd cd cd cd c d
final similarity is that if fraud and academic dishonesty are ultimately uncovered, both are
cd cd cd cd cd cd c d cd cd cd cd cd cd cd
likely to lead to adverse long-term consequences for the perpetrator. Fraudsters may be
cd cd cd cd c d cd cd cd cd cd c d cd cd
fined, imprisoned, and encounter an abrupt end to their careers. Students who cheat may
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Accounting, 7/e
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